On October 31, the Financial Secretary (Financial Services and the Treasury Bureau) of Hong Kong officially released the "Policy Declaration on the Development of Virtual Assets in Hong Kong" (hereinafter referred to as the "Declaration"), which clarified the Hong Kong government's policy stance, regulatory guidelines and pilot plans on the booming virtual asset industry and ecosystem in Hong Kong. This undoubtedly gave practitioners great confidence and encouragement in the development of Web3 in Hong Kong.
However, some people believe that the Declaration is still a new policy implemented in Hong Kong under conservative and cautious conditions. Although it has strong innovative and open value and opens a crack in the door that was previously closed by Web3, it is still more experimental than open.
For example, the term "virtual assets" is used in the Declaration instead of virtual currency (Cryptocurrency). Although the definition is not accurately expressed, the meaning of virtual assets should be different from or greater than virtual currency. In addition, the expression "DLT" (distributed ledger technology) is used instead of "decentralization", which means that it is still technology-oriented rather than concept-oriented.
Earlier, Hong Kong successfully gave birth to many leading institutions in the crypto industry, such as BitMEX, FTX, and Crypto.Com. At that time, BitMEX even leased the 45th floor of the Cheung Kong Center, replacing the original Barclays Capital, and announced the arrival of the new world. In addition, Asia Crypto Week, the top crypto summit in Asia, was held in Hong Kong in 2018-2019, which once again emphasized Hong Kong's position in the crypto field.
But later, BitMEX and Crypto.Com successively chose Singapore as their base, and FTX also moved to the Bahamas last year. Today, there are only a few well-known crypto companies left in Hong Kong. So what is the current status of Web3 development in Hong Kong, and which Web3 companies are worth paying attention to?
Global Fast Track 2022
The Global Fast Track is a global fast track organized by InvestHK, which brings together innovative fintech companies from around the world. These companies already have commercial customers in their home markets and other regions, and can connect with regional businesses and investors with their business solutions. The Global Fast Track will help these companies achieve greater feasibility, visibility and scalability in Hong Kong, Asia and other regions.
BlockBeats counted 118 outstanding innovative financial technology companies in Global Fast Track 2022 to get a closer look at the current Web3 development status in Hong Kong. It was found that there are indeed not many Web3 projects born in Hong Kong (or headquartered in Hong Kong). The main ones are the following 8 , accounting for only 6.8%.
HashKey Group
HashKey Group is an end-to-end digital asset financial services group in Asia, headquartered in Hong Kong with operations in Singapore and Tokyo, providing new investment opportunities and solutions to institutions, family offices, funds and professional investors in the digital asset and blockchain ecosystem.
Everest Ventures Group
Everest Ventures Group, referred to as EVG, has an investment portfolio that includes many well-known projects such as Animoca Brands, The Sandbox, Flow public chain, and Kraken.
Token Bay Capital
Token Bay Capital is an early-stage venture capital fund in Hong Kong that accepts funds from professional investors and mainly provides diversified investments in digital assets and blockchain-related company portfolios. Previously, Token Bay Capital participated in the investment in Yuga Labs, the parent company of the NFT project BAYC.
Aspen Digital
Aspen Digital is a virtual asset management platform based in Hong Kong that aims to provide individual or institutional users with the technology and expertise to build and manage digital asset strategies, helping them access the best and most unique products in the crypto industry. It has received investments from Everest Ventures Group and Token Bay Capital.
Cell Rising Capital
Cell Rising Capital is an early-stage venture capital fund in Hong Kong that invests in companies that aim to change the way traditional industries work and become pioneers of the future, and helps these startups grow and thrive quickly. Previously, Cell Rising Capital invested in Animoca Brands.
UVECON
UVECON is a venture capital studio, accelerator and consulting firm based in Hong Kong, investing in areas including fintech, blockchain, SaaS, and e-commerce.
ParticleX
ParticleX is also a Hong Kong-based accelerator that aims to accelerate the growth of technology startups focused on blockchain, big data, artificial intelligence (AI), the Internet of Things (IoT), robotics and other fields.
