Consensus 2025: Policy and Ecological Transformation of Web3 in Hong Kong

Nearly 10,000 industry professionals gathered at the Hong Kong Convention and Exhibition Centre to participate in the global Web3 industry top summit, Consensus, which is being held for the first time in Asia. Hong Kong was chosen as the venue not only because of its status as a financial innovation testing ground but also because it is a key hub connecting the flow of values between the East and West. From the tokenization of green bonds to the regulatory sandbox for Hong Kong dollar stablecoins, from the on-chain ecosystem of physical assets to decentralized artificial intelligence, Hong Kong is driving the deep integration of Web3 with the real world through innovative policies.

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

If we compare the Hong Kong Web3 ecosystem to a building, then a reliable and highly applicable regulatory framework is its foundation. Since the policy declaration was released 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 under the premise of safety and compliance. By establishing a comprehensive regulatory framework covering 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 markets.

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

However, the global Web3 landscape has undergone significant changes in the past two years. The regulatory environment for cryptocurrencies in the United States has noticeably improved, with the long-standing high-pressure punitive regulatory model disappearing. Regions such as Singapore and Dubai are also continuously sending signals that are friendly to cryptocurrencies. Against this backdrop, how can Hong Kong seize this wave of innovation? The development of Web3 and virtual assets in Hong Kong must not only be theoretical but also pragmatic: the government's focus is on technological and application innovations that can have a substantial impact on the economy and society.

Although the market share of crypto assets in the global financial system is less than 1%, their rapid expansion and increasing correlation with mainstream financial assets have made their risks impossible to ignore. Hong Kong and the United States may seem to take different paths at many points in time, but in reality, they are pursuing the same goal: to maintain innovation while preventing potential financial risks brought by this new category of assets.

2. Hong Kong Dollar Stablecoin: Hong Kong's "Financial" Ambitions

Stablecoins are a hot topic at this year's Consensus conference and have been a key focus area of continuous attention and investment in Hong Kong over the past two years. Several financial institutions are preparing to issue stablecoins pegged to the Hong Kong dollar, including Standard Chartered Hong Kong, Anping Group, and Hong Kong Telecom, which plan to establish a joint venture, as well as the issuer of USDC collaborating with the three major note-issuing banks in Hong Kong to launch HKDCoin.

Although it is impossible to determine how much market share the HKD stablecoin can eventually occupy in the current dollar-dominated stablecoin market, developing the HKD stablecoin is an inevitable choice for Hong Kong to seize the initiative in the development of Web3 and to gain a foothold in the future of finance. Stablecoins are the core link between traditional finance and the crypto world, and may become widely accepted payment tools.

The development of the Hong Kong dollar stablecoin faces numerous challenges, including how to issue it, how to regulate it, and which institutions will be the first participants. At this stage, stablecoins not backed by USD assets are unlikely to compete with USD stablecoins in the short term, but through mechanism innovation (such as interest-bearing stablecoins) and application innovation (such as real asset tokenization), the Hong Kong dollar stablecoin is expected to avoid direct competition with USD stablecoins and attract a more diverse range of institutions and users.

It is worth noting that the HKD stablecoin is different 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 friendliness in the virtual asset market, while the digital HKD will lead in terms of value support and reliability.

3. Physical Asset Tokenization: From Concept to the Trillion Market's Transformation

The on-chainization of physical assets is undoubtedly the hottest concept at this year's Consensus. Traditional financial giants generally believe that the on-chainization of physical assets is not a trend, but an inevitability. Hong Kong is actively embracing this wave, with the 2024 policy address proposing to promote the on-chainization of physical assets and the construction of a digital currency ecosystem. The Hong Kong Monetary Authority has launched the "Digital Bond Subsidy Scheme" to encourage the capital market to adopt tokenization technology. The government is also considering promoting gold tokenization.

However, at this stage, the initiative of tokenization narratives does not lie with Web3, but rather depends more on whether traditional institutions have enough motivation to change the status quo and put their assets on-chain and tokenize them. This is not easy for traditional institutions, as the incremental value brought by new technologies may not be significant enough, while the costs often tend to be high. As Wall Street accelerates its layout in the tokenization market, Hong Kong needs more resource-rich and asset-holding institutions to actively participate in innovation to gain more initiative in the 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. It should pay special attention to the tokenization applications in trade and cross-border related scenarios to rapidly expand the market scale of physical assets on-chain.

IV. ETFs and Over-the-Counter Trading: Diversification of Funding Channels

Another key initiative for the development of Web3 in Hong Kong in 2024 is the launch of a virtual asset spot ETF. From accepting applications at the end of 2023 to officially listing by the end of April 2024, Hong Kong regulators have demonstrated "speed" and "efficiency". By the end of 2024, the total asset management scale of Bitcoin spot ETFs in Hong Kong has surpassed 3 billion HKD, accounting for 0.66% of the overall Hong Kong ETF market.

Compared to the United States, the main advantages of Hong Kong's virtual asset spot ETF are the support for physical subscription and redemption, and being the first to launch the Ethereum spot ETF. However, these advantages have not resulted in sustained growth. Although the shares of the ETF for physical subscription accounted for over 50% in the initial issuance, Bitcoin holders are reluctant to easily release liquidity due to macro expectations. Additionally, the Ethereum spot ETF's lack of support for staking has dampened investor enthusiasm.

In addition to ETFs, Hong Kong has gradually formed a three-tier funding network of "licensed exchanges - compliant over-the-counter trading - banks". At this stage, the focus of liquidity is on the over-the-counter trading market. The Hong Kong over-the-counter trading market handles transactions worth nearly tens of billions of dollars each year, while benefiting from the cryptocurrency exchange stores, a regionally distinctive physical business model that attracts investors of all ages from around the world. In recent years, the Hong Kong over-the-counter trading market has also attracted attention from numerous users and institutions in international trade and cross-border payment sectors, becoming another important channel for gathering global funds.

Hong Kong is considering bringing over-the-counter trading under regulatory oversight. While this may affect trading activity in the short term, in the long run, it can help attract more compliant funds, while also providing an additional channel for the free flow of capital outside licensed virtual asset trading platforms. In the future, a safe and compliant over-the-counter trading market can not only help improve liquidity in the Hong Kong market but may also become an important channel connecting the crypto market and the Web3 ecosystem with the real liquidity market.