The main theme of Hong Kong in the next decade will be integration. We will actively build a more open, innovative and robust financial market driven by the principles of "no finance without regulation", "long-termism" and "license first".
Article author: Echo, MetaEra
Source: MetaEra
Recently, MetaEra Hong Kong Zone was launched, and the "Hong Kong Encryption Policy Two-Year Anniversary Celebration" series of activities took the lead in the launch. An important part of it is "High-end Dialogue: Hong Kong Web 3.0 Influential Leaders". The person interviewed in this issue is HashKey Exchange CEO Livio Weng.
Introduction
Livio Weng, COO of HashKey Group and CEO of HashKey Exchange. He was appointed as the new CEO of HashKey Exchange in 2023. HashKey Exchange is committed to integrating with traditional financial institutions and has promoted cooperation with the banking, securities and payment industries. Under his leadership, HashKey Exchange has made significant progress in potential tracks in the cryptocurrency field, such as compliance, RWA (Real World Assets), ETF (Exchange Traded Funds), and stablecoins.
Highlights
· The main theme of Hong Kong in the next decade will be integration. We will actively build a more open, innovative and robust financial market driven by the principles of "no finance without regulation", "long-termism" and "license first".
Hong Kong can not only issue Hong Kong dollar stablecoins, but also issue US dollar stablecoins. The Asian market may also have regulated stablecoins, and even form a stablecoin exchange market. These may form new formats and are worth looking forward to.
In the future, there may no longer be a clear boundary between Web3 and traditional finance. Instead, they will blend with each other and play to their strengths. The intersection will have a profound impact on the industry.
We are optimistic about the development potential of Singapore and the Middle East as emerging markets and will focus on these two places. At the same time, Hong Kong will always be our headquarters.
In this bull market, competition may not be the main theme of licensed exchanges, but rather a joint push for the opening of industry policies.
Full Interview
MetaEra: Let's first talk about the creation and development of HashKey. The Hong Kong Special Administrative Region only issued the "Policy Declaration on the Development of Virtual Assets in Hong Kong" in October 2022, but HashKey was born in 2018. In the face of policy uncertainty and the retreat of most peers, how did the HashKey management team rely on thinking and decision-making to persist in development and growth? What experiences and lessons can you share with us?
Livio Weng: This question is closely related to the business philosophy that HashKey has always adhered to, and its core can be summarized in four words: long-termism . Dr. Xiao Feng saw the commercial potential of virtual asset exchanges in 2013, but he never chose to do it because there was a lack of formal licenses in the industry at that time. As a senior financial practitioner, he was keenly aware that this was a typical financial business that could be eaten, but due to the lack of licenses, it might cause unpredictable problems in the future. As we have seen this year, many unlicensed exchanges are facing civil and even criminal liability around the world, including the United States, mainland China, and Hong Kong. Therefore, we firmly believe that unregulated financial business should not be attempted lightly, which is closely linked to our principle of "long-termism". All of HashKey's businesses follow the principle of "licensing first and then operating". We have obtained licenses in Japan, Singapore, Hong Kong and other places, and more licenses are being applied for. We always insist on conducting business after obtaining regulatory licenses, and pursue the concept of "no regulation, no finance" .
Hong Kong began to have the prototype of a licensing system in 2018. At that time, applying for a license was not mandatory, and there would be no corresponding consequences for not applying. But in the past two years, as a practitioner, applying for licenses such as VATP has become essential. It was also during this period that Dr. Xiao Feng realized that since Hong Kong began to " have laws to rely on" , and he had always recognized Hong Kong's special status, he made an industry-leading decision: to come to Hong Kong and operate an exchange through a licensed method. In fact, the entire industry has also been experiencing a cleanup of unlicensed exchanges in the past two years. We have witnessed the withdrawal of several large offshore exchanges, which actually marks the entire industry's official entry from the unlicensed era to the licensed era. Under the two value orientations of "long-termism" and "no finance without a license", we applied for a Hong Kong license in 2018, officially opening the official era of Hong Kong VATP 1.0.
The history of HashKey Group is also very interesting. In 2015, Vitalik, the founder of Ethereum, came to China to look for Dr. Xiao Feng. He had looked for him in other parts of the world but could not find support. When he arrived in Shanghai, Vitalik had a deep exchange with Xiao Feng. Xiao Feng was impressed by the young man's firm belief and the charm of blockchain, so he led the first round of investment in Ethereum. He took out a part of the profit from this investment and established HashKey. HashKey started as a capital investment and then got involved in fields such as industry infrastructure. This is our development process.
