New Regulatory Landscape for Web3: Opportunities and Challenges in Hong Kong

The Hong Kong virtual asset trading platform exit policy was officially implemented on May 31. Nearly half of the VATP applicants chose to withdraw, sparking heated discussions in the market. Some believe this marks the end of the Hong Kong Web3 era, but is that really the case? Let’s comprehensively analyze the current status and future of Web3 regulation in Hong Kong.

Web3 Regulation: Global Trends

Looking at the global Web3 regulatory landscape, we can observe a clear trend: countries are gradually moving towards more refined regulation.

As a pioneer, Japan introduced a digital currency exchange license system as early as 2017. After 10 years of development, Japan currently has 23 approved digital currency exchanges, primarily for local companies. Japan's regulatory system is strict, but as a result, it was less affected by the FTX incident.

Singapore and the United States began to strengthen regulation after the Three Arrows Capital and FTX incidents in 2022. Although there is no officially "compliant" exchange in the U.S., the publicly listed company Coinbase has achieved significant growth due to its relatively standardized operations.

It is worth noting that these regions were once considered too strict during the initial regulatory phase. However, as policies continue to improve, the local Web3 ecosystem has become increasingly vibrant.

Currently, regulatory agencies around the world, from Southeast Asia to the Middle East, and then to Europe and Africa, are actively formulating Web3-related policies. Regardless of the starting point, all regions will eventually move towards precise regulation.

From the composition of licensed exchanges, the vast majority of local enterprises account for more than 70% in most regions. This reflects the regulators' preference for supporting the development of local businesses.

Hong Kong's Regulatory Strategy

Compared to other regions, Hong Kong has adopted a more cautious regulatory approach. Hong Kong implements a "license first, then operate" native regulation, skipping the stage of reckless growth and directly entering a period of regulated development.

Since the introduction of Web3 regulatory policies in 2022, Hong Kong has been steadily promoting industry compliance. As of June 1, 2024, when the AMLO license is officially implemented, more than half of the applicants still retain their eligibility. Approved exchanges like HashKey Exchange have seen trading volumes exceed 440 billion HKD, showing a positive development trend.

Therefore, the exit of some exchanges does not mean that the development of Web3 in Hong Kong is hindered. This is merely a necessary phase that Hong Kong, like other regulatory jurisdictions, is undergoing to clean up and reorganize. More importantly, it signifies that Hong Kong has completed comprehensive regulation of the exchange sector, which has the highest concentration of funds and is the most complex.

The Stronghold of East-West Game

Regulation is just the beginning; in the future, Hong Kong's position as the Eastern Web3 center will become even more prominent.

Unlike artificial intelligence, the decentralized nature of Web3 makes monopolistic regulation difficult to implement. In the future, governments need to attract Web3 talent and capital through friendly policies. As one of the world's largest offshore financial centers, Hong Kong plays an important role in this game.

Recently, the change in the United States' attitude towards Ethereum ETFs is likely related to Hong Kong's pioneering launch of ETH ETFs. Although there is currently a gap in scale, as Hong Kong's Web3 ecosystem improves, it is expected to attract more institutional participation.

In addition, Ethereum staking yields may become the next focus. If Hong Kong takes the lead in launching an ETH ETF with staking functionality, its appeal could surpass that of the Bitcoin ETF, becoming a presence similar to "digital U.S. Treasuries."

Hong Kong is also at the forefront of regulatory frameworks. Compared to the United States, Hong Kong has released a series of dedicated regulatory documents for virtual assets, providing clearer guidance for industry development.

As the bull market approaches, a new batch of Web3 tycoons will be born. Hong Kong, with its unique advantages, is expected to attract more talent and capital from both domestic and overseas. In the future, Web3 will deeply integrate with traditional finance, injecting new vitality into Hong Kong's financial market. The promotion of innovative businesses such as STOs, RWAs, and Hong Kong dollar stablecoins will further broaden the boundaries of the virtual asset market.

In this process, licensed exchanges will play a key role. In addition to trading operations, they will also provide infrastructure support for other financial innovations, becoming an important link between Web3 and traditional finance.

Overall, the development of Web3 in Hong Kong is at a critical juncture. Although faced with challenges, as long as opportunities are seized and progress is made steadily, Hong Kong is expected to occupy an important position in the global Web3 landscape.