Global Digital MOJO
Global Digital MOJO (formerly Asia Digital MOJO) is an international digital strategy and production agency founded in Hong Kong in 2009 with 6 studios around the world, providing digital transformation services and creating AI metaverse products for professionals.
Newport Controversy
It can be seen that in just two years, Hong Kong seems to have fallen from the altar of the former Asian encryption center, with talent loss, project relocation, and ecological loss, and these are being injected into Singapore.
Indeed, the number of Web3 companies in Singapore is gradually increasing, especially after Token2049 was held in Singapore this year. Many Chinese people have a simple intuition that they should go to Singapore to start Web3 businesses. However, from another perspective, the conclusion of the Singapore-Hong Kong dispute over the Asian encryption center seems to have not yet been settled. Although Singapore has become an important Web3 development base in Asia, not all projects are suitable for Singapore.
For example, Singapore's MAS has made it clear that it will take a tough stance on the unregulated retail public, as retail investors should not get involved in cryptocurrencies. In Hong Kong, regulators are considering allowing retail investors to invest directly in crypto assets, and the SFC will launch a public consultation on the appropriate extent to which retail investors can buy and sell virtual assets under the new licensing system.
Therefore, choosing which region to start a business is a very complicated issue, which must be judged comprehensively based on multiple factors such as the business nature of the specific project, compliance risks, team background, industry resources, and product characteristics.
So for entrepreneurs with a Chinese background, Hong Kong's more open Web3 market, gradually stable regulatory system, improved infrastructure, and free flow of capital and information in the future may still help Hong Kong replace Singapore and become the best choice for Chinese Web3 entrepreneurs again.
The release of the Hong Kong Declaration also provides Web3 projects in various fields such as virtual asset trading, NFT, Metaverse, GameFi, and crypto funds with an additional option in terms of future business division, financing structure, team distribution and other issues.
Virtual asset trading and management
In general, there are currently three main regulatory agencies in Hong Kong for virtual assets (cryptocurrencies, etc.) and transactions: the Securities and Futures Commission (SFC), the Financial Services and the Treasury Bureau (FSB), and the Hong Kong Monetary Authority (HKMA).
Among them, SFC is the main regulatory force. The regulatory objectives of SFC include: maintaining and promoting the fairness, efficiency, competitiveness, transparency and order of the securities and futures industry; minimizing criminal and improper behavior in the securities and futures industry; reducing systemic risks in the securities and futures industry, etc.
In Hong Kong, cryptocurrencies are mainly divided into security cryptocurrencies, NFTs and virtual commodities (such as Bitcoin). Different regulatory policies are adopted for different types of cryptocurrencies. The SFC's interpretation of security cryptocurrencies is divided into the following three categories:
- Representative equity (right to receive dividends and right to participate in the distribution of residual assets in case of liquidation of the company);
- represents a claim (the issuer can repay the investment principal to the token holders and pay them interest at a specified date or upon redemption);
- Can be used to obtain income from "collective investment schemes".
In addition, the Treasury and the HKMA assist in supervision from different regulatory perspectives. As the second main regulatory body, the Treasury is mainly responsible for combating virtual asset money laundering and terrorist financing activities. The HKMA is responsible for Hong Kong's financial policies and banking and currency management, playing a role similar to that of a central bank.
The Hong Kong Declaration mentioned that while stepping up preparations for a new licensing system for virtual asset service providers, it is also willing to contact the global virtual asset industry and invite relevant trading platforms to explore business opportunities in Hong Kong. So what corresponding licenses do you need to apply for to legally carry out crypto-financial activities in Hong Kong, and what are the leading players in the market?
The SFC has stipulated a total of 12 regulated activities, which means that all activities must be regulated by obtaining corresponding licenses. Among them, the licenses related to cryptocurrency trading platforms, funds and fund management platforms mainly include Class 1, Class 4, Class 7 and Class 9 regulatory licenses, and the companies that have obtained relevant licenses in the market mainly include OSL, HashKey and NH Asset.
OSL
OSL is a wholly owned subsidiary of BC Technology Group, a Hong Kong-listed digital asset company, and is the first company to receive Type 1 and Type 7 regulatory licenses from the SFC.
