Consensus 2025: The Policy and Ecological Evolution of Web3 in Hong Kong

Nearly ten thousand participants gathered at the Hong Kong Convention and Exhibition Centre, marking the grand occasion of the global Web3 industry's top summit landing in Asia for the first time. Choosing 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 Eastern and Western values. From tokenized green bonds to the regulatory sandbox for Hong Kong dollar stablecoins, from RWA ecosystems to decentralized AI, Hong Kong is using policy innovation as an engine to push the narrative of Web3 from technical experimentation to deep integration with the real world.

1. Regulation First: Exploring the Compliance Boundaries of Web3 in an Orderly Manner

If the Hong Kong Web3 ecosystem can be likened to a building, a reliable and practical regulatory framework serves as 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 evolution 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, custodial service providers, and over-the-counter trading activities, Hong Kong has paved the way for value interconnectivity 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 continued to attract capital and businesses. 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. With Trump's return to the political arena, the regulatory environment for cryptocurrencies in the United States has clearly improved, as the years-long high-pressure punitive regulatory model is fading away, and other regions continue to send crypto-friendly signals. In this context, 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 practical: the focus should be 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 led to risks that can no longer be ignored. In the past, Hong Kong and the United States seemed to be on different paths at many points in time, but in reality, they were pursuing the same goal: maintaining innovation while preventing the potential financial risks posed by this new category of assets.

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

Stablecoins are a hot topic at this conference and have been a key area of focus and investment in Hong Kong over the past two years. Several institutions have expressed their intention to apply for licenses to issue stablecoins pegged to the Hong Kong dollar.

Although it is impossible to determine how much of the cake the Hong Kong dollar stablecoin can ultimately grab in an environment where USD stablecoins hold an absolute market share, developing a Hong Kong dollar stablecoin is an inevitable choice for Hong Kong to seize the initiative in the development of Web3 and to capture future financial opportunities. The connection channel with fiat currency is currently the most valuable scenario worth developing in the crypto ecosystem and the easiest to accumulate value, while stablecoins are an essential infrastructure for building that channel. At the same time, the next stage of development for Hong Kong's Web3 focuses on breaking the barrier between the virtual world and the real world, and stablecoins serve as the core link connecting traditional finance and the crypto world, potentially becoming widely accepted payment tools.

At the current stage, stablecoins not backed by the US dollar cannot compete with US dollar stablecoins in the short term. However, through mechanism innovation (such as interest-yielding stablecoins) and application innovation (such as RWA), Hong Kong dollar stablecoins are expected to avoid direct competition with US dollar stablecoins, thereby attracting a more diverse range of institutions and users to participate.

Of course, we also need to distinguish between the Hong Kong dollar stablecoin and the digital Hong Kong dollar. Although there may be potential competition between the digital Hong Kong dollar and the Hong Kong dollar stablecoin in the short term, there is hope for resource sharing and complementary advantages in the future: the Hong Kong dollar stablecoin will far exceed the digital Hong Kong dollar in terms of utilization, scalability, and friendliness in the virtual asset market, while the digital Hong Kong dollar will lead in value support and reliability.

3. RWA Tokenization: From Concept to a Trillion Market Fission

RWA is undoubtedly the hottest concept at this conference. Traditional financial giants generally believe that the tokenization of RWA is not a trend, but an inevitability.

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

However, at this stage, the initiative of tokenization narratives does not lie with Web3 but rather depends more on traditional institutions, seeing if they have enough motivation to change the status quo by putting their assets on-chain and tokenizing them. This is not easy for traditional institutions: any new technology attempting to migrate traditional assets/businesses to new domains usually struggles to succeed quickly, as the incremental value it creates may not be large enough, while the costs incurred are often high. The same goes for RWA. However, as international financial centers accelerate their layout in the tokenization market, Hong Kong urgently needs more resource-rich and asset-holding institutions to actively participate in tokenization innovation to gain more initiative in the transformation, thereby avoiding being quickly left behind in international competition. How to stimulate market vitality remains an important proposition.

In addition, 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, with a particular emphasis on tokenization applications in trade and cross-border scenarios, to rapidly expand the market size of RWA tokenization in Hong Kong.

4. ETF and OTC: The "Bright and Dark Duel" of Capital Channels

Another key measure for the development of Web3 in Hong Kong in 2024 is the launch of virtual asset spot ETFs. From the clear acceptance of relevant applications at the end of 2023 to the formal approval of 6 virtual asset spot ETFs listed on the Hong Kong Stock Exchange by the end of April, it took only a little over a hundred days, which sufficiently reflects the "speed" and "efficiency" of Hong Kong's regulatory authorities. The launch of virtual asset spot ETFs has opened another funding channel for a wide range of investors to allocate to crypto assets. By the end of 2024, the total asset management scale of Bitcoin spot ETFs in Hong Kong has exceeded 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 supporting physical subscriptions and being the first to launch an Ethereum spot ETF, but these have not led to sustained increments. Although the shares of the ETF from physical subscriptions accounted for more than 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 affected investor enthusiasm due to its lack of support for staking. Although the current yield from Ethereum staking is only around 3%, the additional income generated from staking is likely an important factor in attracting investors, especially traditional financial investors, and is also a key characteristic that distinguishes Bitcoin from Ethereum.

In addition to the ETF channel, Hong Kong has gradually formed a three-tier funding network of "licensed exchanges - compliant OTC - banks." Currently, the focus of liquidity is in the OTC market. Although trading platforms remain the most important infrastructure in the crypto market, recent trends indicate that crypto liquidity is gradually gathering in the OTC (over-the-counter) market. The current OTC market in Hong Kong processes transaction volumes of nearly tens of billions of dollars annually, and thanks to the geographically 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 older age groups. In recent years, the Hong Kong OTC market has also attracted attention from numerous users and institutions in the fields of international trade and cross-border payments, becoming another important channel for Hong Kong to gather global funds.

The Hong Kong government is considering bringing OTC under regulatory oversight. Although this may affect trading activity in the short term, in the long run, it can help Hong Kong attract more compliant capital inflow, while also providing another channel for the free flow of funds outside of licensed trading platforms. Perhaps in the near future, a safe and compliant OTC market can not only help improve liquidity in the Hong Kong market but also become an important channel connecting the cryptocurrency market and Web3 ecosystem with the real liquidity market.