Hong Kong Web3 Market Analysis: From Asia’s Financial Hub to Web3 Hub – Tiger Research

# Hong Kong's Financial Evolution and Emergence as a Web3 Hub Hong Kong has long established itself as a financial stronghold since its colonial period under British rule, serving as a pivotal trade hub between the East and the West. The financial foundation laid during these years was further bolstered by China's opening-up policy starting in the 1970s. Positioned as a vital gateway connecting China with the global market, Hong Kong became a prime location for Chinese companies seeking foreign investment and listings, solidifying its status as an international financial hub. Over the past few decades, more than 1,000 mainland Chinese companies have listed on the Hong Kong Stock Exchange to raise capital. This convergence of mainland and global capital has continually expanded the market size, reinforcing Hong Kong's role as a "super connector." Under the "one country, two systems" framework, Hong Kong has maintained a significant degree of autonomy, providing it with a competitive edge that other cities find challenging to replicate. Consequently, Hong Kong has firmly established itself alongside New York and London as one of the world's top three financial centers, fulfilling its role as a gateway to Asian finance. This financial hub structure is evident within Hong Kong's internal economy. Services account for approximately 93.5% of its GDP, with finance and insurance alone contributing about 25%. The financial sector employs around 270,000 people, over 7% of the total workforce, playing a crucial role in both economic performance and job creation. ### Web3 Expansion Hong Kong’s deep-rooted financial expertise has recently extended into the Web3 market. The wealth of knowledge accumulated over its long financial history provides a solid foundation for institutional investors to show heightened interest in the Web3 sector compared to other countries. The relationship with mainland China also significantly influences Hong Kong's Web3 development. While the mainland maintains a restrictive stance on cryptocurrencies, Hong Kong adopts a more proactive approach, positioning itself as a “strategic testbed.” This has led the industry to expect that Hong Kong's Web3 growth could eventually trigger regulatory easing in mainland China. ### Regulatory Landscape Historically, Hong Kong has imposed relatively stringent regulations compared to other regions. This is particularly true for retail investors, who face numerous restrictions, such as limited tradeable tokens. However, expanding the scope with approvals like ETFs and sandbox initiatives, Hong Kong is gradually broadening its regulatory framework. On February 19, 2025, the Securities and Futures Commission (SFC) unveiled the "ASPIRe" roadmap at the Consensus 2025 event. This roadmap outlined an open approach to virtual assets regulation, adhering to the principle of "same business, same risks, same rules." The intention is to apply traditional financial safeguards to the virtual assets market while adjusting for its unique characteristics. The SFC emphasized that this roadmap is a "living blueprint" rather than a final destination, indicating continuous evolution in regulatory approaches with technological and market advancements. This framework aims to strike a balance: protecting investors while ensuring market access and liquidity through diverse products. It also highlights a commitment to market innovation via global cooperation. **Access**: The framework sets a clear path for crypto businesses to operate legally in Hong Kong. Over-the-counter (OTC) and custody services, once unregulated, now require official licenses. Encouraging global crypto exchanges to enter Hong Kong allows local investors to engage in global markets while enjoying robust regulatory protection. **Safeguards**: The regulation reduces unnecessary burdens on businesses while maintaining investor protection. Previously, most customer assets were required to be held in cold wallets, but now firms can adjust based on their security levels. The SFC prioritizes comprehensive security systems, including real-time monitoring and independent audits, over simple hardware solutions. Companies can also design compensation models tailored to their business and client profiles to cover loss from hacking or system errors. Clear classification standards for tokenized securities, utility tokens, and cryptocurrencies enhance understanding of regulatory scopes. **Products**: Access to a variety of products and services now aligns with investors' knowledge and experience. Professional investors can engage in tokens, Bitcoin futures, margin trading, and staking services, which allow them to earn additional income by participating in blockchain network operations. Similar to bank deposits, staking provides rewards for blockchain validation participation. Professional investors can also use crypto-assets as collateral for loans or earn interest through lending services. **Infrastructure**: Advanced technologies strengthen market surveillance and cooperation between regulatory agencies. Systems for efficient reporting, on-chain analysis, and transaction monitoring are set up to detect illegal activities early. Cooperation with local financial regulators and law enforcement, as well as international agencies, aims to counteract cross-border illegal activities. **Relationships**: The framework focuses on investor education and industry communication to improve regulatory quality. Regulations for influencers providing crypto investment advice on social media are set, and the Virtual Asset Consultation Program (VACP) incorporates expert opinions into policy. Programs to develop specialists in trading, asset management, product development, technology, law, and accounting for the crypto market