Author: Zhu Haokang
This article represents the author's personal views. Author introduction: Zhu Haokang, currently the head of digital asset management and family wealth management at Huaxia Fund (Hong Kong). In 2024, successfully issued Asia's largest Bitcoin and Ethereum spot ETFs, actively participated in central bank digital currency and stablecoin sandboxes, and promoted the compliant issuance of RWA tokenization funds. In 2023, founded the Asia RWA Working Group and was appointed as a member of the Hong Kong government's Cyberport Entrepreneurship Advisory Committee and as a judge for the Innovation and Technology Incubation Fund. Previously served as an Executive Director at Goldman Sachs' Securities Department, completing over a hundred corporate IPOs and secondary market financing projects while working in New York, Boston, and Hong Kong. Currently pursuing a PhD in Financial Technology at the Hong Kong Polytechnic University, providing long-term advice to regulatory authorities on virtual assets in mainland China and Hong Kong. Published the world's first Chinese book on RWA (RWA and Tokenization) by a publisher directly under the Ministry of Finance of China.
Review 2024: Significant Progress in Hong Kong's Web3.0 Ecosystem
In 2024, Hong Kong's Web3.0 ecosystem construction has made significant progress, including the issuance of virtual asset spot ETFs, approval of trading platforms, and the launch of tokenized asset sandboxes, attracting global institutional participation. On April 30, six virtual asset spot ETFs were listed on the Hong Kong Stock Exchange. Currently, the Bitcoin and Ethereum spot ETFs issued by Huaxia Fund (Hong Kong) rank first in Asia, with the Huaxia Bitcoin Spot ETF exceeding 2 billion HKD in scale within the year, and a single-day trading volume exceeding 370 million HKD on December 5. As of the end of 2024, the Hong Kong Securities and Futures Commission approved 7 licensed virtual asset trading platforms, including OSL Exchange, HashKey Exchange, HKVAX, Cloud Account Greater Bay Area Technology (Hong Kong), DFX Labs, Hong Kong Digital Asset Trading Group, and Thousand Whales Technology.
In the area of tokenized assets, the Hong Kong Monetary Authority (HKMA) issued a circular in February 2024 on (Selling and Distributing Tokenized Products) to strengthen the management of institutions launching tokenized products; in May, the Hong Kong Securities and Futures Commission expressed its intention to open investment in real-world asset (RWA) tokens to retail investors, attracting global funds and enterprises. In August, the HKMA launched the Ensemble Sandbox Program to promote tokenized asset trading, with Ant Group and Longxin Group collaborating to complete the first domestic financing of new energy physical asset tokenization, with a financing amount of about 100 million RMB. In September, the HKMA initiated the “Digital Hong Kong Dollar +” project to explore new digital currency innovation use cases, such as tokenized asset settlement, programmability, and offline payments.
In terms of stablecoins, the HKMA issued a consultation document in January 2024, clearly defining fiat-backed stablecoin; in March, the HKMA officially launched a regulatory sandbox for Hong Kong dollar stablecoins, providing an effective channel for the HKMA to exchange views with the industry on proposed regulatory frameworks. Industry organizations such as the Asia RWA Working Group submitted a consultation draft on the issuance of stablecoins to the HKMA. In July, the HKMA published (Consultation Results Report on Legislative Proposals for Implementing a Regulatory Regime for Hong Kong Stablecoin Issuers), clarifying the acceptance of tokenized reserve assets and announcing the first batch of sandbox participants including: Circle Innovation Technology, JD Coin Chain Technology, and a joint company by Standard Chartered Bank, Anxin Group, and Hong Kong Telecom. On December 6, the Hong Kong government published (Stablecoin Bill), which had its first reading in the Legislative Council on the 18th, aiming to improve the regulatory framework for virtual assets and consolidate Hong Kong's position as a global center for the development and regulation of stablecoins.
