Recently, Hong Kong's actions in the Web3 field have been very active, partly due to the industry support of Cyberport and the policy and regulatory inclination. This has led to a trend of many Web3 projects flocking to Hong Kong, with a trend of "rising in the east and falling in the west".
At that time, with the successful implementation of the Ethereum Shanghai upgrade and the soaring price of Ethereum, it broke this year's historical high. With the enthusiasm of the market and the linkage of Hong Kong policies, where will the future of Hong Kong Web3 go, and where will the opportunities for exchanges, an indispensable part of the encryption field, be?
Since last year, as one of the global financial centers, Hong Kong has maintained a positive attitude towards the development of the blockchain track, resulting in the birth of a group of top Web3 companies and brands in Hong Kong. After Hong Kong released the "Policy Statement on the Development of Virtual Assets in Hong Kong" in October last year, the government's recognition and support for the Web3 industry was further clarified.
In addition, the CEO of the Hong Kong Securities and Futures Commission, Ashley Alder, recently stated that virtual asset platforms are part of the Web3.0 ecosystem and support the development of the relevant ecosystem. The introduction of the virtual asset exchange license system this time provides legal protection for compliant virtual currency exchanges, and promotes the industry's entry into the strategic opportunity period.
01.The new pattern of "rising in the east and falling in the west" has become a trend.
From a global perspective, due to the accumulation of a large number of risks and contradictions during the long-term bear market, the regulatory attitudes of various countries towards the Web3 industry have become polarized for a period of time. Among them, Western countries represented by the United States have begun to adopt strict and conservative regulatory measures towards the Web3 industry.
In contrast, the Hong Kong government has a broader and deeper view of the Web3 industry. For example, Secretary for Commerce and Economic Development Edward Yau Tang-wah stated that the recent significant fluctuations in the virtual asset market and even the closure of some virtual asset exchanges have made some people doubt the prospects of Web3, but this is precisely the best time to promote the development of Web3. Under this clear new rhythm, industry resources and talents are rapidly converging to the east, and Hong Kong has become a new growth pole of the global Web3 industry, forming a trend of "rising in the east and falling in the west."
Let us return to the more fundamental reason behind the trend of "rising in the east and falling in the west", which is ultimately due to the chaos in the global capital market brought about by the tide of the US dollar. It is well known that an important factor that drove the previous bull market was the excessively loose monetary policy during the epidemic period, and the overflow of liquidity rapidly pushed up the prices of risk assets such as virtual assets. The indulgence of regulatory agencies allowed some European and American institutions to ignore risks and use high leverage to amplify their returns at the high point of the bull market.
Then, the Federal Reserve swiftly and violently raised interest rates and reduced its balance sheet, causing a sudden tightening of liquidity in the market. These institutions had a shortfall in their books and took risks such as offering high interest rates to attract deposits, misappropriating client funds, and manipulating market prices to fill the gap, ultimately forming a chain of defaults.
The industry's concern about the risks of agency agents caused by this also exacerbates all kinds of "FUD". In particular, compliance with virtual currency exchanges has become an important issue in the industry.
02.Compliant exchanges will become the main theme of industry development in the next decade
Exchanges are one of the core components of the Web3 industry and also one of the businesses that are most likely to attract regulatory attention. Over the past few years, due to the lack of unified and effective regulatory standards and mechanisms, virtual asset trading platforms have faced many problems and risks such as fraud, money laundering, hacker attacks, and user fund safety. These problems not only harm the interests of investors but also hinder the healthy development of the Web3 industry.
Therefore, establishing a compliant, secure, and trustworthy trading platform regulatory framework is necessary and urgent. The Hong Kong Securities and Futures Commission's virtual asset trading platform licensing system has taken an important step in this direction. The new licensing system, which will take effect in June, has attracted the attention of practitioners worldwide.
The value of compliant exchanges lies in the safer custody of assets and more convenient deposit and withdrawal channels. Amid various industry "FUDs," compliant exchanges remain stable and allow digital currency holders to sleep soundly.
