Will Hong Kong become the global center of Web3?

A brief discussion on the current situation and possible future directions of the Web3 ecosystem in Hong Kong.

Author: Liu Honglin

Recently, Wu conducted an in-depth interview with Mr. Leung Hon-king of the Hong Kong Investment Promotion Agency, discussing Hong Kong's development direction in the fields of Web3 and cryptocurrency ('Wu Dialogue with the Hong Kong Investment Promotion Agency: Hong Kong Naturally Possesses Advantages for Developing Web3 and Cryptocurrency'). From policy support to market feedback, to capital flow and attempts at tokenizing Real World Assets (RWA), it systematically showcases Hong Kong's layout in this emerging field.

As a lawyer who has been paying attention to the Web3 industry for a long time, Lawyer Honglin is often asked: 'Can Hong Kong really become the global center of Web3?' The answer to this question is not simple, as it involves not only policy environment and market attractiveness, but also capital flow, regulatory framework, talent pool, and the way Hong Kong interacts with the global financial markets. Mr. Liang's interview provides many perspectives worth pondering, and I also want to analyze the key points covered in this interview and discuss the current status and possible future directions of the Web3 ecosystem in Hong Kong based on my professional experience.

How does Hong Kong support the Web3 industry?

In the interview, Mr. Liang introduced the main work of the Investment Promotion Agency in the Web3 field. He emphasized that Hong Kong has always been known for its free market and international brand. The capital liquidity, mature regulatory framework, and close ties to international markets here give it a natural advantage in developing Web3 and cryptocurrencies. From the government's perspective, the main function of the Investment Promotion Agency is to attract international companies to land in Hong Kong and assist them in accessing more resources in the market. Whether from mainland China, the United States, the United Kingdom, or Chinese entrepreneurial teams, they can establish connections with local banks, investment institutions, and government departments through the channels of the Investment Promotion Agency to accelerate the market docking process.

In terms of industry promotion, the Investment Promotion Bureau also plays an important role. For example, they actively participate in and support large-scale events such as the Consensus conference, Hong Kong Fintech Week, aiming to provide a communication platform for Web3, virtual assets, fintech, and blockchain companies, attracting more corporate attention to the Hong Kong market. Policy feedback is also their important responsibility. Due to the close daily contact between the Investment Promotion Bureau and companies, they can understand the industry's dynamics and needs at the first time, and convey this information to regulatory authorities, so that policy-making can be more in line with the actual development of the industry.

In addition, the Investment Promotion Bureau is also promoting the integration of large industry resources. For example, the Project Ensemble launched by the Hong Kong Monetary Authority (HKMA) aims to promote the tokenization of RWA (Real World Assets), attracting many banks and technology companies to participate. However, many international companies, even if they have heard of this project, find it difficult to directly connect with regulatory agencies or investors. The Investment Promotion Bureau plays a key role in this process, helping companies find the right connection channels through its market network, enabling them to smoothly participate in Hong Kong's Web3 development process.

Mr. Li mentioned in the interview that Hong Kong has always supported the development of the Web3 industry and has not experienced drastic policy changes. From the government's perspective, Hong Kong is a free market with free flow of capital, thus having a natural advantage in developing cross-border and borderless industries. The core characteristics of the Web3 industry are globalization and decentralization, which are highly compatible with Hong Kong's financial ecosystem. Therefore, the Investment Promotion Agency has been paying attention to this industry early on and continues to provide support.

However, despite overall support for Web3 in Hong Kong, it remains cautious in specific policies. For example, in the field of ICO (Initial Coin Offering), Hong Kong has not adopted a completely open policy, but has set relatively strict entry barriers. Currently, licensed exchanges in Hong Kong need to undergo rigorous due diligence (DD) before listing new tokens to ensure the legitimacy and feasibility of the projects. Only projects that comply with regulatory requirements have the opportunity to operate in the Hong Kong market. This model is actually a manifestation of the Hong Kong government seeking a balance between market openness and investor protection.

The three core directions of Hong Kong Web3

In the interview, Mr. Liang mentioned several core areas of Hong Kong's development in Web3 many times, which not only involves policy direction, but also relates to Hong Kong's strategic positioning in the global crypto market.

