Analyze value capture opportunities in the "Going RWA Hurdles" process with BG Trade
This article will take the Dubai RWA project BG Trade, which we are focusing on for its positive layout in the Hong Kong market, as an example to analyze how to capture value in the context of the intersection of "DeFi and TradFi" and the integration of "technology and regulation."Produced by: ThePrimediaDAO
Authors: Jerry@TPDAO, 0xGeorge
The STO (Security Token Offering) practices around 2018 failed due to a lack of favorable conditions—uniform regulations in some regions and unclear regulations in many others, as well as the insufficient liquidity in the crypto market, including DeFi. In the previous cycle, synthetic assets (a form of RWA) made a small attempt in the DeFi ecosystem, but due to the deflation of the DeFi narrative, RWA also failed to flourish.
After two cycles of refinement, RWA is becoming the most mainstream narrative in the new cycle of the crypto world. We can understand the value logic of RWA becoming a major crypto narrative as follows: how builders in the crypto world find opportunities to integrate with the DeFi narrative while dismantling the barriers to RWA development, thereby achieving their own value capture.
This article will take the Dubai RWA project BG Trade, which we are actively focusing on in the Hong Kong market, as an example to analyze how to capture value in the context of "the intersection of DeFi and TradFi" meeting "the integration of technology and regulation."
Value Opportunities in the Integration Process
Blockchain technology is changing TradFi (traditional finance) at its core.
For sovereign governments, especially many small and medium-sized countries without sovereign currencies, and countries in Southeast Asia, the Middle East, and Latin America that have a consensus on cross-border trade currencies, blockchain technology is willing to help them skip the paths taken by the U.S. and China in building digital economic infrastructure, directly jumping into the 3.0 era. This is the macro background of the sovereign world’s financial active integration into the crypto economy, and thus we judge that the main stage of the crypto narrative in the integration process is in the Asia-Pacific region, a topic we will discuss in detail later.
For institutional players, the programmability of blockchain allows on-chain assets to be easily split, combined, and transformed into new asset types, enabling options, futures, and more complex structured financial transactions; derivative assets created by smart contracts have their underlying rights guaranteed by code, saving a significant amount of labor and process costs—this is important and will drive many traditional financial institutions to actively integrate.
For the market side, investors can trace their underlying assets and trade based on a full understanding of the risks associated with those assets—tokenization of assets and securitization of assets have similarities, and the operation of asset securitization has a long history in traditional finance. Common asset securitization products include MBS (Mortgage-Backed Securities) and ABS (Asset-Backed Securities), where the former is backed by mortgages and the latter by credit card loans and auto loans. MBS and ABS are essentially financial derivatives packaged from mortgage loans. By selling MBS and ABS, banks can earn interest income while completely transferring the risk. After the success of MBS and ABS, more complex financial products were created, such as CDOs (Collateralized Debt Obligations), which are repackaged and resold, often leaving investors unclear about the underlying assets, with only various selling points from securities salespeople remaining.
From these three dimensions, the intersection of DeFi and TradFi lies in RWA (Real World Asset tokenization). Therefore, DeFi is an advanced form of the financial system, and an increasing number of real-world assets (with a total market size in the hundreds of trillions of dollars) will be integrated into the crypto market in the form of RWA; traditional financial capital market asset holders will increasingly wish to hold and trade assets in the form of RWA. So, how to implement this concretely? We will introduce BG Trade, a dark horse in RWA that is actively embracing the Hong Kong market.
In a previous interview, BG Trade CEO Nauman Ali explained the reason for BG Trade's debut in the Dubai market: "I have always believed that to make progress in life or business, you must be in an environment that fosters progress and success. Dubai welcomes technologies that change the future. Our vision is to leverage Web3 technology to integrate multi-dimensional asset investments on a single platform, providing efficient connection opportunities for heterogeneous assets such as stocks, bonds, commodities, and cryptocurrencies, and offering users RWA (Real World Asset) asset allocation solutions."
