Written by: Yue Xiaoyu
The blockchain industry in Hong Kong was previously thriving, but recently it seems to have quieted down.
What is the current state of the cryptocurrency scene in Hong Kong?
Recently, I have been living in Hong Kong, frequently communicating with many friends and projects here, gradually gaining a clearer understanding of the regulatory environment and policy trends for Web3 in Hong Kong.
Here are 10 key points summarized.
To start with the conclusion: I am pessimistic about the short to medium-term development of Hong Kong's Web3 industry, but optimistic in the long term.
The short to medium-term pessimism stems from the repeated oscillation of regulatory policies and the internal conflicts between different government bodies.
It’s not just a struggle between the central government and the Hong Kong government; there are also conflicts between the administrative departments and regulatory bodies within the Hong Kong government.
The central government seeks financial stability, the Hong Kong government aims to develop new industries, the administrative departments want innovation, while the regulatory bodies prefer conservatism.
The fundamental contradiction lies in the fact that the decentralization and global liquidity of blockchain are inherently at odds with the government's strict foreign exchange controls and restrictions on capital outflow.
- The long-term optimism is due to the irreversible trend; stablecoins genuinely hold value, especially for cross-border trade and payments, representing a significant transformation.
At the same time, the U.S. is accelerating the legislative push for the cryptocurrency industry, taking legislative and dominant control, and sooner or later, other countries and regions will be forced to "open their doors."
However, the decision-making time has not yet arrived, so there is still room for oscillation and observation, but the longer it drags on, the more passive it becomes.
Of course, it cannot be denied that Hong Kong has at least taken a crucial step, opening a door that can gradually be widened later.
More importantly, Hong Kong remains China's external window or financial backdoor; it has just been slightly narrowed or more tightly controlled, but this window must exist.
- The first batch of licenses for Hong Kong dollar stablecoins will only be granted to local consortiums, with a maximum of no more than 5 licenses.
JD.com and Ant Group have withdrawn their applications for stablecoin licenses, primarily due to concerns from the mainland government that these tech companies are too large and pose risks that are difficult to manage.
Of course, for tech giants like JD.com and Ant Group, if Hong Kong does not issue licenses, they can apply in other regions.
As a city with a population of 7 million, Hong Kong's market size is not that large, and the stablecoin business of tech giants must still be pursued.
- The Hong Kong dollar stablecoin is fundamentally difficult to implement; it’s not just a licensing issue, but the biggest obstacle is the limitations on the scope of business under risk control.
For example, one of the biggest limitations of the current stablecoin policy in Hong Kong is that end users must undergo KYC.
This means that the Hong Kong dollar stablecoin has no secondary market and can only circulate within a whitelist of addresses.
This is actually to further limit the risk scope, but it also sacrifices the usability of the stablecoin, ultimately turning it into a Hong Kong version of "digital renminbi."
- Although the Hong Kong dollar stablecoin may not be feasible, RWA (Real World Assets) has great potential!
The regulatory logic in Hong Kong is to implement tiered regulation based on underlying assets.
The underlying asset of stablecoins is fiat currency, so the regulatory requirements are the highest;
Next are RWAs based on financial assets, which may be classified as securities;
Finally, RWAs based on physical assets have the lowest regulatory requirements.
- Currently, there are many projects using physical assets as the underlying RWA, while those based on financial assets are few.
However, RWAs based on financial assets are far superior to those based on physical assets because physical assets need to be financialized before tokenization, which is a long, costly, and low-yield process.
Currently, the opacity of physical asset RWAs is too high; the physical asset portion is essentially a black box, and most projects either ride on concepts or have money laundering suspicions.
- I used to think that high-quality assets in the traditional financial world were scarce and would be snatched up.
However, after talking with entrepreneurial teams working on RWA, I found that high-quality assets in the traditional financial world still lack financing sources; one could say that high-quality assets exceed the available capital.
The value of tokenization lies in lowering the threshold for obtaining funds.
- The evolution of RWA still follows this path: fiat currency on-chain → bonds on-chain → stocks on-chain → financial derivatives on-chain → physical assets on-chain.
Fiat currency on-chain has too high regulatory requirements, making it inaccessible for small businesses;
Physical assets on-chain are not high-quality assets, and even if they are on-chain, they do not become high-quality assets;
The middle part, involving standard financial products on-chain, has enormous potential and genuinely addresses the issue of asset-side funding shortages and capital-side asset shortages.
- Do not speculate on regulatory attitudes; it will only lead to severe losses.
Looking at this issue from the opposite perspective: the lack of clear and implemented regulations actually serves as protection and a barrier for existing cryptocurrency practitioners.
If we wait until regulations are truly implemented and big companies rush in, what opportunities will we have?
So now is a great window of opportunity.
Opportunities are reserved for those who are prepared; those who waver are exiting, while those who are determined are seizing the time to build. The path to success is never crowded.
Be well-prepared in terms of technology and products, and when the regulatory starting gun fires, you can sprint directly.
The premise is that industry practitioners must believe in this industry and that the projects they are working on genuinely address market needs and problems.
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