Opportunities and Challenges of Developing a Global Web3 Hub in Hong Kong

Hong Kong is facing new opportunities in the development of the cryptocurrency industry. Recently, the Hong Kong Monetary Authority released a document on the regulation of stablecoin-related activities, aligning with Hong Kong's strategy to connect the new generation of digital assets with its mature traditional financial ecosystem. As a global financial center with a sound regulatory framework, Hong Kong has made steady progress in establishing a clear and comprehensive framework.

However, a good regulatory environment alone is not enough for Hong Kong to stand out in the global Web3 competition. To gain a sustainable advantage among potential competitors such as Silicon Valley, Dubai, and Singapore, Hong Kong also needs to become a leader in the digital infrastructure that supports the creation and trading of digital assets, thereby attracting the best talent in the industry.

Hong Kong was once the birthplace of many well-known cryptocurrency exchanges and still has the most Bitcoin ATMs among Asian cities. However, since 2019, due to the impact of the pandemic and cautious policies, Hong Kong's position in the global cryptocurrency industry has declined. Nevertheless, missing out on the frenzy of the cryptocurrency industry’s boom and bust cycles may not be a bad thing. Some cryptocurrency companies that originated in Hong Kong but later moved have experienced significant setbacks, while cryptocurrency mining companies that chose to list on other exchanges are now often in financial trouble.

As the cryptocurrency industry enters a reset phase, Hong Kong has the opportunity to redefine the development direction of the Web3 center. Recent signs indicate that the Chinese government is beginning to view blockchain and digital assets as potential drivers of economic growth. Hong Kong has gained support to explore innovation and global integration without being constrained by mainland policies. Meanwhile, after the collapse of some cryptocurrency companies, Europe and the United States are tightening regulations, which may prompt more digital asset-related activities to shift eastward, creating opportunities for Hong Kong to regain influence.

As one of the world's top capital markets, Hong Kong has a robust financial regulatory framework and excellent fintech talent. Its mature capital market makes Hong Kong an ideal place for the integration of technology and finance, particularly suitable for developing practical applications such as asset tokenization. The government is committed to creating a favorable environment for public-private cooperation, and when all parties work together, digital assets are expected to better integrate into the real economy.

In addition, Hong Kong can also leverage the technology startup resources from mainland China. Many Chinese internet giants listed in Hong Kong have started to venture into the digital asset and Web3 fields, and Hong Kong may become an ideal platform for their development.

However, Hong Kong faces challenges in becoming a Web3 hub. The existing regulatory framework may not be fully applicable to the rapidly evolving digital asset space. The principle of "same business, same risks, same rules" adopted by Hong Kong may favor established institutions rather than grassroots innovation. Creating space for bottom-up innovation is an urgent issue that needs to be addressed.

Fundamentally, Web3 is a technological movement, but Hong Kong lags behind some cities in terms of technological resources. Therefore, Hong Kong needs to develop differentiated digital asset technology infrastructure. The security of digital assets requires new technological solutions, such as multi-party computation, to ensure that asset owners have complete control or joint management over their assets.

Looking to the future, institutional business may become a key focus for the development of Web3. To reduce the risks of centralized platforms, a significant amount of digital assets may shift to custody platforms that employ advanced technologies. Institutions also need solutions that can achieve distributed private key management and fund segregation to comply with new regulatory requirements.

In summary, Hong Kong is in a favorable position to draw lessons from the past few years and establish a Web3 hub with an appropriate regulatory environment and technological infrastructure, effectively managing risks while promoting innovation.