Tokenizing Real-World Assets: Dragon Capital Proposes Pilot with ETFs

The number of digital asset accounts in Vietnam has already surpassed that of securities accounts, despite the absence of a formal market.

According to statistics, the number of digital asset accounts in Vietnam surged from 2.06 million in 2019 to over 20 million by the end of 2024. In contrast, securities accounts, as reported by the Vietnam Securities Depository (VSDC), reached over 9 million by the end of 2024 and now exceed 10 million after 25 years of establishment.

These impressive figures place Vietnam among the global leaders in digital asset adoption. They also testify to the shift towards digital asset investment among Vietnamese, even though this channel was not officially recognized in the past years (before the enactment of the Digital Technology Industry Law).

Given the high acceptance of digital assets by individual investors in Vietnam, the potential for bringing real-world assets (RWAs) onto the Blockchain through tokenization is immense. This opens up opportunities for individual investors to participate in the regulated capital market.

Tokenizing real-world assets means transferring these assets onto a Blockchain, transforming them into a new form of digital asset with a foundation linked to real-world finance. This tokenized asset can combine the accessibility of individual investors with regulated financial products from the traditional financial system, creating a unique blend of innovation and safety.

With the National Assembly’s official adoption of the Digital Technology Industry Law, which recognizes the legality of digital assets, Dragon Capital has proposed a pilot project for tokenizing ETFs (Exchange Traded Funds) as they are already familiar to many individual investors. This approach aims to bridge the gap between traditional investment and digital asset technology, providing an opportunity to enhance individual investor participation in the capital market while promoting financial inclusion.

According to Dragon Capital, focusing on tokenizing ETFs – a well-established financial product – can bring several benefits to individual investors in Vietnam:

+ Lower Investment Threshold: Tokenization allows ownership of a fraction of an ETF, enabling investors to purchase tokens representing a portion of the fund. This reduces barriers to entry, making investment more accessible with smaller capital.

+ Enhanced Liquidity: Tokenized ETFs can be traded on secondary markets, similar to cryptocurrencies, offering higher liquidity than traditional ETFs. This facilitates easier entry and exit for individual investors.

+ Improved Accessibility: The digital nature of tokenized ETFs simplifies the trading process, especially for those familiar with digital assets, encouraging participation in the investment market.

+ Diversification Opportunities: ETFs are known for providing diverse investment portfolios. Tokenization can further enhance these opportunities, allowing individual investors to diversify their portfolios with smaller amounts.

+ Transparency and Security: Blockchain technology ensures transparency and security for transactions. All transactions are recorded on the Blockchain, providing an immutable audit trail.

+ Reduced Costs and Fees: Tokenization can simplify the process of buying and selling ETFs, leading to lower transaction costs and management fees, benefiting individual investors.

+ Real-time Trading: Unlike traditional ETFs, which are traded at the end of the day based on net asset value, tokenized ETFs can be traded in real-time, offering flexibility and immediate response to market fluctuations.

Overall, Dragon Capital assesses that tokenized ETFs provide a novel and efficient way for individual investors in Vietnam to participate in the investment market, combining the benefits of traditional ETFs with the innovative features of Blockchain technology.

While tokenized fund products must comply with the regulations of the traditional financial market, such as Know Your Customer (KYC) and Anti-Money Laundering (AML) requirements, they still have the potential to reach investors who have never participated in the traditional capital market. The appeal of tokenized funds lies in their ability to bridge the gap between the innovation of digital assets and the legal framework of traditional finance.

With their accessibility and flexibility, these products can attract digitally savvy individuals seeking alternative investment opportunities to traditional offerings. This could lead to the participation of a larger and more diverse group of investors, contributing to the depth and strength of the financial market.

Dragon Capital believes that tokenizing funds is not a way to circumvent regulations but rather provides regulatory authorities with opportunities to better protect investors, enforce taxation, and control capital more effectively. By harnessing the potential of Blockchain technology within a legal framework, tokenized funds can enhance transparency, safety, and efficiency in financial markets.