This article only represents the author's personal views. About the author: Zhu Haokang, currently the head of digital asset management and family wealth management at China Asset Management (Hong Kong). In 2014, he successfully issued the largest Bitcoin and Ethereum spot ETF in Asia, actively participated in the central bank's digital currency and stablecoin sandbox, and promoted the issuance of compliant RWA tokenized funds. In 2014, he founded the Asian RWA Working Group and was hired as a member of the Hong Kong Government Cyberport Entrepreneurship Advisory Committee and an advisory judge for the Innovation and Technology Incubation Fund. He served as an executive director of the securities department of Goldman Sachs Group. While working in New York, Boston and Hong Kong, he completed more than 100 corporate IPOs and secondary market financing projects. He is currently studying for a doctorate in financial technology at the Hong Kong Polytechnic University and has long provided advice and suggestions to the virtual asset regulatory authorities in the Mainland and Hong Kong. The world's first Chinese RWA monograph "RWA and Tokenization" was published by a publishing house directly under the Ministry of Finance of China.
Looking back at 2024: Significant progress in Hong Kong’s Web3.0 ecosystem
In 2024, Hong Kong's Web3.0 ecological construction and development has made significant progress, including the issuance of virtual asset spot ETFs, approval of trading platforms, and the release of tokenized asset sandboxes, which have attracted global institutional participation. On April 30, six virtual asset spot ETFs were listed on the Hong Kong Stock Exchange. At present, the scale of Bitcoin and Ethereum spot ETFs issued by China Asset Management (Hong Kong) ranks first in Asia. The scale of China Asset Management Bitcoin Spot ETF has exceeded HK$2 billion this year, and the daily transaction volume on December 5 exceeded HK$370 million. As of the end of 2024, the Hong Kong Securities and Futures Commission has approved 7 licensed virtual asset trading platforms, including OSL Exchange, HashKey Exchange, HKVAX, Cloud Account Greater Bay Area Technology (Hong Kong), DFX Labs, Hong Kong Digital Asset Trading Group and Thousand Whales Technology.
In terms of tokenized assets, the Hong Kong Monetary Authority (HKMA) issued a circular on the sale and distribution of tokenized products in February 2024 to strengthen the management of institutions launching tokenized products; the Hong Kong Securities and Futures Commission stated in May that it may open up real-world asset (RWA) token investment to retail investors to attract global funds and enterprises. In August, the HKMA launched the Ensemble Sandbox Program to promote tokenized asset transactions. Ant Digits and Longsun Group cooperated to complete the first domestic new energy physical asset tokenization financing, with a financing amount of approximately RMB 100 million. In September, the HKMA launched the "Digital Hong Kong Dollar +" project to explore innovative use cases for new digital currencies, such as tokenized asset settlement, programmability, and offline payments.
In terms of stablecoins, the HKMA issued a consultation document in January 2024 to clarify the definition of fiat-pegged stablecoins; in March, the HKMA officially launched a regulatory sandbox for Hong Kong dollar stablecoins, providing an effective channel for the HKMA to exchange views with the industry on the proposed regulatory system. Industry organizations such as the Asian RWA Working Group submitted a draft for the issuance of stablecoins to the HKMA for comments. In July, the HKMA issued the "Consultation Results Report on Legislative Proposals for Implementing the Hong Kong Stablecoin Issuer Regulatory System", which clearly accepted reserve assets in tokenized form and announced the first list of sandbox participants, including: Yuanbi Innovation Technology, JD Coin Chain Technology, and a company jointly formed by Standard Chartered Bank, Ansai Group and Hong Kong Telecom. On December 6, the Hong Kong government published the "Stablecoin Bill", which was first read in the Legislative Council on the 18th, aiming to improve the regulatory framework for virtual assets and consolidate Hong Kong's position as a global stablecoin development and regulatory center.