The world is accelerating the development of Web3.0
In 2024, countries actively promoted the development of Web3.0. In May, the United States passed the (21st Century Financial Innovation and Technology Act) (FIT21) to establish a clear legal framework for digital assets; in November, proposed a (Clear Stablecoin Payment Act) aimed at establishing a comprehensive regulatory system for payment stablecoins. Former U.S. President Trump’s high attention and support for cryptocurrencies ignited market enthusiasm, causing the cryptocurrency market to experience a strong growth wave, breaking the $100,000 barrier on December 5, setting a new historical record. On December 6, Trump appointed David O. Sacks as Director of Artificial Intelligence and Cryptocurrency Affairs at the White House. Sacks advocates for relaxed regulation and promises to create a favorable policy framework for the U.S. crypto industry. On December 15, Trump proposed strengthening the U.S.'s position in the global crypto market through a national Bitcoin strategic reserve, expressing support for reducing tax burdens on cryptocurrency companies to attract more capital and innovative technologies.
The European Union passed the world's first comprehensive regulation on crypto assets and related services—the Markets in Crypto-Assets Regulation (MiCA)—in June 2023, aiming to provide legal clarity, promote innovation, and protect investors from risks. This regulation will fully come into effect by the end of December 2024, aiming to offer legal clarity, promote innovation, and protect investors. Recently, some exchanges have announced that they will delist certain stablecoins that do not comply with MiCA regulations in the EU. In July, the Monetary Authority of Singapore approved Paxos to launch the USD stablecoin USDG, managed by DBS Bank, to promote the application of stablecoins in payments and settlements. On July 18, South Korea's User Protection Law for Virtual Assets took effect, requiring exchanges to store 80% of user deposits in cold wallets and purchase sufficient insurance against hacking. The UK House of Lords supported the Digital Assets Property Bill on November 7, providing a legal protection framework for cryptocurrencies. The Japanese government proposed a reform of the cryptocurrency income tax system in December, reducing the personal cryptocurrency income tax rate from 55% to 20% to attract international crypto enterprises and investors.
Opportunities and Challenges in Hong Kong's Web3.0 Ecosystem
Looking ahead to 2025, Hong Kong's Web3.0 ecosystem is facing unprecedented opportunities and challenges. We need to fully leverage the institutional advantages of 'One Country, Two Systems' to achieve stable and long-term development. Promoting the development of emerging industries requires not only a strict licensing system and a sound regulatory framework but also the gathering of funds, talent, and technological resources. These factors are the cornerstones of industry growth, and none can be absent. Funding provides the drive for Web3.0 innovation, talent injects wisdom, and technology is key to breakthroughs and efficiency. The Web3.0 industry in Hong Kong must grow from its infancy to maturity under the coordination of these factors and secure a place in the competition. The author suggests advancing Hong Kong to become the global center for Web3.0 industry development from several aspects.
1. Virtual Asset ETF: Expanding Market Scale
As of the end of 2024, the scale of Hong Kong's spot Bitcoin ETF reached $400 million, significantly lower than the $105.4 billion in the United States. This reflects the United States' first-mover advantage, mature investor base, and complete ecosystem in the virtual asset market. Although Hong Kong is an international financial center, there is still room for improvement in sales channels, investor participation, and product innovation. To narrow the gap, Hong Kong needs to optimize regulatory policies, attract more institutional investors, and enhance market education and investor protection. In addition, Hong Kong can leverage its close ties with mainland China to explore the 'Digital Asset Connect' mechanism, allowing qualified investors in mainland China to invest in Hong Kong's virtual asset ETFs and security tokens. 'Digital Asset Connect' can be modeled after the 'Hong Kong Stock Connect' mechanism, setting an annual investment quota (e.g., 5 billion RMB) and requiring investors to meet entry thresholds through asset scale or risk assessment tests. At the same time, blockchain technology will be used to enhance transaction transparency and regulatory efficiency, ensuring that capital flows and transaction records are traceable, thereby promoting the healthy development of the virtual asset market. The capital flow of mainland investors through 'Digital Asset Connect' will need to comply with cross-border capital supervision and anti-money laundering scrutiny. To prevent excessive speculation, an annual investment cap (e.g., 100,000 RMB) will be set for qualified investors. Establish investor entry thresholds, requiring investors to possess a certain scale of financial assets (e.g., 1 million RMB) or pass a cryptocurrency asset risk assessment test. Prioritize opening to institutional investors, gradually expanding to individuals. Relying on the infrastructure of Shanghai-Hong Kong Stock Connect and Shenzhen-Hong Kong Stock Connect, build a trading system for 'Digital Asset Connect' to support mainland investors in conveniently investing in Hong Kong's virtual asset spot ETFs and security tokens. Use blockchain technology to enhance transaction transparency and regulatory efficiency, ensuring that capital flows and transaction records are traceable. Through these measures, promote the healthy development of the digital asset market.
