SQMU in Hong Kong: Aligning Open‑Source Tokenisation with SFC Guidance

Introduction

Hong Kong has emerged as a leading jurisdiction for the tokenisation of real‑world assets, underpinned by a clear, principles‑based regulatory framework. At the heart of this framework is the Securities and Futures Commission (SFC), which has provided comprehensive guidance on tokenised securities‑related activities and the tokenisation of investment products. The SFC’s approach is grounded in a “see‑through” philosophy: tokenised financial products are fundamentally traditional financial products with a tokenisation wrapper, and the existing legal and regulatory requirements governing traditional securities markets apply equally to tokenised products. This provides regulatory certainty for market participants while maintaining robust investor protections.

For real estate tokenisation, this means that any token representing an ownership interest in property or a right to rental income will generally be treated as a security under the Securities and Futures Ordinance (Cap. 571) (SFO). The issuer must therefore comply with the SFO’s prospectus and licensing requirements, unless an exemption applies. Additionally, the use of stablecoins for payments or distributions is now regulated under the Stablecoins Ordinance (Cap. 656), which establishes a licensing regime for fiat‑referenced stablecoin issuers.

The open‑source SQMU protocol, where 1 token equals 1 verified square metre, is designed to align with Hong Kong’s regulatory expectations. Built on ERC‑1155 smart contracts, the SQMU standard provides determinism, transparency, and auditability—qualities that the SFC expects of tokenisation arrangements. This article explores how the SQMU protocol can be implemented in compliance with SFC guidance, covering legal structuring, technical design, and ongoing obligations. For a detailed regulatory analysis of tokenised real estate in Hong Kong, refer to our comprehensive guide. For technical deployment, see the open‑source SQMU implementation.

Hong Kong’s Regulatory Framework for Tokenised Real Estate

Hong Kong’s approach to digital assets is built on the principle of “same business, same risks, same rules”. The SFC has confirmed that tokenised securities are “fundamentally traditional securities with a tokenisation wrapper” and that the existing legal and regulatory requirements for traditional securities and investment products apply to tokenised securities.

1. Securities and Futures Ordinance (Cap. 571)

The SFO is the primary legislation governing securities and futures markets in Hong Kong. Under the SFO, a token that confers an ownership interest in real estate or a right to rental income is likely to fall within the definition of a “security”. Key regulatory pillars include:

Prospectus requirements: Any offer of tokenised securities to the public in Hong Kong must be authorised by the SFC or accompanied by a compliant prospectus under the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32). If an offer is not authorised by the SFC or does not come with a compliant prospectus, it can only be made to professional investors or pursuant to applicable exemptions from the prospectus requirement.
Licensing obligations: Any person carrying on a business in dealing in tokenised securities, advising on them, or managing a fund investing in them may need to hold the appropriate SFC licence (e.g., Type 1 (dealing in securities), Type 4 (advising on securities), or Type 9 (asset management)).
AML/CFT compliance: Licensed intermediaries must implement robust anti‑money laundering and counter‑financing‑of‑terrorism (AML/CFT) programmes, including customer due diligence, transaction monitoring, and suspicious transaction reporting.

2. Stablecoins Ordinance (Cap. 656)

The Stablecoins Ordinance came into effect on 1 August 2025, establishing a formal licensing regime for fiat‑referenced stablecoin issuers. The ordinance is intended to strengthen market integrity, investor protection, and responsible innovation. Under the ordinance:

Stablecoin issuers must obtain a licence from the Hong Kong Monetary Authority (HKMA).
Licensed stablecoins are subject to reserve, capital, and disclosure requirements.
Stablecoins issued by licensed issuers are not subject to the 12‑month track record requirement that applies to other virtual assets for retail offerings.

For r3nt by SQMU, this means that if rental payments or investor distributions are made using a stablecoin, that stablecoin should ideally be issued by an HKMA‑licensed issuer to ensure regulatory alignment.