are also supported. ### Cryptocurrency ETFs Hong Kong's cryptocurrency ETF market saw a significant milestone in April 2024 with the approval of Asia's first spot Bitcoin and Ethereum ETFs. China Asset Management (CAM), Harvest Global Investment (HGI), and Bosera launched two ETFs each, totaling six offerings. In contrast to the U.S., where Bitcoin spot ETFs manage $94.37 billion in assets, Hong Kong’s market is smaller, with about $400 million in assets under management. The limited domestic market size, with a population of 7.5 million, restricts retail investor base expansion. Institutional investors, already participating in U.S. markets, have little incentive to switch to higher-fee Hong Kong products. Hong Kong ETF management fees range from 0.6% to 1.0%, compared to 0.15% to 1.5% for U.S. spot Bitcoin ETFs, suggesting room for competitive improvement. However, Hong Kong's role as a testbed for the mainland market indicates a potential for substantial capital inflows from Chinese investors, which could transform the market landscape. Although regulatory constraints currently prevent mainland funds from investing in Hong Kong ETFs or other crypto-assets, CAM supports yuan-based transactions, preparing for potential regulatory changes. ### Cryptocurrency Trading Environment Hong Kong's regulatory framework for cryptocurrency trading has developed gradually. Legally, crypto trading is permissible only on platforms approved by the SFC (Virtual Asset Trading Platforms, VATPs). Retail investors can trade only large-cap virtual assets authorized by the SFC, which must be included in the allowable indexes from at least two independent providers. This currently limits retail investors to assets like Bitcoin (BTC), Ethereum (ETH), Avalanche (AVAX), and Chainlink (LINK). Professional investors, however, have access to a broader range of cryptocurrencies, including stablecoins. To qualify as a professional investor, one must hold a minimum investment portfolio worth HK$8 million (about $1 million) within the last three months, creating a high entry barrier. About 140,000 to 150,000 individuals in Hong Kong meet this "professional investor" criterion—roughly 1.5-2% of the population. If the regulatory environment enables more diverse investment options beyond spot trading, institutional capital inflows could significantly expand the market. Hong Kong manages substantial funds from across Asia, not limited to local residents' assets. If the regulations become clearer and more flexible, investment from Chinese investors could be expected. Currently, ten exchanges, including OSL and HashKey, operate with VATP licenses, while eight others await review results. Stringent requirements have led most global exchanges to either fail in obtaining a license or withdraw their applications voluntarily. Despite these challenges, some global exchanges view Hong Kong as a promising market. Gate.io sponsored the Consensus 2025 event and interacted with attendees, showcasing its presence. Its affiliate, Gate.HK, has set up an office in Hong Kong and is preparing to collaborate with regulators to meet licensing requirements and establish a market foothold. Regulatory framework changes recently announced by Hong Kong authorities offer new opportunities for global crypto exchanges. If global exchanges build an industrial base in Hong Kong and comply with appropriate regulations, they can access the global order book. Gate.io is anticipated to seize a leading position amidst these regulatory shifts, thanks to its extensive preparation. However, the operational environment for local exchanges remains challenging. HashKey Exchange, Hong Kong's first retail virtual currency exchange, secured around 170,000 registered users but only manages about $35 million in daily trading volume, significantly lower than global major exchanges. This disparity underscores the growth limitations facing the Hong Kong crypto market. Innovative attempts to overcome these constraints are emerging. ZA Bank, a digital bank, partners with licensed exchanges like HashKey to offer crypto trading services, allowing customers to trade directly via the ZA Bank app. Besides regulated channels, retail investors explore alternative trading methods. OTC shops are prominent, with stablecoin exchange advertisements visible on the streets, facilitating daily crypto transactions despite regulatory restrictions. However, these OTC shops are expected to fall under new regulatory guidelines, indicating inevitable changes. Retail investors also frequently use global exchanges, as the Hong Kong regulatory authority does not actively block IPs, mirroring practices in other countries. ### Real World Assets (RWA) Leveraging its extensive financial history, Hong Kong is actively advancing in the tokenization of Real World Assets (RWA). Under the regulation of the Hong Kong Monetary Authority (HKMA) and SFC, major banks like HSBC and global asset managers such as BlackRock are heavily involved. Tech firms like Microsoft and Ant Group, along with companies like HashKey, provide technological expertise, driving the RWA tokenization ecosystem. Significant milestones include the Hong Kong government's announcement of virtual assets policy and pilot project plans in October 2022 and the pioneering issuance of a government tokenized green bond worth HK$8 billion in February 2023 via Goldman Sachs' blockchain platform. The June 2023 issuance of a 200 million yuan structured bond tokenized on Ethereum by Bank of China International (BOCI) marked the first public chain-based securities issuance by a Chinese financial institution in Hong Kong. In November 2023, the SFC released guidelines for tokenized securities, treating them similarly to traditional securities and opening access to individual investors. HSBC piloted trading of tokenized gold via its Orion