2. Compliant Stablecoins: Promoting the Internationalization of the RMB
Stablecoins, as a new type of digital payment tool, play an important role in cross-border payments and trade settlements. The scale of stablecoins, primarily denominated in USD, continues to break through, with global stablecoin trading volume exceeding $5.1 trillion in the first half of 2024, approaching Visa's $6.5 trillion during the same period, with a further increase of $3.1 trillion in the third quarter. Governments around the world have introduced stablecoin licensing systems, and Western fintech giants like PayPal and Revolut have also actively responded by launching their own stablecoins. Although Tether's USDT has surpassed $140 billion in scale, accounting for 66% of the stablecoin market share, Tether is not regulated by most countries and regions. Mainland China and Hong Kong should support the issuance of Hong Kong dollar and RMB stablecoins and connect them with digital RMB, encouraging foreign trade enterprises in Greater China and Belt and Road countries to use the Hong Kong Monetary Authority-approved Hong Kong dollar or RMB stablecoins to enhance cross-border trade settlement efficiency, reduce costs, and promote the internationalization of the RMB and regional financial cooperation. To this end, it is necessary to coordinate from three aspects: cross-border settlement, application scenario expansion, and regulatory guarantees.
In cross-border trade settlement, a blockchain-based stablecoin settlement platform can be piloted in key regions such as the Guangdong-Hong Kong-Macao Greater Bay Area and the Yangtze River Delta, supporting Hong Kong dollar and RMB stablecoin payments for instant settlement and reducing intermediary links. The pilot scope will prioritize coverage of cross-border e-commerce, supply chain enterprises, and large commodity trade state-owned enterprises, setting an annual total quota (e.g., 50 billion RMB) and a single enterprise cap to ensure controllable risks. Provide policy incentives such as fee reductions and tax breaks, and launch training programs to help enterprises familiarize themselves with the processes.
At the same time, explore the docking of stablecoins and digital RMB to enhance payment convenience and expand application scenarios, such as supporting cross-border e-commerce platforms to deploy stablecoin payments, addressing payment delays and exchange rate fluctuations, and promoting the internationalization of the RMB. Hong Kong can support the issuance of RMB-denominated stablecoins to expand their application scenarios in international trade. Encourage fintech companies to collaborate with traditional financial institutions to build infrastructure and promote innovative cooperation. For example, in 2024, the American company Stripe acquired the US stablecoin infrastructure company Bridge for $1.1 billion, and the UK stablecoin aggregation sales platform BVNK completed a $50 million financing, with a valuation of $750 million. The Asian version of BVNK—Hong Kong-based fintech company AlloyX—recently completed a multi-million dollar financing, launching a multi-functional wallet that supports stablecoins, providing one-stop services for account management, currency exchange, and payment settlement, and introducing stablecoins into supply chain finance for bulk trade, using smart contracts to reduce transaction costs and default risks.
Finally, establish a cross-border regulatory mechanism between mainland China and Hong Kong, utilizing blockchain to achieve traceability of capital flows and real-time monitoring of large and high-risk transactions. Improve anti-money laundering and anti-terrorism rules, strengthen AML and KYC compliance, and promote information sharing. The initial pilot will focus on cross-border trade, e-commerce payments, and supply chain finance in the Guangdong-Hong Kong-Macao Greater Bay Area, gradually expanding. Strengthen technical security safeguards, conduct regular audits, and provide security guidelines to enhance risk prevention capabilities. Through these measures, the Hong Kong dollar and RMB stablecoins will inject new momentum into cross-border trade and the internationalization of the RMB.