3. Land Registration Ordinance (Cap. 128) and Land Titles Ordinance (Cap. 585)

Hong Kong’s land registration system currently operates under the Land Registration Ordinance (Cap. 128), which is a deeds‑registration system. This system does not support direct digital or fractional title registration. A new Land Titles Ordinance (Cap. 585) has been enacted and is expected to be implemented on a “new land first” basis starting in 2027. The new system will provide a conclusive title register, potentially enabling direct digital registration of tokenised interests in the future.

For now, tokenised real estate in Hong Kong must be structured using a legal vehicle that holds the property title (e.g., a special purpose vehicle or a limited partnership fund) and issues tokens representing shares or beneficial interests in that vehicle. This is consistent with the approach taken in Hong Kong’s first real estate RWA project, which involved the tokenisation of a limited partnership fund holding an interest in a commercial building.

Key SFC Guidance for Tokenised Securities

The SFC has issued several circulars that provide direct guidance for tokenised securities activities. These circulars supersede the earlier 2019 Statement on Security Token Offerings and reflect a more mature, nuanced understanding of tokenisation technology.

The November 2023 Circulars

On 2 November 2023, the SFC issued two landmark circulars:

Circular on intermediaries engaging in tokenised securities‑related activities (Ref. No. 23EC52): This circular provides conduct‑related guidance to intermediaries engaged in tokenisation of securities‑related activities. It focuses on helping intermediaries address and manage the new risks arising from the use of tokenisation technology, so that the tokenisation marketplace can be developed in a healthy, responsible and sustainable manner.
Circular on tokenisation of SFC‑authorised investment products (Ref. No. 23EC53) : This circular sets out the requirements under which the SFC would consider allowing tokenisation of investment products authorised by the SFC for offering to the public in Hong Kong.

Key requirements from these circulars include:

Product provider responsibility: Product providers remain ultimately responsible for the management and operational soundness of the tokenisation arrangement, regardless of any outsourcing.
Record keeping: Proper records of token holders’ ownership interests must be maintained, and tokenised products should not be issued in bearer form.
Due diligence: Intermediaries must conduct due diligence on issuers, the products to be tokenised, the technology aspects of tokenisation, the features and risks arising from the tokenisation arrangement, and third‑party service providers.
Risk management: Appropriate measures must be in place to manage cybersecurity risks, data privacy, system outages and recovery, and a comprehensive and robust business continuity plan must be maintained.
Custody: Appropriate custodial arrangements must be in place that address the features and risks of the tokenised products.
Blockchain selection: Product providers should not use public‑permissionless blockchain networks without additional and proper controls (e.g., by using a permissioned token).
Disclosure: Adequate disclosure must be made regarding the tokenisation arrangement, including whether off‑chain and/or on‑chain settlement is final, limitations imposed on token transfers, whether a smart contract audit has been conducted, the legal and beneficial title of the tokens, and potential challenges in the application of existing laws.

The November 2025 Expansion Circular

On 3 November 2025, the SFC issued a Circular on expansion of products and services of virtual asset trading platforms (Ref. No. 25EC57) , which broadens the range of products that SFC‑licensed virtual asset trading platforms (VATPs) can offer. Key changes include:

Removal of 12‑month track record requirement: The SFC no longer requires virtual assets (including stablecoins) to have a 12‑month track record before a VATP offers them to professional investors.
Stablecoins from licensed issuers: Stablecoins issued by an HKMA‑licensed stablecoin issuer are not subject to the 12‑month track record requirement and can be offered to retail investors.
Distribution of tokenised securities: VATPs are now explicitly permitted to distribute tokenised securities in accordance with existing laws, codes, guidelines and regulations.

Secondary Trading for Retail Investors (Under Consideration)

In February 2026, the SFC announced that it is considering allowing licensed VATPs to provide secondary trading services for tokenised securities to retail clients. The authorities are studying the relevant requirements, operational risks, and control measures, and are drafting a related circular. Currently, Hong Kong retail investors can only subscribe to and redeem tokenised funds in the primary market. This potential expansion would significantly enhance liquidity for tokenised real estate investments.

