Interpretation of Hong Kong's "Digital Asset Declaration 2.0": How to Compete for the Web3 Hub in Asia?

Author: Wu Talks Blockchain

On June 26, the Hong Kong Special Administrative Region government released the "Hong Kong Digital Asset Development Policy Declaration 2.0", stating its firm commitment to building Hong Kong into a global leading digital asset center, a market where innovation can thrive in a risk-controlled environment, bringing substantial benefits to the real economy and financial markets, and is trustworthy.

The release of the Hong Kong Declaration comes at a time when Singapore is implementing strict policies to drive out unlicensed institutions. Hao, CEO of Legend Trading, stated that the influence of Singapore on the Web3 industry will diminish over the next 2-3 years. There are only 33 licensed companies in total, and about half of these companies have very little competitiveness in markets outside of Singapore. Some are merely subsidiaries of large groups in Singapore, and their licenses only allow them to serve the Singapore market, and only for spot trading. Many founders of these companies will stay in Singapore for family reasons, but their teams will try to be placed in other countries. Renowned analyst Zheng Di believes that the next Web3 center will be Hong Kong, and he is very optimistic about Hong Kong. Due to Temasek's huge losses from investing in FTX, many people from Singapore do not need the crypto space at all, and Hong Kong will reclaim its position as the global center for Web3 because of Singapore's actions.

The Hong Kong Declaration states that in order to achieve this vision and goals, a digital asset ecosystem that is deeply integrated with the real economy and financial markets, and oriented towards the future, is to be created by proposing a series of strategic policy directions and implementing corresponding measures. In formulating these policy directions and measures, we strive to ensure they are not limited by current technologies and that they can adapt to the future development of digital assets, while also integrating into the real economy and financial system to achieve sustainable growth. These measures are framed under "LEAP" and include: optimizing legal and regulatory streamlining; expanding the suite of tokenised products; advancing use cases and cross-sectoral collaboration; and people and partnership development, to build a trustworthy, innovative, and vibrant digital asset ecosystem, thereby reinforcing Hong Kong's leading position in the global financial landscape.

The declaration states that the main next step is to conduct public consultations on the licensing mechanism for digital asset trading service providers and digital asset custody service providers, to meet investors' needs for high liquidity, large transactions, and secure custody of assets. The government recommends designating the Securities and Futures Commission as the main regulatory body for digital asset trading service providers, responsible for licensing and registration, formulating standards, optimizing regulatory processes, and reducing potential regulatory arbitrage under different digital asset regulatory frameworks. The Hong Kong Monetary Authority will act as the frontline regulatory body for banks, overseeing their digital asset trading activities. The Securities and Futures Commission will serve as the main regulatory body for digital asset custody service providers, responsible for licensing and registration, as well as formulating standards, while the Monetary Authority will act as the frontline regulatory body for banks, overseeing their digital asset custody activities.

The statement indicates that the Financial Services and the Treasury Bureau and the Hong Kong Monetary Authority will lead the review of relevant laws and regulatory frameworks, referencing international experiences and practical situations to promote the further application of tokenization in Hong Kong. The initial review will focus on the bond market that has already passed the proof-of-concept stage, and it is hoped to provide a reference for the tokenization of other real-world assets and financial instruments. We will comprehensively examine the issuance and trading processes of tokenized bonds, including but not limited to settlement, registration, and record-keeping requirements. The government will normalize the issuance of tokenized government bonds and will explore different currency and maturity arrangements, as well as other innovative options. The government hopes to provide stable and high-quality digital bonds to the market through this initiative, further expanding accessibility and attracting a wider range of investors. To further leverage the advantages of tokenization, the Financial Services and the Treasury Bureau and the Hong Kong Monetary Authority will continue to communicate with industry experts to understand various aspects of market opinions, including incorporating digital currencies to enhance trading efficiency, secondary market trading application scenarios, and further expanding investor participation in the local bond market. The government aims to establish a global benchmark by taking the lead in issuing tokenized bonds and normalizing them, enhancing market confidence in this technology while encouraging adoption by both public and private sectors.

The declaration states: All exchange-traded funds (ETFs) listed on the Hong Kong Stock Exchange are currently exempt from stamp duty upon transfer. To promote the development of the tokenized market, the government will clarify that such stamp duty exemptions also apply to tokenized ETFs. Based on this exemption, the government welcomes market participants to explore the advantages of tokenizing ETFs, such as money market ETFs, including introducing them for secondary market trading on licensed digital asset trading platforms or other platforms. Looking ahead, the government will maintain an open attitude, considering factors such as fiscal impact and market development, to review the tax arrangements for the transfer of other Securities and Futures Commission-recognized funds through tokenization. The government will submit legislative proposals to include specified digital assets in the eligible transactions for profit tax exemption for privately offered funds and family investment control tools. If the proposal is approved by the Legislative Council, the tax exemption will take effect from the 2025/2026 tax year.

The declaration states that it will support stablecoins and other tokenized projects, including exploring the use of stablecoins as payment tools. In order to fully realize the potential of stablecoins, the government and regulatory authorities will provide a favorable market environment and necessary regulatory guidance, promoting licensed stablecoin issuers in Hong Kong to research and implement solutions for different application scenarios to address substantial pain points in economic activities. To demonstrate government support and take the lead, we welcome market participants to propose suggestions on how the government can experiment with and use licensed stablecoins, such as enhancing the efficiency of government payments.

