Author: Yue Xiaoyu

The blockchain industry in Hong Kong was previously thriving, but recently it seems to have quieted down.

What is the current state of the cryptocurrency scene in Hong Kong?

Recently, I have been living in Hong Kong and frequently communicating with many friends and projects here, gradually gaining a clearer understanding of the regulatory environment and policy trends for Web3 in Hong Kong.

Here are the key points summarized in 10 items.

1. First, the conclusion: I am pessimistic about the development of Hong Kong's Web3 industry in the short to medium term, but optimistic in the long term.

2. The short to medium-term pessimism is due to the repeated oscillation of regulatory policies and the internal conflicts between different government bodies.

It's not just a conflict between the central government and the Hong Kong government; there are also conflicts between the administrative departments and regulatory bodies within the Hong Kong government.

The central government wants financial stability, the Hong Kong government wants to develop new industries, the administrative departments want innovation, and the regulatory bodies want conservatism.

The fundamental contradiction lies in the fact that the decentralization and global liquidity of blockchain are inherently incompatible with the government's strict foreign exchange controls and restrictions on capital outflow.

3. The long-term optimism is because the trend is irreversible; stablecoins do have real value, especially for cross-border trade and payments, which represent a significant transformation.

At the same time, the U.S. is accelerating the legislation of the cryptocurrency industry, taking legislative and leading roles, and sooner or later, other countries and regions will be forced to "open their doors."

However, the decision-making time has not yet arrived, so there can still be oscillation and observation, but the longer it drags on, the more passive it becomes.

Of course, it cannot be denied that Hong Kong has at least taken a crucial step, opening a door that can gradually be expanded later.

More importantly, Hong Kong remains China's window to the outside world or financial backdoor; it has just been slightly closed or more tightly controlled, but this window must exist.

4. The first batch of licenses for Hong Kong dollar stablecoins will only be granted to local consortiums, with a maximum of no more than 5 licenses.

JD.com and Ant Group have withdrawn their applications for stablecoin licenses, primarily because the mainland government is concerned that these tech companies are too large and their risks are difficult to manage.

Of course, for tech giants like JD.com and Ant Group, if Hong Kong does not issue licenses, they can apply in other regions.

As a city with a population of 7 million, Hong Kong's market size is not that large, and tech giants still need to pursue stablecoin business.

5. The Hong Kong dollar stablecoin is fundamentally difficult to implement; it's not just a licensing issue, but the biggest obstacle is the limitations on business scope under strict risk control.

For example, one of the biggest limitations of the current stablecoin policy in Hong Kong is that end users must undergo KYC.

This means that the Hong Kong dollar stablecoin has no secondary market and can only circulate within whitelisted addresses.

This is actually to further limit the risk scope, but it also sacrifices the usability of the stablecoin, ultimately turning it into a Hong Kong version of "digital renminbi."

6. Although the Hong Kong dollar stablecoin may not be feasible, RWA (Real World Assets) has great potential!

The regulatory logic in Hong Kong is to conduct tiered regulation based on underlying assets.

The underlying asset of stablecoins is fiat currency, so the regulatory requirements are the highest;

Next is RWA based on financial assets, which may be classified as securities;

Finally, RWA based on physical assets has the lowest regulatory requirements.

7. Currently, there are many projects using physical assets as the underlying RWA, while there are very few RWA based on financial assets.

However, RWA based on financial assets is far superior to RWA based on physical assets because physical assets need to be financialized before tokenization, which is a long, costly, and low-yield process.

Currently, the opacity of physical asset RWA is too high; the physical asset portion is basically a black box, and most projects either ride on concepts or have money laundering suspicions.

8. I used to think that high-quality assets in the traditional financial world were scarce and would be snatched up.

However, after talking with startup teams working on RWA, I found that high-quality assets in the traditional financial world still lack financing sources; one could say that high-quality assets exceed the available capital.

The value of tokenization lies in lowering the threshold for obtaining funds.

9. The evolution of RWA follows this path: fiat currency on-chain → bonds on-chain → stocks on-chain → financial derivatives on-chain → physical assets on-chain.

Fiat currency on-chain has too high regulatory requirements and is not something small businesses can participate in;

Physical assets on-chain are not high-quality assets, and even if they are on-chain, they are not high-quality assets;

The middle part of standard financial products on-chain has enormous potential, genuinely solving the problem of asset-side lack of funds and fund-side lack of assets.

10. Do not speculate on regulatory attitudes; it will only lead to severe losses.

Looking at this issue from the opposite perspective: the lack of clear and concrete regulations is actually a protection and barrier for existing cryptocurrency practitioners.

If we wait until regulations are truly implemented and big companies rush in, what opportunities will we have?

So now is a great window of opportunity.

Opportunities are reserved for those who are prepared; those who waver are exiting, while those who are determined are seizing the time to build. The road to success is never crowded.

Be well-prepared in terms of technology and products, and when the regulatory starting gun fires, you can sprint directly.

The premise is that industry practitioners must believe in this industry and that the projects they are working on genuinely address market needs and problems.

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