OSL not only provides secure and frictionless digital asset transactions in multiple currencies, but also includes services such as prime brokerage services, digital asset storage and custody, and complete digital asset trading solutions.
HashKey
HashKey has multiple business lines including HashKey Capital, HashKey Pro, HashKey Custody and HBL (Hash Blockchain Limited). Currently, HashKey Capital has obtained a Category 9 license, while HBL has obtained Category 1 and Category 7 regulatory licenses.
NH Asset
NH Asset (Xinhuo Asset Management "Hong Kong" Co., Ltd.) is a wholly-owned subsidiary of Xinhuo Technology (formerly "Huobi Technology"), providing securities consulting and asset management services to professional investors. It has currently obtained Type 4 and Type 9 regulatory licenses, and Huobi Technology's subsidiary is in the process of applying for Type 1 and Type 7 licenses for the supervision of virtual asset trading platforms.
Currently, NH Asset has launched four asset management products for professional investors: Xinhuo Bitcoin Fund, Xinhuo Ethereum Fund, Xinhuo Multi-Strategy Virtual Asset Fund and Private Equity Fund.
In addition to the above 12 types of licenses issued by the SFC, some digital asset trading platforms in Hong Kong have obtained TCSP (Trust or Company Service Provider) licenses, such as HKD.com and OKLink Trust. However, OKLink has not yet started providing trust or company services.
HKD.com
HKD.com (Hong Kong Digital Asset Exchange) is committed to the trading and popularization of digital currencies. It was established in 2019 and has a Hong Kong TCSP license. In addition to a secure online digital currency trading platform, HKD.com has also set up a digital currency trading store with an area of nearly 10,000 square feet in the core business district of Hong Kong, dedicated to the physicalization and popularization of digital currencies.
HKD.com physical store bonds (securities) tokenization
Bond tokenization will help improve the efficiency of bond issuance and settlement, reduce costs, and attract more investors to the market. In this Hong Kong Declaration, it is mentioned that Hong Kong will experiment with issuing tokenized green bonds, temporarily issuing them on a smaller scale, mainly for institutional investors to subscribe, and aiming to issue them within this year, hoping to become the world's first tokenized government green bond.
The Hong Kong Monetary Authority also stated that it has completed Project Genesis with the Hong Kong Center under the Bank for International Settlements Innovation Hub (BISIH), and completed the concept certification for issuing tokenized green bonds to retail investors in Hong Kong. In the future, it will further study the feasibility of trial issuing tokenized green bonds through the government green bond program.
OSL
On July 26 this year, OSL announced that it will distribute security tokens in a private security token offering (STO) and will become the first digital asset broker to obtain SFC Category 1 registration and conduct STOs with professional investors. Participants in the offering also include Animoca Brands, Head and Shoulders Financial Group, China Fortune Financial Group Limited, Volmart and Monmonkey Group Asset Management Limited.
Knight Dragon
Knight Dragon is a real estate developer owned by Hong Kong billionaire Cheng Kar-shun. On June 21 this year, it announced that it would issue 100,000 security tokens "KDB4", and holders would be entitled to share 80% of the gross profit generated by Knight Dragon Building 4. Knight Dragon expects the value of KDB4 Token to reach 140 million pounds (about 172 million US dollars), and the token sale date has not yet been confirmed.
NFT
Under the planning of the three regulatory agencies, Hong Kong's virtual asset licensing and regulatory system has gradually become clear. As for NFT, Hong Kong's regulation has been divided into more detailed categories. NFT can be divided into two parts: financial asset NFT and collectible NFT.
For financial NFTs, their promotion and trading must be strictly regulated by the SFC and can only be carried out after obtaining a license. For collectible NFTs, their activities are not within the scope of SFC supervision. It is worth mentioning that during the "Hong Kong Fintech Week 2022", the organizers also issued limited edition NFTs as attendance certificates to participants. Holders can use 3D scanning to create their own virtual avatars, and they can also use this to participate in other industry activities in the future.
At present, some NFT projects and related infrastructures with high attention have emerged in Hong Kong. Among them, the well-known NFT projects mainly come from the cross-border integration of many Hong Kong stars, such as Edison Chen and Shawn Yue. However, at present, the NFT prices of these projects have fallen by more than 80% from their highs, so the following is only an introduction to these projects, not an investment advice.