Currently, Hong Kong's Web3 development is mainly focused on three key areas: stablecoins and cross-border payments, tokenization of real-world assets (RWA), digital culture, and the Crypto Native industry. These three areas not only leverage Hong Kong's traditional financial strengths but also align with the global trend of digital asset markets.

Stablecoins and Cross-Border Payments: Key Links in Transition from Traditional Financial System to Web3

Mr. Liang mentioned in the interview that the biggest market for stablecoins lies in cross-border payments, especially in the B2B trade sector.

The existing international cross-border payment system often faces issues such as long transaction times and high costs, especially in developing countries and some emerging markets, where the problem is particularly prominent. Some international trading companies may need several days or even a week for fund settlement in cross-border transactions, with payment fees in some regions as high as 10%. Compared to traditional cross-border bank transfers, stablecoin transactions have advantages such as low cost, high efficiency, and 24/7 availability. The application of stablecoins can greatly reduce transaction times, improve fund turnover efficiency, and lower exchange costs. Therefore, Hong Kong hopes to leverage its financial center status to promote the compliant development of stablecoins, making them an important payment tool in global trade and financial markets.

The two major stablecoins USDT (Tether) and USDC (Circle) in the market are widely used for cross-border payments, but their compliance has always been a focus of attention for governments around the world. In contrast, Hong Kong hopes to launch a compliant stablecoin to provide enterprises with a payment tool that meets both regulatory requirements and market demands.

The Hong Kong Monetary Authority (HKMA) launched a stablecoin regulatory framework in 2023 and encouraged the establishment of regulated stablecoin issuing institutions in Hong Kong. The Hong Kong government is promoting regulated stablecoin pilots in the hope of using blockchain technology to improve the efficiency of financial transaction settlement.

This strategy has two important market backgrounds: first, the global foreign trade enterprises' demand for stable coin payments is growing rapidly, especially Chinese cross-border e-commerce enterprises and foreign trade companies, which need more efficient and low-cost international settlement tools; second, Hong Kong itself is a major financial hub in Asia, and if it can gain an advantage in stable coin clearing and settlement, it will help enhance its influence in the global encrypted financial market.

From the market trend perspective, the role of stablecoins is far more than just for the capital flow of exchanges. It is becoming an important infrastructure for international trade payments, supply chain finance, and even central bank digital currency (CBDC) experiments. The stablecoin regulatory pilot project in Hong Kong is likely to attract more enterprises to establish stablecoin issuance and settlement business here in the future, thereby strengthening Hong Kong's central position in the Web3 financial ecosystem.

Tokenization of Real World Assets (RWA): Bridging Traditional Finance with Web3

Tokenization of RWA (Real-World Assets) is currently one of the most important directions in the global financial markets for Web3, and Hong Kong's layout in this area is particularly crucial. RWA tokenization refers to converting traditional financial assets (such as bonds, stocks, real estate, funds) into digital assets on the blockchain, enabling them to be traded on decentralized networks and increasing liquidity.

Mr. Li mentioned in the interview that Hong Kong has practical cases in the tokenization of RWA, such as in 2023, when the Hong Kong government launched the world's first tokenized green bond and conducted a second pilot in 2024. This move not only demonstrates Hong Kong's innovative attempts in the global green finance market but also indicates the government's desire to enhance the transparency and liquidity of the capital market through blockchain technology.

The potential market size of RWA tokenization is huge. According to a white paper jointly released by Boston Consulting Group (BCG), Invesco, and AxoneChain, the global fund tokenization market is expected to reach $610 billion. Currently, several financial centers globally are advancing RWA tokenization projects, such as Switzerland, the UAE, some states in the United States, and Hong Kong also aims to take a leading position in this field.

The development of RWA tokenization in Hong Kong has several core advantages: First, Hong Kong itself is an important hub for the global capital market, with a large group of institutional investors; second, Hong Kong's financial regulatory system is relatively mature, able to provide stable legal and compliance support; finally, Hong Kong's banking and securities market infrastructure is highly digitized, providing tangible technological support for RWA tokenization.

The tokenization of RWAs will bring new investment opportunities to the Hong Kong capital market. For example, traditional real estate funds, infrastructure investment funds, and private equity funds can all increase liquidity and market participation through blockchain tokenization. At the same time, the trading efficiency of tokenized securities is much higher than that of traditional securities markets, which will help enhance Hong Kong's financial market competitiveness. In the future, as the Hong Kong government continues to promote the improvement of relevant regulatory frameworks, RWA tokenization is likely to become one of its core competitive advantages in Web3 development.