With the landing of licensed exchanges in Hong Kong and the clarity of the regulatory framework, it is expected that a group of countries and regions will follow suit and adopt similar policies, and compliant exchanges will develop into the mainstream market and become the preferred choice of more institutions and investors.
As a compliant exchange focused on security, BitVenus has already obtained digital licenses in the United States and Canada, but it will never stop on the road of compliant operation.
The Hong Kong Securities and Futures Commission has announced that it will consult the market on two issues: "whether licensed platform operators should be allowed to provide services to retail investors" and "how to protect investors," according to the new licensing system that will take effect on June 1, 2023. BitVenus will also actively apply for a cryptocurrency trading license in Hong Kong, providing a wider range of cryptocurrency trading and investment options for Hong Kong customers, laying a foundation for BitVenus' global compliance operations.
In addition to leading and comprehensive compliant operations, BitVenus has strong asset security custody capabilities. BitVenus not only uses professional risk control systems and security measures to ensure the secure storage of user assets, but also provides users with relevant compensation mechanisms to cope with possible accidents or hacker attacks. At the same time, BitVenus also adopts multi-layer cold and hot wallet technology to add a security guarantee to user asset security.
It is worth mentioning that the BitVenus team is establishing and implementing a Merkle tree using zk-SNARK technology, which enables asset reserve proof and allows people to verify their assets on the platform. With this, each BitVenus user will be able to use their own generated Merkle hash/record ID to verify their asset holdings. This way, people can confirm that their funds are held in a 1:1 ratio, and they can have third-party audit agencies verify this.
Although BitVenus still lags behind mainstream exchanges such as Binance, OKX, and Bitget in terms of platform ecology, user scale, and market share, BitVenus has not given up on catching up. It continuously polishes its products, optimizes user experience, and builds its own "ecological moat"!
03.Hong Kong Web3: Inclusion, Not Deregulation; Regulation is still on the Way
The Hong Kong Securities and Futures Commission (SFC) requires DeFi projects to be licensed and regulated, which is particularly important for the sustainable development of Hong Kong's Web3 industry.
DeFi advocates for the building of a decentralized financial ecosystem using Distributed Ledger Technology (DLT), Virtual Assets (VA), and Smart Contracts to provide financial services, eliminating the need for traditional financial intermediaries. The initial idea behind DLT was to democratize finance, enabling any user with an internet connection and a wallet capable of storing VA to access DeFi services.
However, DeFi also faces some unique challenges.
Firstly, financial stability issues arise from within the DeFi and VA ecosystem, as well as the interrelationship between DeFi and traditional financial products. Financial stability risks also arise from leverage, such as in a VA lending agreement where users can use VA as collateral to obtain more loans.
Secondly, due to a lack of data and the fact that many related companies and activities are currently unregulated, the transparency of these interrelationships and connections is low. Thirdly, the DeFi ecosystem faces market integrity issues such as price manipulation, front-running, and other types of abusive behavior.
Lastly, it is worth noting that the scale of network attacks is increasing, causing concerns about investor protection. For example, in March 2022, the NFT game platform "Axie Infinity" suffered a massive hack resulting in the theft of assets worth $625 million.
Therefore, DeFi projects need to be regulated by the SFC, and automated trading services are also subject to SFC regulation. Decentralized exchanges that involve virtual assets also need to apply for licenses. Some DeFi protocols are ostensibly decentralized, but in reality, a small number of developers hold a large number of governance tokens, and their substance needs to be analyzed rather than their surface claims.
In conclusion, this is an era of great change, and Hong Kong is expected to unleash a powerful policy dividend in the global pattern change of "eastward rise, westward fall," becoming a global Web3 industry highland. However, regulation inclusion remains the main theme of industry development. As Hong Kong's Financial Secretary Paul Chan wrote in his essay "Developing Web3 – Adhering to the Right Path and Innovating Steadily," a strategy of "appropriate regulation" and "promoting development" will be adopted to ensure that Web3 walks the path of innovation and development steadily and prudently.
The hotter the trend, the more we need to learn to "think coldly".
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