In summary, long-termism does have its short-term sacrifices, such as not being able to participate in operations during the early golden period of industry development. But it also lays a solid foundation for future long-term operations. For example, now we find that licensing has enabled us to establish more and deeper connections with the world, especially the traditional financial industry. Licensing will also bring more possibilities for the development of exchanges in the new era. Losing something in one place, gaining something in another. You give up something in exchange for more important and long-term benefits.
MetaEra: The Hong Kong Securities and Futures Commission issued the VATP license manual and transitional arrangements for the licensing system on May 31 last year. The transition period has ended. Hashkey Exchange has obtained a full license and can operate legally, but it is rumored that some exchanges that have not obtained a license are still operating and can deposit and withdraw funds. What do you think of this hazy transition "gray status quo"? What changes are expected in the future?
Livio Weng: This is actually the core principle we have been advocating to the industry: people who abide by the rules should not suffer losses. People who abide by the rules will constrain their behavior according to the rules, while those who do not abide by the rules will act recklessly. In the long run, it will lead to the phenomenon of bad money driving out good money. Therefore, we see that there are still many unlicensed exchanges active in Hong Kong, especially in the retail market. At present, while issuing more licenses, Hong Kong first needs to consider how to take effective measures against those platforms that do not abide by the rules, otherwise the authority and seriousness of the licenses in Hong Kong will be questioned.
MetaEra: The public has a rich impression of HashKey, including HashKey Group, HashKey Exchange, HashKey Capital, HashKey Global, HashKey Capital Liquid... Each of them reflects the diversified face of this brand. What are the ecosystems that HashKey has established and how is the work divided? In which track will the focus be on achieving new breakthroughs in the future?
Livio Weng: You may be more familiar with the brand HashKey Capital at first. It is one of the top three cryptocurrency funds under management in the world and the largest cryptocurrency fund in Asia. In the past two years, you may have heard more about HashKey Exchange, which is our exchange in Hong Kong and the largest licensed virtual asset exchange in Hong Kong. The current capital scale has exceeded HK$5.5 billion, and the total transaction volume has exceeded HK$545 billion. Multiple business areas are making rapid breakthroughs.
In addition, there is HashKey Global, which is our licensed exchange in Bermuda. Our plans also include infrastructure services such as HashKey Cloud, HashKey Japan, and planned sub-brands in the Middle East, Europe and other regions. Overall, after more than a decade of development, the cryptocurrency industry has formed many sub-business areas. Major exchanges have built their own ecological prototypes or have taken initial shape.
Usually, exchanges are regarded as the main business of the ecosystem, because in the entire industry, the business model and profitability of exchanges are the clearest and most core. Many exchanges are established first, and then expanded to other businesses such as mining pools and wallets. HashKey is the opposite, because it took a long time for the regulation of exchanges to finally land. We first started with investment, and then extended to exchanges. Now the exchange is the core of the entire group. Our subsequent planning is also centered around exchanges, including the future HashKey Chain, which may be a public chain with financial regulatory characteristics, mainly for the majority of financial institutions. These sub-businesses will constitute the core strategic map of HashKey at different levels, that is, with exchanges as the core business, and other sub-businesses will flourish and have their own characteristics.
MetaEra: According to previous news, HashKey will jointly issue stablecoins in Hong Kong with Yuanbi Technology and ZhongAn Bank. At present, the Hong Kong dollar stablecoin and other stablecoins have been implemented step by step under the Hong Kong compliance framework. So what role do you think stablecoins play in the development of Web3? Will it be the first exposure to traditional finance?
Livio Weng: Stablecoins are a hot topic recently and have been brewing for a long time. Hong Kong's stablecoin is of great significance to Hong Kong's enrichment of its Web3 industry sector. Because Hong Kong is not only one of the global financial centers, but also a re-export trade center in Asia, and re-export trade is one of the important pillars of Hong Kong's economy. In cross-border trade, cross-border settlement is a common pain point. The traditional SWIFT system centered on Europe and the United States has shown lags in many aspects, including high costs, poor timeliness, and unavailability on holidays. With the rise of blockchain and stablecoins, alternatives have begun to emerge in many fields. For example, Yiwu Small Commodity Market has begun to use stablecoins in cross-border transaction settlements.
