Lessons Learned from the Thai RWA Market
Insights from Thailand's Destiny Token
TL;DR
The potential of the real-world asset tokenization (RWA) market: The tokenization of real-world assets has great potential for unlocking the value of assets that have not yet been financialized.
Thailand's RWA market status and challenges: Thailand has tested the feasibility of tokenized financing with the "Destiny Token" project, but the RWA market is still in its infancy.
The future of the RWA market: The RWA market has the potential to provide a stable alternative investment opportunity for institutional investors and a range of benefits and utilities beyond investment returns for retail investors, but it must overcome some hurdles.
The early interest in the RWA market
Many experts believe that one of the key topics that will drive the future of the crypto market is the tokenization of real-world assets (RWA). The RWA market is closely linked to financial innovation, which is the fundamental purpose of blockchain technology. This is especially the case in the process of transforming non-financialized assets into valuable financial instruments. Tokenization of various assets such as paintings and real estate is underway. There have also been noteworthy technological advancements, with the Solana Foundation recently announcing an expansion of the Solana Program Library (SPL) for the RWA market.
Nevertheless, the RWA market is still in its infancy, with the tokenization of traditional assets such as US treasuries dominating the market to date. While various tokenized products have been developed since the market became active, it is difficult to get a clear picture of how many of these products have actually been sold and what their limitations are. In this context, the case of Thailand, which successfully carried out token-based financing in 2022 and completed an early redemption the following year in 2023, provides important insights that we should pay attention to as we look forward to the RWA market.
Thailand's open ICO environment
As mentioned in our previous report, the Thai government took a leading position in the market by becoming the first in Asia to enact a cryptocurrency bill and allow ICOs in May 2018. In November 2023, the government further categorized ICOs to create a transparent and safe market. The new regulations are mainly for Debt-Like ICOs and Infrastructure-Backed ICOs, detailing the screening and disclosure requirements depending on the nature of the product.
On an industrial level, commercial banks were allowed to set up subsidiaries to operate cryptocurrency brokerage businesses. In 2022, financial institutions were prohibited from investing more than 3% of their capital in the cryptocurrency market. This is interpreted as allowing commercial banks to help revitalize the market, but also stabilizing the nascent market by setting limits.
Thailand's first token-based funding "Destiny Token"
Source: Kubix
The "Destiny Token" project in Thailand attracted a lot of attention as the first financing case utilizing tokens. The project was designed to raise funds for the production of the movie "Love Destiny The Movie" by GDH 559 Co., Ltd. a subsidiary of Thailand's largest general entertainment company GGM Grammy. The offering was conducted in the first half of 2022 by Kubix, a subsidiary of Kasikornbank.
The project raised a total of BAHT 265.23M (USD 7.96M). Early redemption completed in 2023, allowing investors to earn a base rate of return of 2.99% for up to two years of investment, plus a bonus rate of return of 2.01% based on successful project performance. In addition to the investment terms, investors were recognized for their contribution to the film's success by being named in the film's end credits and received additional benefits such as participation in special events and invitations to the film's premiere.
The deposit rate in Thailand is around 0.51%, so investors were able to earn relatively high returns. This shows the project seems to have been successful in terms of funding. However, it has already been a year since the early redemption of the "Destiny Token" project in Thailand, and there have been no other cases of tokenized financing. This is because the RWA market is still in its infancy.
The market still in its infancy
1. Challenging requirements for retail investors
The first inconvenience is the KYC identification process. Currently, Kubix requires three private information to sign up: 1) ID card information, including the number on the back of the card, 2) bank account information, and 3) NDID (National Digital ID) registration and verification. All the information needs to be filled out or verified during the signup process. This is not exclusive to Thailand. Sign-up processes are complicated, as participants have to fill out forms with a specific message and take photos for verification.
Also, for investment sizes more than 300K BAHT (8.4K USD), one must be registered as a special large investor, which means one of the criteria listed below must be met. Similarly restrictive criteria can also be found in other countries.
A yearly income exceeding 6M BAHT(169K USD).
At least 30M BAHT (845K USD) in securities investments, including deposits worth more than 15M BAHT (422K USD).
A net worth exceeding 60M BAHT(1.7M USD). Home value not included.
2. Evaluation process
Based on our conversations with Kubix, the main reasons for the delay in launching new projects are 1) convincing asset holders and 2) the time-consuming regulatory evaluation process. Despite the existence of already secure and successful projects like "Destiny Token", convincing new asset holders to participate in tokenization projects seems to take a lot of time and effort in an early-stage market
Furthermore, the ICO legislation was amended in November 2023. This resulted in a refinement of the product classification and additional documentation requirements for review. These changes made the project's review process more complex and time-consuming. Although Kubix plans to launch new products in the future, these factors are expected to delay the project's launch.
What we need to know about the RWA market
1. Good fit with institutional investors who values stability
First of all, the product yields are not attractive to crypto investors. With major crypto exchanges like Binance and OKX offering up to 10% APR for staking, a maximum of 5% APR on projects such as "Destiny Token" is relatively low. For retail investors who are not familiar with crypto, these rates are likely to feel a bit underwhelming, and the restrictive sales terms and complicated verification process can be an additional hurdle.
For institutional investors, the situation may be different. While retail investors may consider Binance and OKX to be safe, unexpected events like FTX show that depositing funds on global exchanges is fraught with risk. Alternatives like projects such as "Destiny Token" can be a good choice for institutions, as deposits in exchanges do not provide funding efficiency.
Also, targeting a small number of institutional investors can reduce customer support (CS) costs, which can be significant considering the complicated signup process. This leads to greater efficiency in project operations and lower administrative costs.
2. More diverse token benefits for retail investors
When targeting individual investors, it is worth noting that the "Destiny Token" offered various benefits (utilities) to its holders. For example, the "HAPPYDAY TOKEN" allows the investor and one guest to attend certain events, where they can have lunch, take commemorative photos, and watch a movie. These utilities provide an attractive added value for movie fans and create a unique experience that goes beyond a simple investment. Therefore, products that target various tastes and interests can be an attractive option for retail investors as well, and these utilities deserve closer consideration.
Conclusion
The RWA market, and in particular the "Destiny Token" project in Thailand, has been an important example of both the possibilities and limitations of tokenizing real-world assets. The RWA market is still in its infancy and faces many challenges. Innovative projects like "Destiny Token" are testing the possibilities and potential of new markets, identifying improvements, and providing important insights for various stakeholders.
The RWA market is expected to develop in a way that provides institutional investors with a stable alternative investment opportunity and retail investors with a range of benefits and utilities beyond investment returns. Of course, there are obstacles such as limited product offerings, complex qualification processes, and regulatory review times, which will continue to require coordination between regulators and new services that prioritize investor protection. Hopefully the challenges and successes of Thailand's RWA market regulation and sub-project "Destiny Token" will provide valuable lessons for subsequent projects.
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