3. RWA Asset Tokenization: Reshaping Investment and Financing Models
Tokenization technology is driving a global financial transformation, converting real-world assets (RWA) such as funds, photovoltaic power plants, carbon assets, and real estate into easily divisible and rapidly circulating digital tokens, supporting 24/7 low-cost global trading. This model not only makes asset trading more efficient and convenient but also lowers the investment threshold, providing a new solution for capital allocation and inclusive finance. Boston Consulting Group predicts that by 2030, the global tokenized asset scale will reach $16 trillion. Wall Street financial giants are competing to launch RWA tokenized products. For example, Goldman Sachs' GS DAP platform successfully helped the European Investment Bank issue digital bonds as early as 2021; BlackRock launched the tokenized private equity fund BUIDL on Ethereum, allowing investors to trade tokens year-round while earning returns. As of the end of 2024, BUIDL's scale exceeded $550 million. To encourage mainland enterprises with investment and financing needs and quality asset targets to raise funds in the Web3.0 industry through Hong Kong's compliant tokenized securities laws and virtual asset trading platforms, Hong Kong can take the following measures:
First, Hong Kong should fully leverage its advantages as an international financial center and actively improve the legal and regulatory framework for tokenized securities. For RWA assets such as photovoltaic power plants, data centers, carbon assets, and high-quality commercial real estate, Hong Kong can work with relevant industry institutions in mainland China to develop standardized tokenization plans, helping enterprises reduce financing costs and time costs. Secondly, Hong Kong should deepen cooperation with regulatory agencies in mainland China to promote connectivity between the financial markets of both regions. Through mechanisms such as 'Digital Asset Connect,' qualified investors in mainland China can easily participate in the trading of tokenized securities in Hong Kong, thereby enhancing the liquidity and depth of the Hong Kong market.
At the same time, professional institutions in Hong Kong can provide Hong Kong RWA tokenization legal and financial consulting services for mainland enterprises, helping them become familiar with the issuance and trading processes of tokenized securities. Mainland China and Hong Kong should jointly promote the research and application of blockchain technology and smart contracts. Through technological innovation, develop smart contracts to automate revenue distribution, asset management, and risk control, improving the transparency and efficiency of asset management while reducing transaction costs. Both regions should strengthen market education and investor protection. Hong Kong can enhance mainland enterprises' and investors' understanding of tokenized securities through seminars, training courses, and promotional activities. For instance, the author published a book (RWA and Tokenization - The Investment and Financing Transformation in the Web3.0 Era) in October 2024, providing an in-depth analysis of the RWA industry to help investors understand the characteristics and risks of relevant assets.
Finally, Hong Kong needs to establish a sound investor protection mechanism to ensure that investors' rights and interests are effectively protected. Hong Kong should also actively participate in international financial cooperation, promoting the global standardization and mutual recognition of tokenized securities. By collaborating with international financial organizations and regulatory bodies, Hong Kong can facilitate the global circulation and trading of tokenized securities, expanding international financing platforms for mainland enterprises. For assets such as photovoltaic power plants, data centers, and high-quality commercial real estate, Hong Kong can collaborate with international energy agencies, carbon exchanges, data center associations, and real estate investment institutions to promote the establishment of global tokenization standards for these assets, enhancing their international recognition and liquidity.
Looking to the future, Hong Kong has unique advantages in building the Web3.0 ecosystem. By improving the legal and regulatory framework, promoting technological innovation, deepening international cooperation, and enhancing market education, Hong Kong is expected to become the preferred platform for mainland enterprises to raise funds through tokenized securities. As a member of the Hong Kong government's Cyberport Entrepreneurship Advisory Committee and a judge for the Innovation and Technology Incubation Fund, the author has noticed that in the past two years, more and more global Web3.0 technology entrepreneurs are choosing to establish their businesses in Hong Kong. If the 'Digital Asset Connect' mechanism and Hong Kong dollar and RMB stablecoins can fully leverage the institutional advantages of 'One Country, Two Systems' to serve the vast market demand in mainland China, Hong Kong will not only attract more international capital and top talent but will also further solidify its position as a global financial center. With the synergy of capital, technology, and talent, Hong Kong is bound to seize opportunities in the Web3.0 era, riding the wave of the global digital economy.