In the global trade system, many companies have to resort to bartering due to ineffective settlement, and this situation is still prevalent in cross-border trade. For example, Huawei, one of the world's largest "beef traders", is because it has exported equipment in many countries, but because of ineffective settlement, it can only use barter. With the rise of trade protectionism and trade diversification, the traditional system can no longer meet the needs, and stablecoins have become a more effective supplement or even alternative. In the past, stablecoins like USDT dominated the market, but many institutions were reserved about their use because they were not fully compliant. Hong Kong's policy does not allow local users to trade USDT on licensed exchanges in Hong Kong, which is also for risk prevention and protection of retail investors. Therefore, in the future environment of institutional entry, how institutions adopt stablecoins becomes a problem.
Hong Kong's introduction of a licensed stablecoin program complies with the needs of the entire industry. In some previously non-mainstream cross-border payment and settlement scenarios, it has indeed become a real need. RD InnoTech is making every effort to promote the issuance of the stablecoin HKDR to ensure that it meets strict regulatory standards and is ready to promote international payments. In October, RD InnoTech also announced that it plans to officially launch HKDR on HashKey Exchange with the approval of the Hong Kong Securities and Futures Commission in the future to promote more efficient and compliant cross-border payments.
The issuance of stablecoins in Hong Kong is of great help in solving the scenario needs of global institutions, which makes the team more confident: Hong Kong can not only issue Hong Kong dollar stablecoins, but also issue US dollar stablecoins. The Asian market may also have regulated stablecoins, and even form a stablecoin exchange market. These may form new formats and are worth looking forward to.
MetaEra: The 2024 Hong Kong Fintech Week will be held in Hong Kong on October 28. The Hong Kong Stock Exchange will launch the Hong Kong Stock Exchange Virtual Asset Index Series on November 15. This is undoubtedly a good thing for HashKey, but at the same time, Secretary for Finance Paul Chan also said that more exchanges will obtain licenses in Hong Kong, which will also bring more competition. How do you view these new policy information, and what do you think of your experience at the Hong Kong Fintech Week this time?
Livio Weng: My impression of the Hong Kong Fintech Week this time is that compared with last year, the scale, the number of participating institutions, and the activity and liveliness of the entire venue have all been significantly improved. Last year, market liquidity was hit hard, and the financial industry lost liquidity like losing vitality. This year, with the start of interest rate cuts, the market expects liquidity to be released, and the financial industry as a whole has shown a clear active trend. This is my first impression.
The second feeling is that the depth and quality of the conference content have been significantly improved. Almost all topics revolve around Crypto, especially discussions around virtual assets. There are many discussions about RWA, new currencies, etc., including the development of Hong Kong VATP. The number of topics about virtual assets has increased significantly throughout the conference. Compared with last year, this year's discussion has more details, and specific developments and initiatives are more concrete. I think Hong Kong has indeed reached this point.
Regarding competition, I think Hong Kong is still in the early stages of the entire industry. In the past, as the largest licensed exchange in Hong Kong, we mainly promoted the opening of policies. If we can unite more companies to promote the opening of policies and enter a newer business state, it will be very beneficial to the short- and medium-term development of the industry. In the medium and long term, we also need to guard against excessive competition, because the Hong Kong market has very limited potential for retail investors. Many licensed exchanges are considering differentiated development to ensure their survival space.
In Hong Kong's history, there was a problem of "Nine Dragons Governing Water". At that time, the Hong Kong Stock Exchange (the predecessor of the Hong Kong Stock Exchange) had seven licensed exchanges, and the competition was chaotic. The market entered disorderly competition and several exchanges died. In the end, it was the Hong Kong government that stepped in and united the remaining exchanges to establish the Hong Kong Stock Exchange. This precedent reminds us that too many licenses may lead to undifferentiated competition in the industry, especially since the number of crypto assets that can be traded in Hong Kong is still very limited. Currently, the currencies for retail investors are mainly Bitcoin, Ethereum and two other currencies that were just approved this year, and institutional investors are also limited to more than 20 currencies. In this case, if everyone competes for limited currencies without differentiation, it will bring challenges to everyone's revenue and development in all aspects, and may fall into a price war.
