Consensus 2025 Revelation: Policies and Ecological Fission of Web3 in Hong Kong

The Hong Kong Convention and Exhibition Centre welcomed nearly ten thousand participants, marking the first time the global Web3 industry’s top summit Consensus is held in Asia. The choice of Hong Kong as the venue is not only because it is a testing ground for financial innovation but also a hub for the flow of values between the East and the West. From tokenized green bonds to the regulatory sandbox for HKD stablecoins, from RWA ecosystems to decentralized AI, Hong Kong is driving the development of Web3 from technological experimentation towards deep integration with the real world through policy innovation.

I. Regulatory Precedence: Exploring the Compliance Boundaries of Web3 in an Orderly Manner

The foundation of Hong Kong's Web3 ecosystem lies in a reliable and highly applicable regulatory framework. Since the release of the policy declaration at the end of 2022, Hong Kong has continuously reviewed and improved its regulatory system to promote the autonomous development of the virtual asset ecosystem within the boundaries of safety and compliance. By establishing a comprehensive regulatory framework that covers virtual asset exchanges, stablecoin issuers, custodians, and over-the-counter trading activities, Hong Kong has paved the way for value interconnection and long-term innovation in the financial market.

These measures have not only enhanced the credibility of Hong Kong's virtual asset market but have also continuously attracted capital and enterprises. By the end of 2024, Hong Kong's Cyberport has gathered nearly 300 Web3 companies, accumulating financing of over 400 million Hong Kong dollars.

However, the global Web3 landscape has undergone significant changes in the past two years. The regulatory environment for cryptocurrencies in the United States has notably improved, with the long-standing high-pressure punitive regulatory model disappearing. Regions such as Singapore and Dubai continue to send crypto-friendly signals. In the context of increasing competition in the global Web3 space, how can Hong Kong seize this wave of innovation? The development of Web3 and virtual assets in Hong Kong requires not only theoretical discussions but also pragmatic actions: the Hong Kong government is focused on technological innovation and application innovation that can have a substantial impact on the economy and society.

Although the market share of cryptocurrency assets in the global financial system is less than 1%, its rapid expansion and increasing correlation with mainstream financial assets have made its risks impossible to ignore. At many points in time, Hong Kong and the United States may seem to be taking different paths, but in reality, they are pursuing the same goal: to maintain innovative activities while mitigating the potential financial risks posed by this new category of assets.

2. HKD Stablecoin: Hong Kong's "Financial" Ambition

Stablecoins are a hot topic at this year's Consensus conference and have been a key focus of attention and investment in Hong Kong over the past two years. Several financial institutions are planning to establish joint ventures, with the expectation of applying for licenses from the Hong Kong Monetary Authority under the new regulatory framework to issue stablecoins pegged to the Hong Kong dollar.

Developing a Hong Kong dollar stablecoin is an inevitable choice for Hong Kong to seize the initiative in Web3 development and capture future financial opportunities. Stablecoins are the infrastructure for building fiat currency connection channels, as well as the core link between traditional finance and the crypto world, and may become a widely accepted payment tool.

At this stage, non-USD asset-backed stablecoins are difficult to compete with USD stablecoins in the short term. However, through mechanism innovation (such as interest-bearing stablecoins) and application innovation (such as RWA), HKD stablecoins are expected to avoid direct competition with USD stablecoins, thereby attracting a more diverse range of institutions and users to participate.

It is important to note that the HKD stablecoin differs from the digital HKD. Although there may be potential competition between the two in the short term, there is hope for resource sharing and complementary advantages in the future: the HKD stablecoin will far surpass the digital HKD in terms of utilization, scalability, and user-friendliness within the virtual asset market, while the digital HKD will lead in terms of value support and reliability.

III. RWA Tokenization: From Concept to the Explosion of a Trillion-Yuan Market

RWA is undoubtedly the hottest concept at this year's Consensus. Traditional financial giants generally believe that the tokenization of RWA is not a trend, but a necessity.

Hong Kong has been actively embracing the wave of RWA tokenization. The 2024 Policy Address proposed to promote RWA tokenization and the construction of a digital currency ecosystem, while the Hong Kong Monetary Authority has launched the "Digital Bond Financing Scheme" to encourage the adoption of tokenization technology in the capital market. The Hong Kong SAR government is considering promoting gold tokenization.

At this stage, the initiative of tokenization narratives does not lie with Web3, but rather depends more on Web2 institutions and whether they have sufficient motivation to change the status quo by putting their assets on-chain and tokenizing them. As Wall Street in the United States accelerates its layout in the tokenization market, Hong Kong urgently needs more resourceful and asset-holding institutions to actively participate in tokenization innovation in order to gain more initiative in this transformation.

Hong Kong should focus on the most suitable standardized financial assets for tokenization in the short term, fully leveraging its geographical and institutional advantages as an international financial, trade, and shipping center. The emphasis should be on tokenization applications in trade and cross-border related scenarios, rapidly expanding the market size of RWA tokenization in Hong Kong.

4. ETF and OTC: The "Light and Dark Clash" of Capital Channels

Another key measure for the development of Web3 in Hong Kong in 2024 is the launch of a virtual asset spot ETF. By the end of 2024, the total asset management scale of Bitcoin spot ETFs in Hong Kong has exceeded HKD 3 billion, accounting for 0.66% of the overall ETF market in Hong Kong.

Compared to the United States, the main advantages of Hong Kong's virtual asset spot ETFs lie in supporting physical subscriptions and being the first to launch a spot Ethereum ETF. However, these have not led to sustained growth. Although the share of ETFs with physical subscriptions accounted for over 50% of the initial issuance scale, the Bitcoin holding community is reluctant to easily release their liquidity due to macro expectations, while the Ethereum spot ETF has dampened investor enthusiasm due to its lack of staking support.

In addition to the ETF channels, Hong Kong has gradually formed a three-tiered funding network of "licensed exchanges-compliant OTC-banks." Currently, the focus of liquidity is in the over-the-counter market. The Hong Kong OTC market processes nearly ten billion USD in transaction volume each year, and thanks to the regionally distinctive entity of crypto exchange shops, it attracts not only young investors from around the world but also appeals to participants in the middle to high age range.

The Hong Kong government is considering bringing OTC under regulatory oversight. While this may impact trading activity in the short term, in the long run, it can help Hong Kong attract more compliant capital inflows, while also providing another channel for the free flow of funds beyond licensed VATPs. A safe and compliant OTC market can not only help improve liquidity in the Hong Kong market but also serve as an important channel connecting the crypto market and the Web3 ecosystem with the real liquidity market.