The world is accelerating the development of Web3.0
In 2024, countries actively promoted the development of Web3.0. In May, the United States passed the 21st Century Financial Innovation and Technology Act (FIT21) to establish a clear legal framework for digital assets; in November, it proposed the Payment Stablecoin Clarity Act to establish a comprehensive regulatory system for payment stablecoins. The high attention and support of US President-elect Trump for cryptocurrencies ignited market enthusiasm, ushering in a strong wave of growth in the cryptocurrency market, and even broke the $100,000 mark on December 5, setting a new historical record. On December 6, Trump appointed David O. Sacks as the White House Director of Artificial Intelligence and Cryptocurrency Affairs. Sacks advocated loose regulation and promised to develop a favorable policy framework for the US crypto industry. On December 15, Trump proposed to strengthen the United States' position in the global crypto market through a national strategic reserve of Bitcoin, and expressed support for reducing the tax burden on cryptocurrency companies to attract more capital and innovative technologies.
As early as June 2023, the European Union passed the world's first comprehensive regulation on crypto assets and related services, the Markets in Crypto-Assets Regulation (MiCA), with the aim of providing legal clarity, promoting innovation, and protecting investors from risks. The regulation will take full effect from the end of December 2024, aiming to provide legal clarity, promote innovation, and protect investors. Recently, some exchanges have announced that they will remove some stablecoins that do not comply with MiCA regulations in the EU. In July, the Monetary Authority of Singapore approved Paxos to launch the USDG stablecoin, which will be managed by DBS Bank to promote the application of stablecoins in the payment and settlement fields. On July 18, South Korea's "Virtual Asset User Protection Act" came into effect, requiring exchanges to store 80% of user deposits in cold wallets and purchase sufficient insurance to deal with hacker attacks. On November 7, the British House of Lords supported the "Digital Asset Property Act" to provide a legal protection framework for cryptocurrencies. In December, the Japanese government proposed a proposal to reform the tax system for cryptocurrency gains, reducing the personal cryptocurrency gains tax rate from 55% to 20% to attract international crypto companies and investors.
Opportunities and Challenges of Hong Kong’s Web3.0 Ecosystem
Looking ahead to 2025, Hong Kong's Web3.0 ecosystem is facing unprecedented opportunities and challenges. We need to give full play to the institutional advantages of "one country, two systems" and achieve steady and long-term development. To promote the development of emerging industries, we need not only a strict licensing system and a sound regulatory framework, but also the gathering of capital, talent and technical resources. These elements are the cornerstones of industry growth and are indispensable. Funds provide impetus for Web3.0 innovation, talent injects wisdom, and technology is the key to breakthroughs and efficiency. Hong Kong's Web3.0 industry needs to move from its infancy to maturity under the coordination of these elements and occupy a place in the competition. The author suggests that Hong Kong can be promoted to become the center of global Web3.0 industry development from the following aspects.
1. Virtual asset ETF: Expanding market size
By the end of 2024, the scale of Hong Kong's spot Bitcoin ETF will be US$400 million, which is significantly lower than the US$105.4 billion in the United States. This reflects the United States' first-mover advantage, mature investor base and perfect ecology in the virtual asset market. Although Hong Kong is an international financial center, there is still room for improvement in sales channels, investor participation and product innovation. To narrow the gap, Hong Kong needs to optimize regulatory policies, attract more institutional investors, and strengthen market education and investor protection. In addition, Hong Kong can explore the "Digital Asset Connect" mechanism with its close ties with the mainland, allowing qualified mainland investors to invest in virtual asset ETFs and security tokens in Hong Kong. The "Digital Asset Connect" can draw on the "Hong Kong Stock Connect" model, set an annual investment quota (such as RMB 5 billion), and require investors to meet the entry threshold through asset size or risk assessment tests. At the same time, blockchain technology is used to enhance transaction transparency and regulatory efficiency, ensure that capital flows and transaction records are traceable, and thus promote the healthy development of the virtual asset market. The capital flows of mainland investors through the "Digital Asset Connect" are subject to cross-border capital supervision and anti-money laundering review. To prevent excessive speculation, an annual investment cap (such as RMB 100,000) is set for qualified investors. Establish investor access thresholds, requiring investors to have a certain financial asset size (such as RMB 1 million) or pass a crypto asset risk assessment test. Prioritize opening to institutional investors and gradually expand to individuals. Relying on the infrastructure of the Shanghai-Hong Kong Stock Connect and Shenzhen-Hong Kong Stock Connect, build a "Digital Asset Connect" trading system to support mainland investors to conveniently invest in Hong Kong virtual asset spot ETFs and security tokens. Use blockchain technology to enhance transaction transparency and regulatory efficiency, and ensure that capital flows and transaction records are traceable. Through these measures, promote the healthy development of the digital asset market.