The Heart Project
The Heart Project NFT is a heart pattern element from the limited capsule series created by Edison Chen and Los Angeles-based trend artist Stefan Meier for Emotionally Unavailable. The total number of The Heart Project NFTs is 10,000, of which 5,000 were pre-sold to community members as whitelists.
Zombie Club
ZombieClub is an NFT project launched by Shawn Yue. It is based on the concept of zombies and Frankenstein. The design includes 9 racial characters, each with different attributes, with a total of 6,666.
Artifact Labs
Artifact Labs is a multi-chain NFT ecosystem, founded by the South China Morning Post to spin off its blockchain-based NFT business, which aims to transform the art, photos and content of Hong Kong's 118-year-old English newspaper into tradable NFTs. In addition, Artifact Labs can also help turn the property of other organizations, including schools and museums, into digital collectibles.
Red Hare NFT
Red Hare is a Hong Kong-based NFT analysis and big data platform. It launched Asia's first NFT index in May 2022. Its products and services mainly include: NFT index and NFT analysis suite, NFT big data, Tech Stack services (NFT product accelerator and incubator) and NFT incubation services.
Metaverse / GameFi
The Metaverse is an immersive virtual space that provides users with rich consumer content and a fair creative platform, where users can engage in cultural, social, and entertainment activities. In the past two years, multiple factors have driven the Metaverse from a concept to a popular space. It not only combines games with social networking, but also brings development opportunities to retail, e-commerce, and industrial Internet.
In Hong Kong, the development of the Metaverse has also brought a series of breakthroughs in both industry, academia and research. Among them, the Hong Kong University of Science and Technology announced that it would establish an extended reality campus MetaHKUST in the Metaverse to provide an immersive learning experience. In addition, well-known companies such as Meta and Yahoo Hong Kong will launch a series of plans in Hong Kong to support the development of the Metaverse. In addition, the leading project The Sandbox has established a prosperous Metaverse ecosystem.
The Sandbox
The Sandbox is a blockchain-based 3D open world metaverse launched in November 2021 by Animoca Brands.
Currently, many institutions in Hong Kong have established virtual worlds in The Sandbox. For example, the MTR Corporation has reached a cooperation with it to build a railway-centered virtual space; Hong Kong listed companies PCCW and HKT have also announced cooperation with it, becoming the first batch of Hong Kong CMT (Communication, Media & Technology) institutions to enter The Sandbox metaverse. In addition, Hong Kong real estate tycoon and New World Development Group CEO Adrian Cheng announced a $5 million investment in it.
STEPN
STEPN is a Web3 application that has become popular in the crypto space this year. It has attracted widespread adoption by many users in and outside the crypto community through the "Move to Earn" model. After being invited by George Lam, former chairman of Hong Kong Cyberport, STEPN has now settled in Hong Kong and established its first regional headquarters outside of Australia.
Crypto VC
In addition to the crypto funds such as EVG and Token Bay Capital mentioned in the Global Fast Track 2022, there are currently some crypto VCs and funds in Hong Kong that are worth paying attention to.
Animoca Brands
Animoca Brands aims to promote digital property rights through NFTs and games and build an open metaverse. Currently, Animoca Brands has more than 380 investment portfolios, including Colossal, Axie Infinity, OpenSea, Dapper Labs (NBA Top Shot), Yield Guild Games, Harmony, Alien Worlds, Star Atlas, etc.
Animoca Brands is also a developer and publisher of games and other applications for smartphones and tablet devices, including original titles such as The Sandbox, Crazy Kings and Crazy Defense Heroes.
Kenetic Capital
Kenetic Capital is a proprietary trading and venture capital firm in Hong Kong that focuses on digital assets and blockchain-related companies. Its investment portfolio includes many well-known crypto projects such as FTX, BlockFi, Alchemy, Polkadot, IoTeX, etc.
Chiron
Chiron is a venture capital firm in Hong Kong that has launched a $50 million crypto fund, mainly investing in DeFi and NFT projects related to the metaverse.