In their plan, BG Trade will act as a bridge connecting the traditional stock market and the cryptocurrency world. In the future, we are committed to creating a currency-stock ecosystem that breaks down the barriers between the currency circle and the stock market. For currency holders, they can obtain shares of listed companies by purchasing tokens; for listed companies, they can tokenize their stocks, allowing users outside their listed exchange regions to conveniently purchase asset allocations, achieving cross-regional, cross-field, and more free and efficient asset allocation channels.
With the new policies in Hong Kong, BG Trade has already laid out its plans there—BG Trade will establish a bridge connecting the traditional stock market and the crypto world from Hong Kong, allowing global stock assets to circulate across regions. For listed companies, BG Trade will enable their stocks to reach a broader range of investors, and for investors, BG Trade will facilitate efficient asset allocation on a global scale.
We believe that BG Trade's narrative organically combines with Hong Kong's global crypto center, creating a mutually empowering effect—driven by the new crypto policies in Hong Kong, the on-chain listing of Hong Kong stocks is an inevitable trend. BG Trade aims to create an on-chain "Hong Kong Stock Exchange." Currently, the total value of Hong Kong stocks is approximately $4 trillion, and BG Trade will start as a project with at least a $10 billion TVL (Total Value Locked). BG Trade will launch from Hong Kong and gradually expand to regions such as South Korea, Vietnam, and the UAE, ultimately encompassing all major stock markets globally.
In the broader context of value opportunities in the integration process, BG Trade is committed to achieving the integration of traditional finance and cryptocurrencies, breaking the limitations of traditional finance (TradFi) and utilizing DeFi mechanisms to provide a more free and efficient asset allocation method:
Decentralized Asset Valuation and Pricing: Introduce a decentralized asset valuation and pricing mechanism to provide transparent, fair, and accurate pricing for digital assets. By adopting multiple data sources and algorithmic models, ensure that asset pricing matches market supply and demand, providing reasonable trading references.
Decentralized Fiat Trading: Introduce decentralized fiat trading functionality, allowing users to trade fiat and digital assets directly on the platform. Through smart contracts and multi-party trust mechanisms, ensure the security and reliability of transactions, and provide fast transaction settlement and clearing services.
Decentralized Trading Pair Creation: Allow the creation of custom decentralized trading pairs to meet the specific trading needs of different users, facilitating the trading of more assets.
Decentralized Order Book: Establish a decentralized order book to record user orders and delegations, providing a fairer and more transparent trading environment. Users can view real-time order books and market depth and make trading decisions based on them.
Decentralized Lending: Provide decentralized lending functionality, allowing users to borrow digital assets on the platform and earn interest income. The lending process is implemented through smart contracts, ensuring security and transparency.
Decentralized Derivatives Trading: Support decentralized derivatives trading, such as spot leverage and perpetual contracts, providing users with more investment and arbitrage opportunities.
The Value Logic of "Removing RWA Barriers"
In "Decoding RWA: The Most Valuable Wealth Code in a Compliance Context," we introduced that RWA, initially existing as the concept of synthetic assets, is not a new thing for the DeFi world, and explored why it could not unleash its energy in the previous cycle. This is due to both the phased development constraints of DeFi itself and external factors such as infrastructure and regulation.
However, the situation is changing. Regulatory policies in some jurisdictions are attempting to become compatible with the crypto industry, and foundational infrastructures favorable to RWA development, such as token standards, DID technology, and cross-chain technology, are becoming increasingly refined, with RWA breaking through critical points.
- Regulation
Compared to on-chain native assets, RWA has an unavoidable centralized aspect, which is the custody of off-chain assets. If off-chain assets are lost, damaged, or stolen, then the on-chain RWA tokens will become worthless. Additionally, lending-type protocols also involve the operation of liquidating off-chain entities' assets, which cannot be executed by on-chain contract programs and must rely on off-chain legal procedures.