2. Compliant stablecoins: promoting the internationalization of the RMB
As a new type of digital payment tool, stablecoins play an important role in cross-border payments and trade settlements. The scale of stablecoins, mainly based on the US dollar, continues to break through. In the first half of 2024, the global stablecoin transaction volume exceeded US$5.1 trillion, close to Visa's US$6.5 trillion in the same period, and increased by US$3.1 trillion in the third quarter. Governments of various countries have introduced stablecoin licensing systems, and Western financial technology giants such as PayPal and Revolut have also responded positively and launched stablecoins. Although the scale of USDT issued by Tether has exceeded US$140 billion, accounting for 66% of the stablecoin market share, Tether is not regulated by most countries and regions. The mainland and Hong Kong should support the issuance of Hong Kong dollar and RMB stablecoins, and connect them with the digital RMB, and encourage foreign trade enterprises in Greater China and "Belt and Road" countries to use Hong Kong dollar or RMB stablecoins approved by the Hong Kong Monetary Authority, which can improve the efficiency of cross-border trade settlement, reduce costs, and promote the internationalization of the RMB and regional financial cooperation. To this end, it is necessary to coordinate and promote cross-border settlement, application scenario expansion and regulatory guarantee:
In cross-border trade settlement, a blockchain-based stablecoin settlement platform can be piloted in key areas such as the Guangdong-Hong Kong-Macao Greater Bay Area and the Yangtze River Delta, supporting Hong Kong dollar and RMB stablecoin payments, achieving instant settlement, and reducing intermediary links. The pilot scope will give priority to cross-border e-commerce, supply chain companies, and state-owned enterprises engaged in commodity trading, setting an annual total quota (such as RMB 50 billion) and a single enterprise cap to ensure that risks are controllable. Provide policy incentives such as fee reductions and tax incentives, and launch training programs to help companies familiarize themselves with the process.
At the same time, explore the connection between stablecoins and digital RMB, improve payment convenience and expand application scenarios, such as supporting cross-border e-commerce platforms to deploy stablecoin payments, solve payment delays and exchange rate fluctuations, and promote the internationalization of RMB. Hong Kong can support the issuance of RMB-denominated stablecoins to expand its application scenarios in international trade. Encourage financial technology companies to build infrastructure with traditional financial institutions and promote innovative cooperation. For example, in 2024, Stripe of the United States acquired Bridge, a US stablecoin infrastructure company, for US$1.1 billion, and BVNK, a British stablecoin aggregation sales platform, completed US$50 million in financing, with a valuation of US$750 million. The Asian version of BVNK, AlloyX, a Hong Kong-based financial technology company, recently completed US$10 million in financing and launched a multi-functional wallet that supports stablecoins, providing one-stop services such as account management, foreign exchange, and payment settlement, and introducing stablecoins in bulk trade supply chain finance, using smart contracts to reduce transaction costs and default risks.
Finally, build a cross-border supervision mechanism between the Mainland and Hong Kong, use blockchain to make the flow of funds traceable, and monitor large and high-risk transactions in real time. Improve anti-money laundering and anti-terrorism rules, strengthen AML and KYC compliance, and promote information sharing. In the initial stage of the pilot, focus on cross-border trade, e-commerce payment and supply chain finance in the Guangdong-Hong Kong-Macao Greater Bay Area, and gradually promote it. Strengthen technical security, conduct regular audits and provide security guidelines to enhance risk prevention capabilities. Through the above measures, the Hong Kong dollar and RMB stablecoins will inject new impetus into cross-border trade and RMB internationalization.
