On the evening of May 5, the second episode of the Web25 online interview program "Bailu Living Room" was officially launched. The theme of the second interview was: "With the implementation of the new regulations in Hong Kong, Web3 ushered in Hong Kong Summer?" Bai Lu is the co-chairman of the Asian Metaverse Alliance, the vice chairman of the Hong Kong Blockchain Association, and the executive vice president of the Shenzhen Information Industry Blockchain Association. The second interview revolved around the topic of Hong Kong's new regulations. The initiator Bai Lu invited several institutional personnel and well-known Web3 KOLs to have a chat.
Dialogue guest:Signum Capital Sam Lee (Hong Kong Virtual Asset License No. 1)Marco Lim, Partner of MaiCapital (Hong Kong Virtual Asset License No. 9)OKX Global Chief Commercial Officer LennixEdward, Head of Huobi Asset CenterBao Yu, Hong Kong Web3.0 AssociationTony Tong, Chairman of the Hong Kong Blockchain AssociationWeb3 Hub Partner Li Mumu
Interview questions:1. Impact of the new regulations. What is the background of the introduction of the new virtual asset regulations in Hong Kong, the support provided by the government, and the impact on the Web3 industry?2. About Hong Kong VS Overseas. What are the unique features of Hong Kong's virtual asset market compared with the markets in other countries and regions?3. Regarding retail investors entering the market. The Hong Kong Securities and Futures Commission will implement the proposal to allow licensed virtual asset trading platforms to provide services to retail investors. What does this mean for investors and trading platforms?4. About STO. STO is gradually emerging around the world. Does STO have the opportunity to become an important part of virtual assets?5. Regarding traditional institutions. Compared with traditional financial institutions in the past, virtual assets are obviously not the main battlefield. How should they evaluate risks and opportunities?6. Is it possible for Hong Kong to surpass Silicon Valley in the field of Web3 and cryptocurrency compliance?
Highlights:
The Hong Kong government's determination on virtual assets far exceeds expectations. (Bao Yu)
The Hong Kong Securities and Futures Commission has not imposed major restrictions on OTC, which means that there is no problem for legal currency funds to enter this market. (Bao Yu)
The Hong Kong government is integrating Web3 and traditional finance, and bringing the two together through a licensing mechanism, so the route taken by the Hong Kong government is extremely correct. (Marco Lim)
Whether Hong Kong is open enough to embrace various types of products, technologies and hot spots will determine whether it will become a very critical web3 bridgehead. (Edward)
The new Hong Kong rules are open to retail investors, who can start with core underlying assets. I think this is equivalent to giving these new retail investors an opportunity to learn gradually. (Edward)
The STO cases we have seen in Singapore and the United States are still relatively unsuccessful. We have not found a good path in this area. So in Hong Kong, we certainly hope that it can be successful. (Edward)
Whether it is the entire stablecoin track, technology track or exchange track, there are still many opportunities in the primary market. .(Marco Lim)
STO-like assets will usher in a major explosion through VSP licenses. (Lennix)
Therefore, for investors in the cryptocurrency circle, they often look down on such low-return assets. Traditional investors should be interested in this, but they don’t understand STO. But I think the next wave will gradually popularize STO, especially our compliant licensed companies are allowed to list many STOs. (Tony Tang Yi)
Question 1: Hong KongVirtual AssetsWhat is the background of the new regulations, the support provided by the government, and the impact on the Web3 industry?
Bao Yu : I think the Hong Kong government's determination on virtual assets is beyond my expectations. Even if the policy is slightly more conservative, similar market effects can be achieved. I recently read the document "Consultation Summary" issued by the Hong Kong Securities and Futures Commission on the supervision of virtual asset trading platforms, which shows a lot of details.First of all, the Hong Kong government is very determined.First, the new regulations in Hong Kong are more pragmatic. They regulate virtual asset exchanges through Hong Kong's stable and mature licensing mechanism. This system is equivalent to recognizing the legitimacy of the virtual exchange industry. It is estimated that only Hong Kong in the world has achieved such management.Second, the Hong Kong Securities and Futures Commission will not regulate so-called small currencies, but will let the exchanges review and list them themselves. Of course, more details may come out after a while. If users can only trade mainstream virtual assets such as BTC and ETH in the exchange, it is obviously not feasible.Third, the Hong Kong Securities and Futures Commission has not imposed major restrictions on OTC, which means that there is no problem for legal currency funds to enter this market, while there are no legal OTC channels in mainland China.Fourth, the Hong Kong Securities and Futures Commission will include stablecoins in its regulatory scope, but the regulatory details have not yet been released.According to the existing laws in Hong Kong, as long as you find a bank willing to cooperate with you as a payment channel, you can issue a stablecoin. However, after June 6, individuals will not be able to issue stablecoins, because stablecoins will be included in the securities STO. I personally feel that the Hong Kong government's understanding of virtual currencies has reached a relatively detailed level, and all strategies are also hierarchical and methodical.
