The London Metal Exchange is exploring a plan to tokenize metals stored in Hong Kong warehouses and use them for financing.

Reuters, citing multiple sources, reported on October 28 that the exchange had begun reviewing the proposal.

The initiative is understood to be linked to Hong Kong’s broader strategy to develop itself into a commodities trading hub. In a five-year economic blueprint released last month, Hong Kong outlined plans to expand commodities trading and financing businesses.

The LME told Reuters it is in the early stages of considering the tokenization of metal inventories that do not have warehouse warrants issued against them for business financing. The exchange added that it would consult stakeholders as it develops the plan.

The assets under review are off-warrant inventories. They do not include metal stocks with warehouse warrants, which can already be traded or used as collateral for loans based on documents proving ownership. The idea is to create digital assets backed by inventories without warrants, where standardized financing arrangements are limited, and use them as collateral for lending.

The LME plans to hold a private meeting with industry participants early next month to discuss the proposal. Sources told Reuters that metal-backed digital assets could attract investment from financial institutions and create a new source of revenue for the exchange.