At present, I think that in the short term, cooperation to promote the development of the industry is far more important than competition, because we have come a long way. It is not easy to go from obtaining a license to actually starting business. After obtaining a license, many technical solutions, systems, and apps must be reported, and the corresponding personnel, management system, and risk control system must be equipped. It may take half a year to a year to truly be able to operate. In this round of bull market, competition may not be the main theme of licensed exchanges, but more about jointly promoting the opening of industry policies. We welcome more practitioners to join the industry and jointly promote the development of Hong Kong's financial technology.
MetaEra: How do you think Web3 will change the existing financial market system in the next ten years, especially the coexistence of traditional finance and token-based crypto financial markets?
Livio Weng: I think the main theme of the next decade can be summed up in two words: integration . We are already working on this. This is clearly seen from our recent developments. The first is integration with the traditional banking industry. In the past, the banking industry was cautious about opening accounts and providing services for Crypto, but as we obtained the license, the banking industry can and is willing to provide services for us. The banking industry's trust in us is based on our strict implementation of various policies, which are even stricter than those of the traditional financial industry in some ways. Therefore, banks have adopted a more trusting attitude towards us, which is a manifestation of integration.
At the same time, our integration with the securities industry is also in progress. Major securities companies in Hong Kong are providing clients with transaction matching, clearing and asset custody services, and providing channels for capital inflow and outflow. With the active Hong Kong stock market, funds flow between Asia and Hong Kong, and may eventually enter Hong Kong's licensed cryptocurrency exchanges through the Hong Kong stock market as a springboard. Whether entering the cryptocurrency market directly or indirectly through ETFs, the final custody and trading are completed here, which is another kind of integration.
The third type of integration is reflected in Hong Kong's payment institutions. These payment institutions serve global customers, and ultimately their business is processed here. The same is true for the banking industry. ZhongAn Bank has announced that it will provide cryptocurrency trading services to customers, and other banks are following suit. We now have ongoing cooperation with many banks. In addition, we also cooperate with traditional funds, such as jointly issuing ETFs with Bosera, and promoting more imaginative products, such as Ethereum ETF Staking, which can not only be subscribed but also bring returns.
In general, we are integrating with the traditional financial industry in a substantial way. This integration is most representative in Hong Kong, except for the United States. We hope that through our efforts, we can transform the components of the traditional financial industry, including the index funds issued by the Hong Kong Stock Exchange mentioned above, into a fusion of Web3 and traditional finance. In the future, there may no longer be a clear boundary between Web3 and traditional finance, but they will blend with each other, each playing to its strengths, and the intersection will have a profound impact on the industry. I think this will be the main theme of the development of Hong Kong's financial industry in the next decade.
MetaEra: For those who are starting a business or working hard in Web3, going overseas is undoubtedly the right choice. For the three major Web3 cities of Singapore, Dubai and Hong Kong, what do you think of the entrepreneurial environment, employment environment and compliance policies in Web3?
Livio Weng: We are optimistic about all three places, but we will focus on each of them. In Singapore, we have obtained some licenses and are applying for more, while Dubai is also actively applying for licenses and there may be further progress and announcements in the near future. These will lay a solid foundation for our global development.
Our horizontal comparison of these regions shows that their development paths are slightly different. Singapore was relatively open at first, but later due to some events, such as the FTX incident, the policy was tightened. Dubai was relatively conservative before, but recently it may have begun to vigorously promote the development of certain tracks because it perceives the potential of certain tracks. Hong Kong has always been supportive, although it did not make a clear statement until 2022, but in fact Hong Kong has always regarded cryptocurrency as one of its important financial industries.
We chose Hong Kong as our headquarters not only because of its status as a global financial center, but also because it is backed by mainland China and can attract mainland fintech talents. This industry relies heavily on talent. Our current achievements, in the final analysis, are due to the organic integration of Hong Kong's financial compliance and risk control talents with mainland China's technology and Internet talents, laying a solid foundation for the development of Web3. Because of this, we were able to quickly develop the "Hong Kong model" and replicate it to other parts of the world. Therefore, Hong Kong will always be our headquarters . At the same time, we are also optimistic about the development potential of Singapore and the Middle East as emerging markets, and will focus on these two places.