Tony Tang Yi : I think Hong Kong's compliance route for virtual assets has started since 2018, including virtual asset management, virtual asset funds, etc., which are developing slowly step by step. I personally think the speed is not very fast. Currently, the whitelist of the new regulations only includes BTC, ETH, and USD. We can see that well-known exchanges in the market, such as Binance, are operating globally across regions and across borders. Then Hong Kong compliant companies need to spend more costs, such as 2% insurance premiums and hiring expensive ROs. The result of paying huge costs is that their hands and feet are tied and they cannot compete with other companies in the industry. So how can we strike a balance? I think our industry needs to communicate more with the government and the Securities and Futures Commission. In fact, we see that the Securities and Futures Commission has been gradually opening up. Before, professional investors were required to participate. If you spend huge costs, manpower, and time to obtain an exchange license, will you be competitive in the market? Are there any products and services that can be competitive? If not, then this license can only serve a small group of people.
Marco Lim : What the Hong Kong government has opened is the channel that we have been lacking, allowing money from traditional finance to come in and develop Web3. What we have been doing is to increase the size of the Web3 situation. We have not been connected to traditional finance before, but now that the situation has been opened, we can get financing from traditional finance.Our No. 1 license plate is actually doing this increment, but the regulations have not really been relaxed for us, and we have not been able to raise money through the right channels. At present, the Hong Kong government has provided relatively large support. Companies like us with licenses can guide part of the funds from traditional channels to the Web3 industry, which is very important for the subsequent development of the Web3 industry. The Hong Kong government is integrating Web3 and traditional finance and matching the two together through the licensing mechanism, so the route taken by the Hong Kong government is extremely correct.
Sam lee : After all, Hong Kong is a traditional financial center with a huge amount of capital. The Hong Kong government has made these regulations to connect traditional finance with Web3 and bring in traditional financial traffic. I think this is a very big step forward and I am very optimistic about its future development.
Question 2: Hong KongVirtual AssetsWhat are the unique features of the market compared with markets in other countries and regions?
Edward : We at Huobi have been operating in Hong Kong for quite a long time. In 2018, we followed the compliance framework at the time, which was of course not as open as it is now. We have also been waiting for this major positive signal.First, as the core financial center of Asia, Hong Kong has a very high experience and penetration rate in financial market transactions, whether it is institutions, high-net-worth customers or retail investors, so we believe that this market itself has huge energy value.Second, from the perspective of geopolitics, due to the regulation of the mainland, it is not open to digital currencies. Especially after a lot of clearance work in 2021, Hong Kong has become a real window, that is, our understanding of it may not be limited to Hong Kong. In the future, it may have the opportunity to radiate to some key open economic zones including the Greater Bay Area. For connecting to the mainland, whether it is project parties, practitioners or necessary investment and financing opportunities, I think this is a very important window.Third, Huobi has been making global layout since 18. In fact, we have obtained many licenses around the world, such as Korea Huobi, Japan Huobi, Thailand Huobi, Russia Huobi, etc. We actually have compliance licenses in many countries. We found that whether Hong Kong is open to retail investors actually directly determines the value of compliance licenses, as well as the sustainability of the business.Because as a Web3 practitioner, the essence of business operation is to have a sustainable foundation. If you cannot operate sustainably, and simply continue to invest, this will not allow the business to continue to develop. Therefore, whether it is open to retail investors is very critical. In a sense, this policy is extremely important.
Pay attention to the new regulations in Hong Kong. Whether this policy can support the types of service products is actually very critical, such as whether it supports exchanges, whether it supports Defi on the chain, and whether it supports the sale of financial products to retail investors. Of course, it is not just the OTC or legal currency mentioned just now. I think it includes some financial products such as LSD, which is relatively active in the market. This kind of staking product based on blockchain technology, how to define it in your regulatory system, and whether there is a relatively complete framework to support its development, this directly determines how far your industry can go in this market. I think this is very critical.