In an era lacking regulation, DeFi can experience a period of wild growth, but to achieve large-scale on-chain asset integration, regulatory support is essential. The process of asset integration onto the blockchain must be recognized by regulators to receive legal protection, minimizing the moral hazard of custodians.
Looking at the current trend of regulatory policy changes, governments worldwide are formulating strict yet clear regulatory policies to standardize the asset integration process, which is a significant boon for the development of RWA. Understanding this part can refer to the earlier introduction of why BG Trade debuted in Dubai and shifted its focus to the Hong Kong stock market amid the new policies. This is also why we judge that the main stage of the crypto narrative in the integration process is in the Asia-Pacific region under the global regulatory context.
- Token Standards
FT (Fungible Token) and NFT (Non-Fungible Token) are the most basic token standards, represented by ERC20 and ERC721, respectively. However, token standards are continuously evolving, giving rise to more derivative standards that can now reflect almost everything and relationships in reality.
Holding BGT will provide opportunities for airdrops of RWA tokens for listed company stocks. After staking BGT tokens, users can not only receive rewards from the share pool but also obtain veBGT tokens, which have governance rights. Governance privileges empower token holders to participate in important decision-making processes, shaping the future of the BG Trade ecosystem. This democratic approach ensures that the community has a voice in the platform's development. This governance method is derived from the Curve protocol and has proven to be a sustainable and effective token governance method. This closely relates to the DID technology to be introduced below.
- DID
How government regulation and traditional finance integrate with the crypto world raises many concerns about foundational values such as security, privacy, and trust. Through DID technology, a state of compatibility between crypto and regulation may be formed, achieving regulatory compliance in public while protecting user privacy, emerging as a self-sovereign option for crypto users, and enabling on-chain rights confirmation and transaction services.
One of the highlights of BG Trade is this: BG Trade will grant $BGT holders an exclusive DID identity based on the Web3 DID standard, and combine it with zero-knowledge proof technology and Alibaba Cloud's EKYC, effectively protecting user privacy while achieving compliance and regulatory friendliness. This DID will also serve as a carrier of users' on-chain credit, with the potential for future scenarios such as unsecured loans.
The BGT token acts as a ticket for zkDID, empowering users with self-sovereign identity management capabilities while ensuring the security and privacy of data management. BG Trade utilizes zkDID technology to enable users to achieve complete self-custody without disclosing personal information to third parties. This feature ensures privacy and data security, enhancing user experience.
- Layer 2 and Cross-Chain Underlying Technologies
With the Ethereum merge and advancements in L2, the efficiency of public chains has improved significantly compared to the previous DeFi cycle. Cross-chain and any message bridges have become important infrastructures, allowing any application to build its messaging channels based on any message bridge, transforming single-chain dApps into multi-chain dApps; this includes foundational elements like DID mentioned above, which have made significant progress in confirming and interconnecting rights and assets.
BG Trade is initially built on Polygon and Arbitrum, gradually expanding to more EVM chains and achieving full-chain deployment in the future, fully integrating through cross-chain infrastructure. BG Trade is building multi-chain support based on blockchain: supporting multiple blockchain networks such as Ethereum, Arbitrum, and Polygon to provide cross-chain asset exchanges—users can manage and transfer assets between different blockchain networks, and the platform can support multiple blockchain networks, providing cross-chain bridging technology to enable seamless transfer and exchange of assets across different blockchain networks, enhancing asset liquidity and flexibility. BG Trade also supports cross-platform trading access—supporting integration and cooperation with other decentralized exchanges and centralized exchanges, providing a broader trading market and liquidity.
Conclusion
The timing of all this is just right—"the intersection of DeFi and TradFi" meets "the integration of technology and regulation," and the barriers hindering RWA development are disappearing. With major countries/regions actively promoting regulation and compliance in the crypto economy and driving the development of Web3 technology to empower real-world industries, especially financial markets, the trillion-dollar RWA track is about to explode, and the tens of trillions or even hundreds of trillions of RWA market will continuously realize incremental releases in sync with the construction of the Web3 application ecosystem in the coming crypto cycles.