How SQMU Aligns with SFC Guidance

The SQMU protocol is designed with transparency, auditability, and compliance as core principles. The following table maps SFC requirements to SQMU’s features:

SFC Requirement	How SQMU Addresses It
Product provider responsibility	The SQMU open‑source contracts are deployed by the product provider (e.g., the SPV or fund manager), who retains ultimate responsibility. All code is publicly auditable.
Record keeping of token holders	The ERC‑1155 smart contract maintains an immutable, on‑chain record of token holders and their balances. No bearer tokens are issued.
Due diligence on technology	SQMU contracts are open source, auditable, and have been tested on multiple EVM chains. Providers can commission independent audits.
Cybersecurity and business continuity	SQMU contracts are immutable and can be deployed with upgradeable proxy patterns. Providers are responsible for their own operational security.
Custodial arrangements	SQMU supports whitelist controls, allowing tokens to be restricted to wallets held by licensed custodians if required.
Blockchain controls	SQMU can be deployed on permissioned or permissionless chains. For Hong Kong offerings, providers may choose to deploy on a permissioned EVM chain or add additional controls (e.g., whitelist, transfer restrictions).
Disclosure of tokenisation arrangement	SQMU’s open‑source code and metadata standards facilitate full disclosure of the tokenisation arrangement to investors and regulators.
Smart contract audit	SQMU contracts are designed to be auditable, with NatSpec comments and test coverage. Audit reports can be published as part of the offering documentation.
No bearer tokens	SQMU tokens are held by whitelisted wallets, with ownership recorded on‑chain. There are no physical bearer instruments.
Legal and beneficial title	The SQMU token represents beneficial ownership in the underlying SPV or fund. Legal title remains with the SPV, aligning with the SFC’s see‑through approach.

1. Legal Structuring: The SPV or LPF Model

As noted by the SFC, tokenised securities are fundamentally traditional securities with a tokenisation wrapper. For real estate, this means that the token must represent an interest in a legal entity that holds the property title. Common structures in Hong Kong include:

Special Purpose Vehicle (SPV): A company incorporated in Hong Kong holds the property title. The company’s shares are tokenised, and token holders are shareholders.
Limited Partnership Fund (LPF): A limited partnership registered under the Limited Partnership Fund Ordinance holds the property interest. Token holders are limited partners.

The SQMU standard’s 1 m² = 1 token principle maps directly to the SPV’s or LPF’s share/unit capital. If a property has a total area of 1,000 m², the SPV issues exactly 1,000 shares, and each SQMU token corresponds to one share. This eliminates abstraction and makes valuation transparent.

2. Token Design and Smart Contract Deployment

The SQMU smart contracts are built on the ERC‑1155 standard, which allows a single contract to represent multiple properties (via different token IDs) with fungible supply per token ID. Key features for Hong Kong compliance include:

Fixed supply: Total supply for each property equals its certified area, preventing dilution.
Whitelist controls: Transfer functions can be restricted to approved wallets only, ensuring that only KYC‑verified investors can hold tokens.
Transfer restrictions: Optional lock‑up periods or trading windows can be enforced.
Upgradeability: Using proxy patterns, contracts can be upgraded to address regulatory changes or add new features.

The open‑source nature of the SQMU contracts allows the SFC and auditors to inspect the code and verify that it complies with regulatory expectations.

3. Compliance with the Stablecoins Ordinance

For rental payments or investor distributions, r3nt by SQMU can integrate with stablecoins issued by HKMA‑licensed issuers. Under the Stablecoins Ordinance, such stablecoins are subject to reserve, capital, and disclosure requirements, providing assurance to investors and regulators. The SFC’s November 2025 circular confirms that stablecoins issued by licensed issuers are not subject to the 12‑month track record requirement and can be offered to retail investors.