Singapore has been affected by the macro cycle and important events such as FTX, which has led to some repetitions in the compliance process. This repetitive state will directly affect the entire ecosystem or the development of the entire industry in the local area.Hong Kong is actually more active in this regard, but I still want to mention Japan and South Korea, which are relatively advanced in East Asia. South Korea is relatively embracing of retail trading, and it mainly promotes local fiat currency transactions. In fact, its OTC market has shrunk after the fiat currency channel was opened, and it doesn't really need OTC.
Secondly, it is quite sensitive to whether institutions and retail investors are trading in the same trading market.The third is the liquidity and connection of the underlying exchanges. Currently, there are also restrictions, which will also affect the trading sentiment of users in a market, or the possibility of trading. This is a reference that needs to be looked at. We also found that there are many pain points in Japan. The number of Japanese licenses has increased. When we bought them, there were probably eight licenses. Now there are more than 30 licenses. It seems that everyone has one, so this license is not very valuable. Homogeneous products and services make it impossible for this market to compete uniquely.
I think the Hong Kong government has also studied the policies of many countries on virtual asset regulation, including the trade-offs of interests of the industry, practitioners, and users. I believe they may make a more accurate judgment. But from our perspective, Hong Kong's uniqueness lies in its openness to retail investors, which is good. The second is whether it is open enough to embrace various types of products, technologies, and hot spots. Its openness will determine whether it will become a very critical web3 bridgehead. If it is open, it has this opportunity. If it is not open, it may be like Singapore, which is easy to start with a bang but end with a whimper, and go back halfway.
Question 3: Will the Hong Kong Securities and Futures Commission implement the relevant provisions regarding the licensing ofVirtual AssetsWhat does the proposal for trading platforms to provide services to retail investors mean for investors and trading platforms?
Tony Tang Yi : I have been looking forward to this for a long time. Many institutions have applied for Hong Kong virtual asset license No. 7 and Hong Kong virtual asset license No. 9 before. The cost is huge but the return is very small, because they can only serve institutional investors, so the return is even less. First of all, the direction of providing services to retail investors is definitely right. If Hong Kong is to become a global Web3 development center, it must allow most people to participate. Therefore, the timetable has not yet been fully formulated, but since the government has said so, I think it will be open.The whitelist that has been published now only includes BTC, ETH, USDC, and USDT, which are also products that the CSRC considers to be highly liquid and safe, just like when Japan's compliant exchanges were first launched, there were only four or five currencies, and then they were gradually increased to more than a dozen. So, I think Hong Kong may also follow this route.
Bao Yu : As for the timing for retail investors to enter the market, I think the main trading targets at present are still BTC and ETH. You can only buy some BTC when it falls very low. This seems to be the only strategy. If it starts to rise in stages, it will be very dangerous to chase high prices.
Edward : This actually provides retail investors with a learning ladder, because from the perspective of the exchange, there are three types of people who enter the circle to trade cryptocurrencies: those who make money, those who lose money, and those who break even. Many new investors and retail investors have weak identification and knowledge system building for new assets, new concepts, and high-risk assets, and they are more likely to follow the trend.
So if you go directly to that kind of exchange with a wide variety of currencies and see hundreds of currencies, different trading pairs and different derivatives, it is actually a very big challenge. In addition, the time they can spend on learning about this market is actually limited. In addition, the current environment does not say that digital currency trading is as prosperous as stocks, so the risk is relatively high.
However, the new Hong Kong regulations are open to retail investors. Retail investors can start with more core underlying assets. I think this is equivalent to giving these new retail investors an opportunity for gradual learning. They first need to understand what the core assets are, and then learn the concepts and techniques through the trading process, and then gradually expand. For example, you expand from Bitcoin to Litecoin, and from Ethereum to ARB. In this way, there will be a gradual learning and advanced process, and eventually move on to higher-risk assets with higher volatility and higher fluctuations.
Then, the scale of high-net-worth clients is larger than that of general retail investors, or their trading frequency and turnover rate are higher than those of general retail investors. For this type of investors, I think if they can be equipped with some better financial products, it will be a very good supplement for them in the bear market cycle. So I think it is good overall. In general, this new regulation is not very friendly to speculative retail investors, but for a wide range of retail investors, I think it is a good thing.
Question 4: STO is gradually emerging around the world. STO has the opportunity to becomeVirtual AssetsAn important part of it?
