How Hong Kong Became the Key to Becoming a Global Web3 Hub

Hong Kong is at an excellent opportunity to redefine itself as a Web3 hub. Recently, the Hong Kong Monetary Authority released documents regulating activities related to stablecoins, which aligns with Hong Kong's strategy of integrating a new generation of digital assets with its mature traditional financial ecosystem. This initiative highlights Hong Kong's steady progress in establishing a clear and comprehensive regulatory framework.

However, merely having a sound regulatory framework is not enough for Hong Kong to stand out in the global Web3 competition. To gain a sustained advantage over competitors like Silicon Valley, Dubai, and Singapore, Hong Kong also needs to become a leader in the technological infrastructure that supports the creation and trading of digital assets, thereby attracting the best talent in the industry.

Hong Kong was once the birthplace of many well-known cryptocurrency exchanges and still has the most Bitcoin ATMs in Asia. However, since 2019, due to the pandemic and cautious policy directions, Hong Kong's position in the global cryptocurrency industry has declined. Nevertheless, missing the frenzy of the cryptocurrency industry's boom and bust cycles may not be a bad thing. Some cryptocurrency companies that originated in Hong Kong but later moved elsewhere ultimately triggered massive financial disasters, bringing negative impacts to the entire industry.

As the cryptocurrency industry enters a reset phase, Hong Kong has the opportunity to redefine the development direction of the Web3 hub. This year, we have seen more signs indicating that blockchain and digital assets are viewed as potential drivers of economic growth. Hong Kong has gained support to explore a path of innovation and global integration. At the same time, after the collapse of some large cryptocurrency companies, Europe and the United States are tightening regulations, which may prompt more digital asset-related activities to shift eastward, creating an opportunity for Hong Kong to regain influence.

As one of the world's most powerful capital markets, Hong Kong has a well-established financial regulatory framework and top-notch financial and technical talent. Its mature capital market makes Hong Kong's digital asset industry a unique intersection of technology and finance, particularly suitable for developing real-world blockchain applications, especially in the area of asset tokenization.

The Hong Kong government is committed to creating a favorable environment for public-private partnerships. When government agencies, financial institutions, tech giants, and native cryptocurrency developers collaborate, digital assets have the potential to better integrate into the real economy, generating impacts that extend beyond the virtual world.

In addition, Hong Kong can also leverage the technological entrepreneurship resources of mainland China. Chinese internet companies that have previously created Web2 products comparable to those of leading Western companies still possess a wealth of expertise related to digital assets and Web3. Chinese Web2 giants listed in Hong Kong have already begun to venture into the digital asset space, and Hong Kong may be the ideal environment they need for development.

However, Hong Kong also faces challenges in becoming a Web3 hub. First, the existing regulatory framework designed for traditional assets may not be suitable for the rapidly evolving digital assets and cutting-edge technologies. The principle of "same business, same risk, same rules" in Hong Kong's digital asset regulation means that traditional financial regulations also apply to digital assets. The high barriers to obtaining licenses have already made this field more favorable to established institutions. Creating space for bottom-up innovation is an urgent issue that needs to be addressed.

Secondly, Web3 is essentially a technological movement, but Hong Kong does not have the rich technological resources that some other cities have. Therefore, Hong Kong needs to develop differentiated technology infrastructure aimed at digital assets.

The security of digital assets is different from that of traditional assets. Their on-chain characteristics mean that one cannot solely rely on closed security systems for protection. Licenses or regular audits do not ensure the safety of customer funds on centralized platforms. Advanced technologies like multi-party computation are needed to give asset owners complete control or co-management over their assets.

Looking ahead, institutional business may hold greater development potential in the digital asset space. To reduce the risks associated with centralized platforms, a significant amount of assets may be transferred to custody platforms that employ the latest technological solutions. Additionally, to comply with new regulatory requirements, institutions need solutions that enable distributed private key management and fund segregation. Custody, institutional wallets, and digital security are just a few examples of the infrastructure needed for the digital asset ecosystem.

Overall, Hong Kong is in a favorable position to draw on the lessons learned from the ups and downs of the cryptocurrency industry over the past few years, to establish a Web3 hub with an appropriate regulatory environment and technological infrastructure, effectively managing risks while promoting innovation.