Digital Culture and Crypto Native Industry: Unique Business Opportunities for Web3 in Hong Kong

In addition to stablecoins and RWA tokenization, Hong Kong also has unique advantages in digital culture and the Crypto Native industry. Mr. Leung mentioned in the interview that Hong Kong is not only an international financial center, but also the world's second largest art auction market, second only to New York, and surpassed London in 2020. This means that Hong Kong naturally has the soil for developing the NFT (non-fungible token) and digital art market.

After the NFT industry experienced a wave of enthusiasm in 2021 and the market returned to rationality, the digital cultural industry in Hong Kong is still continuing to develop. Many high-net-worth investors and the second generation of the rich are extremely interested in digital artworks, and Hong Kong's international environment makes it an ideal place for the trading of digital artworks and the development of NFTs. For example, international auction houses such as Sotheby's and Christie's have begun to accept the auction of NFT artworks, creating more business opportunities for Hong Kong's digital cultural industry.

In addition to NFT, Hong Kong is also a gathering place for Chinese Crypto Native entrepreneurs, especially in the field of consumer applications (such as encrypted social, Web3 games, on-chain content platforms, etc.). Many Web3 enterprises in Western markets focus more on infrastructure, while Chinese entrepreneurs have accumulated rich experience in consumer applications in the Web2 era, such as e-commerce, social, content platforms, etc. Hong Kong has a friendly policy environment, abundant funds, and as an international city, it is very convenient to connect with overseas markets. This has led many Chinese Web3 entrepreneurs to choose Hong Kong as the location for their international headquarters to explore new opportunities in consumer applications.

In the field of digital culture and the Crypto Native industry, Hong Kong's commercial landing opportunities are far more than just NFT transactions. For example, some well-known brands have begun to try landing Metaverse-related projects in Hong Kong, including brand virtual spaces, digital fashion, and more. The influence of Hong Kong's international film and television culture also provides great potential for the application of Web3 technology in the entertainment fields such as movies, music, and games.

In the future, Hong Kong may push for more attempts to standardize NFTs and digital assets to attract international digital artists, game developers, and content creators to enter the Hong Kong market. If Hong Kong can establish a clear regulatory framework for the Web3 cultural industry and provide more commercial channels for content creators, it is likely to become one of the key centers of the global Web3 cultural industry.

Summary by Lawyer Mankiw

From the perspective of the global competitive landscape, the development model of Web3 in Hong Kong is different from financial centers such as Singapore, Dubai, and Switzerland. Singapore is more focused on the early-stage entrepreneurial ecosystem of Web3, while Dubai attracts global funds through relaxed regulations. Hong Kong's strategy is to deeply integrate Web3 into the traditional financial system and promote industry upgrade through compliance.

The development of stablecoins in Hong Kong focuses on meeting cross-border payment needs rather than simply promoting the expansion of the cryptocurrency trading market. The tokenization of RWAs is an attempt to enhance asset liquidity in the global capital market transformation trend using blockchain technology. In the digital cultural industry, Hong Kong hopes to leverage its advantages in the international art market to explore the possibilities of new business models such as NFTs and the metaverse.

Hong Kong does have a "natural advantage" in the field of Web3, but its future will not be automatically successful, and it will require policy implementation, market development, and continuous optimization of global competitiveness. Hong Kong's core positioning remains an international financial center, and Web3 is just an important part of financial innovation. Finding a balance between regulation, market demand, and compliance frameworks will determine whether Hong Kong can truly become a global hub for Web3.

From a legal perspective, although the development of Web3 in Hong Kong is full of opportunities, compliance remains the most important cornerstone. For industry participants, understanding regulatory logic and planning business models reasonably will be the key to establishing themselves in the Hong Kong market. For Web3 enterprises looking to enter Hong Kong, now is the most critical window: Hong Kong's policy environment is becoming clearer, and market opportunities are gradually emerging. However, companies still need to plan for compliance when entering, especially in terms of fund flow, regulatory licenses, and business models, to ensure compliance with Hong Kong's financial regulations.