Lennix : My view is that assets similar to STO will usher in a major explosion through the VSP license. Frankly speaking, the VSP license is not necessarily set up for cryptocurrencies. It is more about the tokenization of physical assets, financial assets, and non-standard assets, and then listing them on a compliant exchange through the STO method. I think this is also the biggest expectation of the Hong Kong Securities Regulatory Commission for this license.The VSP license may be a rare license in the world that allows exchanges to have more than just cryptocurrencies. I think in the future all institutions and individuals doing STO will have to consider what assets can indeed be tokenized and are more suitable for the VSP framework.
Edward : My personal attitude is quite pessimistic. If this thing can be done, it will be good for everyone and the development of the industry, and I am happy to see it happen. The cases we have seen in Singapore and the United States before are relatively unsuccessful, and we have not found a good path in this area. So in Hong Kong, of course, we hope it can be successful.
Tony Tang Yi : I think the STO market is still very large, including real estate, artworks, traditional bonds, securities, etc. It’s just that the last wave of STO was not completely successful. When the cryptocurrency market entered a bull market, no one was interested in STO because everyone thought it was a boring thing.If you use real estate or gold for STO, its growth is also very limited, so for investors in the cryptocurrency circle, they often look down on such low-return assets. Traditional investors should be interested in this, but they don’t understand STO. But I think the next wave will gradually popularize STO, especially our compliant licensed companies are allowed to launch many STOs. However, STO currently lacks popular products. I think the sharing economy, shared space and the concept of Web3 will lead to the emergence of some new STOs.In addition, the Hong Kong government also requires STO to have 12 months of operating records, financial statements, evaluation reports, legal opinions, etc., and to undergo an audit, so a conceptual white paper is definitely not acceptable.
Bao Yu : I think the legal chain involved in STO is too long, so expectations should not be too high.
Question 5:Virtual AssetsCompared with traditional financial institutions, which were clearly not the main battlefield in the past, how should they evaluate risks and opportunities?
Marco Lim : I think traditional financial institutions mainly focus on layout and returns. They hope to invest in the next Tencent and Alibaba projects in Web3. I think there are still opportunities when the next bull market comes. Whether it is the entire stablecoin track, technology track or exchange track, I think there are still opportunities in the primary market.These traditional financial institutions do not understand the primary market of Web3 very well, so they need people like us who walk between Web3 and traditional finance to help them analyze or plan before the next bull market. Traditional financial institutions are also optimistic about this prospect, otherwise the Hong Kong government would not promote it vigorously, so they also hope to plan in it.I am relatively optimistic about the funds in the primary market, but I think there needs to be some good projects incubated in the primary market, otherwise the entire ecosystem will not be able to do well, because in the past 80% of the tokens may not survive. We may need to do some better projects, and then if we can really survive in the next bull market, we will be more successful.
Question 6: Is it possible for Hong Kong to surpass Silicon Valley in the field of Web3 and cryptocurrency compliance?
Bao Yu : I think it’s hard to say. In the United States, laws are made by the parliament and the Congress, and many things in the United States are no longer compliant. From this perspective, it’s hard to say.
Tony Tang Yi : I think that in the cryptocurrency industry, many rules are still set by the United States, and they are moving very fast in compliance. In fact, the Hong Kong Securities Law, and even the China Securities Regulatory Commission, often refer to some definitions of the US Securities and Exchange Commission in the Securities and Exchange Commission Law, so I think this is understandable.
The United States is more mature in regulating virtual assets, digital assets, and blockchain. There are many cases of security tokens, including the previous Ripple coin. The US Securities and Exchange Commission later settled accounts, saying that this was a security token and that they did not obtain their approval in advance to issue the coin. If Ripple is dissatisfied, it can hire a lawyer to sue. Of course, the government is not always right, and sometimes the government loses the lawsuit.I think Hong Kong is relatively conservative. The main task of the Securities and Futures Commission is to protect investors and investors. They would rather over-protect than not protect at all. So if some explosive phenomena occur, they will have a great responsibility.
"Bai Lu Living Room" is a Web3 online interview column. The initiator Bai Lu invites a number of Web3 practitioners in each episode. In the form of a roundtable, he interprets industry policies, analyzes market conditions, shares alpha opportunities, etc. with the guests.Let investors perceive industry trends up close and obtain the latest information.Bai Lu graduated from the Central University of Finance and Economics. He is a well-known KOL in the Web3 industry. He also serves as co-chairman of the Asian Metaverse Alliance, vice chairman of the Hong Kong Blockchain Association, and executive vice president of the Shenzhen Information Industry Blockchain Association.