4. Offering and Prospectus Compliance

If the token offering is made to the public in Hong Kong, a prospectus must be authorised by the SFC or registered under the Companies Ordinance. For offerings limited to professional investors, the prospectus requirement does not apply. The SQMU plugin’s admin dashboard can help manage investor onboarding and whitelisting to ensure that only eligible investors participate.

5. Ongoing Reporting and AML Compliance

Licensed intermediaries must file annual returns and maintain AML programmes. The SQMU open‑source architecture facilitates compliance by providing transparent on‑chain records of token holders, transfers, and distributions, which can be integrated with reporting systems.

Hong Kong’s First Real Estate RWA Project: A Precedent

In February 2026, Hong Kong’s first real estate RWA (Real World Asset) tokenisation project was approved by the SFC. The project involves the tokenisation of a limited partnership fund holding an interest in Derlin Building, a commercial property in Hong Kong’s Central business district. The approval took the form of a “no‑action letter”, reflecting the SFC’s case‑by‑case approach to early‑stage RWA projects.

This precedent demonstrates that the SFC is open to real estate tokenisation, provided that the structure complies with existing securities laws and that investor protections are in place. The SQMU standard, with its emphasis on transparency, auditability, and legal alignment, is well‑positioned to serve as the technical foundation for similar projects in Hong Kong.

Practical Steps for Tokenising Hong Kong Real Estate with SQMU

For property owners, developers, or agents looking to tokenise a Hong Kong real estate asset using SQMU, the following steps outline a typical compliance‑focused pathway:

Engage with Licensed Professionals: Work with an SFC‑licensed intermediary (e.g., Type 1 licensee for dealing in securities) and legal counsel familiar with Hong Kong property and securities laws.
Determine the Offering Structure: Decide whether the offering will be made to professional investors only (exempt from prospectus requirements) or to the public (requiring SFC authorisation).
Form the Legal Vehicle: Establish an SPV or LPF to hold the property title. Ensure that the vehicle’s constitutional documents reflect the tokenisation arrangement.
Certify Property Area: Engage a registered surveyor to verify the property’s total floor area in square metres.
Deploy SQMU Smart Contracts: Use the open‑source SQMU contracts to deploy the token contract, setting total supply to the certified area. Add whitelist controls and transfer restrictions as required.
Obtain Legal Opinion: Obtain a legal opinion confirming that the tokenisation structure complies with the SFO and that the token is not a “bearer instrument” (which would trigger additional restrictions).
Audit Smart Contracts: Commission an independent audit of the smart contracts. Publish the audit report as part of the offering documentation.
Onboard Investors: Conduct KYC/AML checks and whitelist eligible wallets.
Execute the Offering: Distribute tokens to investors, either via a primary issuance contract or through a licensed intermediary.
Ongoing Compliance: Maintain records, file annual returns, and ensure that secondary trading (if any) occurs only on SFC‑licensed VATPs.

The SQMU WordPress plugin simplifies deployment, turning a standard WordPress site into a full‑featured tokenisation platform with one‑click contract deployment, admin dashboards, and wallet‑enabled shortcodes.

Conclusion

Hong Kong’s regulatory framework for tokenised securities is among the most advanced in the world. The SFC’s see‑through approach, combined with the Stablecoins Ordinance and the expansion of VATP products, provides a clear pathway for compliant real estate tokenisation. The SQMU open‑source protocol, with its 1 m² = 1 token standard, fixed supply, whitelist controls, and auditability, is designed to align with these regulatory expectations.

For property owners and developers seeking to tokenise Hong Kong real estate, the SQMU standard offers a transparent, auditable, and regulator‑friendly foundation. By leveraging the open‑source codebase and the SQMU WordPress plugin, market participants can deploy compliant tokenisation solutions with confidence.

For expert guidance on regulatory approvals, legal structuring, and smart contract deployment in Hong Kong, consulting services are available to navigate the specific requirements of the SFC framework.

SQMU – Tokenised Real Estate

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SQMU in Hong Kong: How the Open‑Source Protocol Aligns with SFC Guidance

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