The statement indicates that Cyberport will also launch a pilot funding program for blockchain and digital assets, providing funding for applicant projects with future application potential, iconic status, and market impact. In addition to funding, Cyberport will also assist these companies and coordinate with relevant stakeholders to support the implementation of pilot projects as needed. The dedicated team of the Invest Hong Kong (InvestHK) welcomes and is ready to support digital asset service providers in establishing and expanding their businesses in Hong Kong. Among the many supports available, InvestHK can help potential digital asset service providers connect with banks and various professional and support services, facilitating their business establishment.

National Committee member of the Chinese People's Political Consultative Conference and Hong Kong Legislative Council member Wu Jietzhuang interpreted that the declaration clearly shows the terminology of replacing virtual assets with digital assets, aligning with international standards, and emphasizing its innovative leadership as an international financial center in the digital age; the goal is very clear, which is to balance innovation and risk management, attract high-quality institutions from around the world; and improve the efficiency of the financial market through tokenization and other technologies, serving the real economy; the division of labor is clearly defined, with the Securities and Futures Commission leading the issuance of licenses for digital asset trading and custody services, and the Monetary Authority regulating banking-related activities to avoid functional overlap; it demonstrates the government's friendliness and recognition of digital assets, and the government will submit legislative proposals to include digital assets under private placement funds and family investment control tools to enjoy profits tax exemptions for qualified transactions. At the same time, the SAR government will take the initiative to regularize the issuance of tokenized government bonds; realistically reduce industry operating costs, and strive to improve market liquidity. The government will clarify how the stamp duty exemption measures for ETF transfers also apply to tokenized ETFs, which has far-reaching implications for the digital asset industry; substantial cash support, improving the market ecosystem, and Cyberport will launch a blockchain and digital asset pilot funding program, which not only can attract more talents to join the industry but also enhance the overall project pool of Hong Kong; in summary, there is a great opportunity for Hong Kong to become a benchmark for compliant innovation in digital assets in Asia within 3-5 years, providing a Hong Kong solution for the integration of global traditional finance and the digital economy.

The Financial Secretary of Hong Kong, Paul Chan, stated: Digital assets are an important and highly promising part of financial technology. Through Blockchain technology, they enable more efficient and lower-cost financial transactions, making financial services more inclusive. The "Policy Declaration 2.0" showcases our vision for the development of digital assets and demonstrates the substantial applications of tokenization through practice, promoting the diversification of application scenarios. By combining prudent regulation with encouragement for market innovation, we aim to build a more vibrant digital asset ecosystem that integrates with the real economy and social life, bringing benefits to the economy and society while reinforcing Hong Kong's leading position as an international financial center.

The Secretary for Financial Services and the Treasury of Hong Kong, Christopher Hui, stated that Hong Kong's unique advantages give us a head start in promoting the traditional finance sector into the era of digital assets. The framework established by the "Policy Declaration 2.0" helps us move towards "LEAP," forming a trustworthy, sustainable, and deeply integrated digital asset ecosystem within the real economy. The "Policy Declaration 2.0" also positions Hong Kong firmly at the forefront of digital transformation, providing enterprises and investors with a clear roadmap to navigate the robust and developing digital asset market.

The Financial Secretary of Hong Kong, Paul Chan, accepted an exclusive interview with Ta Kung Pao, stating that Hong Kong is further constructing a full-chain ecosystem for the development of digital assets through four major strategies: optimizing laws and regulations, expanding product varieties, promoting collaboration in application scenarios, and nurturing talent and development. He emphasized that digital assets are not only a breakthrough for financial technology but also a key lever for Hong Kong to consolidate its position as an international financial center. Hong Kong will promote the integration of virtual assets with the real economy through a dual-track approach of licensing management and scenario-based applications. "Regulating stablecoins is a priority. We require their application to be tied to real scenarios such as trade settlements and cross-border payments, eliminating speculation and hype." Currently, Hong Kong has legislated to regulate the issuance of stablecoins, and on the other hand, the Securities and Futures Commission has issued licenses for virtual asset exchanges and is advancing the regulation of custody. At the same time, it provides an innovative testing space for the industry through "sandbox regulation."

Chairman of HashKey Group, Xiao Feng, stated to PANEWS that this declaration has three key changes: the inclusion of stablecoins under regulation: it is clearly stated that a stablecoin licensing system will officially be implemented on August 1, 2025, making it one of the few jurisdictions in the world to provide a "landing pass" for stablecoins; RWA tokenization is seen as a key industry: the government not only promotes the normalization of bond issuance but also plans to include assets such as gold, green energy, and electric vehicles in the scope of tokenization; tokenized ETFs and digital asset funds enjoy tax exemptions: if future legislation passes, tokenized ETFs will enjoy the same stamp duty exemption and capital gains tax exemption as traditional ETFs, which is a rewriting of the rules of the financial market. These reforms signal that Hong Kong is not just supporting Web3 but aims to make Web3 a part of the financial infrastructure through institutional means. The update of Hong Kong's Web3 policy also completes a "three-in-one" institutional closed loop: regulatory certainty: Hong Kong will become the first jurisdiction in the world to clearly license independent digital asset custody services; asset penetration: allowing real-world assets (metals, energy) to be tokenized equally with financial instruments (bonds, ETFs), breaking the boundaries between virtual and real; tax competitiveness: tokenized ETFs tax-free + digital asset fund capital gains tax exemption.