Opportunities and Challenges for Hong Kong to Become a Global Web3 Hub

Recently, the Hong Kong Monetary Authority released a document regarding the regulation of activities related to stablecoins, which aligns with Hong Kong's strategy of integrating the next 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, relying solely on a robust regulatory framework is not enough for Hong Kong to stand out in the global competition for Web3 centers. In the face of other potential hubs like Silicon Valley, Dubai, and Singapore, Hong Kong needs to become a leader in the technological infrastructure that supports the creation and trading of digital assets to attract 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 among Asian cities. However, since 2019, due to the impact of the pandemic and cautious policies, Hong Kong's position in the global cryptocurrency industry has declined. Nevertheless, missing out on the drastic fluctuations in the cryptocurrency sector may not be a bad thing. Some exchanges that relocated after being founded in Hong Kong ultimately caused huge financial disasters, while most cryptocurrency mining companies that chose to list overseas are now mired in financial difficulties.

Currently, the cryptocurrency industry is in a reset phase, providing a rare opportunity for Hong Kong to redefine itself as a Web3 hub. As the Chinese government begins to view blockchain and digital assets as potential drivers of economic growth, Hong Kong is gaining support to explore innovation and global integration. At the same time, following the collapse of some large cryptocurrency institutions, the U.S. and Europe are tightening regulations, which may prompt more digital asset-related activities to shift eastward.

As one of the world's top capital markets, Hong Kong has a mature financial regulatory framework and excellent fintech talent. This makes Hong Kong an ideal place for creating practical blockchain applications, particularly in the field of asset tokenization. The government is committed to creating a favorable environment for public-private partnerships, facilitating collaboration between government agencies, financial institutions, tech giants, and native cryptocurrency builders to better integrate digital assets into the real economy.

In addition, Hong Kong can leverage the technology entrepreneurship resources from mainland China. Many Chinese internet giants listed in Hong Kong have started to venture into the digital asset and Web3 sectors, making Hong Kong a potential ideal platform for their development.

However, Hong Kong also faces challenges on its path to becoming a Web3 hub. The existing regulatory framework may not fully apply to the rapidly evolving digital assets and cutting-edge technologies. Hong Kong's principle of "same business, same risks, same rules" may be more favorable to mature institutions, and how to create space for bottom-up innovation is an urgent issue that needs to be addressed.

Another challenge is that Hong Kong has relatively limited resources as a technology hub. Therefore, Hong Kong needs to develop differentiated digital asset technology infrastructure. The security of digital assets is different from that of traditional assets and requires advanced technologies like multiparty computation to ensure asset owners have complete control or shared management over their assets.

Looking to the future, institutional business may have more prospects in 2023. To reduce the risks of centralized platforms, a large number of digital assets may be transferred to custody platforms that adopt the latest technological solutions. Institutions also need solutions that can achieve distributed private key management and fund isolation to comply with new regulatory requirements.

In summary, Hong Kong is in a favorable position to learn from the experiences and lessons of the fluctuations in the cryptocurrency industry over the past three years, to establish a Web3 hub with an appropriate regulatory environment and technological infrastructure, effectively managing risks while promoting innovation.