3. RWA asset tokenization: reshaping the investment and financing model
Tokenization or tokenization technology is driving global financial change, converting real-world assets (RWA), such as funds, photovoltaic power stations, carbon assets and real estate, into easily divisible and fast-circulating digital tokens, supporting 7×24 hours of global low-cost transactions. This model not only makes asset transactions more efficient and convenient, but also lowers the investment threshold, providing a new solution for capital allocation and inclusive finance. Boston Consulting Group predicts that the scale of global tokenized assets will reach 16 trillion US dollars in 2030. Wall Street financial giants are scrambling to launch RWA tokenized products. For example, Goldman Sachs' GS DAP platform successfully helped the European Investment Bank issue digital bonds as early as 2021; BlackRock launched a tokenized private equity fund BUIDL on Ethereum, allowing investors to trade tokens all year round and earn returns at the same time. As of the end of 24, the scale of BUIDL exceeded US$550 million. In order to encourage mainland enterprises with investment and financing needs and high-quality asset targets to raise funds in the Web3.0 industry through Hong Kong's compliant tokenized securities laws and virtual asset trading platforms, Hong Kong can take the following measures:
First, Hong Kong should give full play to its advantages as an international financial center and actively improve the legal and regulatory framework for tokenized securities. For RWA assets such as photovoltaic power plants, data centers, carbon assets and high-quality commercial real estate, Hong Kong can cooperate with relevant industry institutions in the Mainland to formulate standardized tokenization solutions to help companies reduce financing costs and time costs. Secondly, Hong Kong should deepen cooperation with Mainland regulatory agencies to promote the interconnection of the two financial markets. Through mechanisms such as the "Digital Asset Connect", qualified Mainland investors can easily participate in Hong Kong's tokenized securities transactions, thereby enhancing the liquidity and depth of the Hong Kong market.
At the same time, professional institutions in Hong Kong can provide mainland enterprises with legal and financial consulting services on the tokenization of Hong Kong RWA to help them familiarize themselves with the issuance and trading process of tokenized securities. The mainland and Hong Kong should jointly promote the research and development and application of blockchain technology and smart contracts. Through technological innovation, develop smart contracts to automate profit distribution, asset management and risk control, improve the transparency and efficiency of asset management, and reduce transaction costs. The two places should strengthen market education and investor protection. Hong Kong can enhance the awareness of mainland enterprises and investors about tokenized securities by holding seminars, training courses and publicity activities. For example, the book "RWA and Tokenization-Investment and Financing Transformation in the Web3.0 Era" published by the author in October 2024, deeply interprets the RWA industry and helps investors understand the characteristics and risks of related assets.
Finally, Hong Kong needs to establish a sound investor protection mechanism to ensure that investors' rights and interests are effectively protected. Hong Kong should also actively participate in international financial cooperation and promote the global standardization and mutual recognition of tokenized securities. Through cooperation with international financial organizations and regulators, Hong Kong can promote the global circulation and trading of tokenized securities and expand international financing platforms for mainland enterprises. For assets such as photovoltaic power stations, data centers and high-quality commercial real estate, Hong Kong can cooperate with the International Energy Agency, carbon exchanges, data center associations and real estate investment institutions to promote the formulation of global tokenization standards for these assets and enhance their international recognition and liquidity.
Looking ahead, Hong Kong has unique advantages in the construction of the Web3.0 ecosystem. By improving the legal and regulatory framework, promoting technological innovation, deepening international cooperation and strengthening market education, Hong Kong is expected to become the preferred platform for mainland enterprises to conduct tokenized securities financing. As a member of the Hong Kong Government Cyberport Entrepreneurship Advisory Committee and an advisory judge of the Innovation and Technology Incubation Fund, I have noticed that in the past two years, more and more global Web3.0 technology entrepreneurs have chosen to land in Hong Kong. If the "Digital Asset Connect" mechanism and the Hong Kong dollar and RMB stablecoins can give full play to the institutional advantages of "one country, two systems" and serve the huge market demand in the mainland, Hong Kong will not only attract more international capital and top talents, but also further consolidate its position as a global financial center. Driven by the synergy of capital, technology and talents, Hong Kong will surely seize the opportunities in the Web3.0 era, ride the waves of the global digital economy, and move forward steadily.