platform. Successive initiatives, such as multi-currency tokenized green bonds, the “Stablecoin Sandbox,” HKMA's publication of the stablecoin regulation public hearing results, and the launch of "Project Ensemble," continually expand the tokenized asset market. The recent HKMA announcement of subsidies for issuing digital bonds further demonstrates commitment to advancing this sector. ### Project Ensemble Introduced by HKMA in 2024, Project Ensemble serves as a sandbox for the tokenized financial market infrastructure. Major banks like HSBC, Standard Chartered Bank (Hong Kong), Bank of China (Hong Kong), and Hang Seng Bank collaboratively participate in this project, linking their tokenized deposits to the network. Prominent tech companies, including Ant Digital, Microsoft Hong Kong, and HashKey, contribute to technology expertise. SFC participates as a community member, assisting in formulating regulations for tokenized assets. In initial experiments, HSBC successfully executed transactions using tokenized bonds and deposits within the sandbox ecosystem, validating inter-bank transactions of tokenized deposits. ### Stablecoin Sandbox HKMA’s Stablecoin Sandbox, launched in March 2024, offers a regulatory pilot environment for stablecoin issuers, aligning with 2023 legislative proposals. It aims to support the development of Hong Kong’s virtual assets ecosystem and provide issuers with compliance guidelines and supervision standards. In July 2024, the first batch of participants included Jingdong Coinlink, RD InnoTech, Standard Chartered Bank (Hong Kong), Animoca Brands, and HKT. These participants mainly test the issuance and application of HKD-pegged stablecoins, exploring domestic and cross-border payments and DeFi integrations. Formal regulation is swiftly progressing, with a bill submitted to the Legislative Council in December 2024, mandating stablecoin issuance and operation licenses. Participants are preparing for official licenses and stablecoin launches in line with the law's implementation. ### Mainnet Landscape Hong Kong’s blockchain market lacks a dominant mainnet platform, fostering a competitive ecosystem. Global and local platforms, including Solana’s "Superteam," Avalanche’s partnerships, Polkadot’s Blockchain Academy, and Ethereum’s base assets, compete for market influence. Bitcoin Layer 2 solutions, popular in the Chinese market, gain significant attention, with Hashkey Chain aimed at establishing a local mainnet presence. Conflux, originating from Shanghai, has relocated its management team to Hong Kong, combining Chinese technological prowess with Hong Kong’s favorable regulatory environment. ### Builder Environment Hong Kong, traditionally viewed as a finance and exchange-centric market, hosts a diverse builder ecosystem. Incubating entities like Cyberport actively foster project growth, supporting over 270 Web3-related projects with HK$50 million in funding to stimulate ecosystem development. These projects span various domains, including Web3 gaming, DeFi, infrastructure, and decentralized science (DeSci), reflecting a rich industrial ecosystem beyond finance. Leveraging Hong Kong's strategic location and cultural advantages, these projects actively seek international market expansion. Cyberport collaborates with 11 local universities and global institutions like Stanford, Cambridge, and Draper University, offering boot camps and hackathons, developing practical skills, and nurturing developers. ### Developer and Community Landscape Proximity to Shenzhen allows easy access to millions of developers and technical personnel, with engineers commuting daily to Hong Kong. This geographic advantage is one of Hong Kong’s competitive strengths. Hong Kong excels in business idea generation and application development but tends to outsource pure technology development to mainland China or Vietnam. However, local universities continue to produce exceptional developers, merging business acumen and technical solutions for ecosystem growth. Cyberport supports talent cultivation through partnerships with leading global platforms and major mainnets, organizing certification programs and hackathons. Numerous communities in Hong Kong use Telegram, WhatsApp, and WeChat for active communication, maintaining vibrant interaction irrespective of nationality. ### Market Entry Strategy Hong Kong's traditional financial strength propels its active cultivation of the Web3 industry, favoring institutional-grade projects and RWA-related companies. The geographic advantage of proximity to the mainland and the tech talent pool in Shenzhen stand out. Government support remains robust. Initiatives like Cyberport provide space, subsidies, and investment programs for over 270 Web3 projects. The SFC’s "ASPIRe" roadmap aims to expand market accessibility, introducing OTC trading, custody licensing, new token listings, and derivative trading frameworks for professional investors. Utilizing Hong Kong’s financial infrastructure benefits institutional-grade Web3 projects in partnering with local financial institutions. The leading position in asset tokenization and stablecoin markets presents a significant opportunity for related businesses. Aligning with the new roadmap, global exchange entry into Hong Kong suggests promising developments, with regulatory approval opening access to global liquidity and fostering proactive business strategies. ### Challenges Despite the optimism, challenges exist. Limited to a population of 7.5 million, domestic demand alone constrains growth, promoting Hong Kong as a strategic launchpad for broader Asian market penetration. Projects targeting the Chinese market find Hong Kong attractive for networking and investor access within the Chinese community. Talent acquisition poses another challenge. Finding reliable local representatives is difficult, and high job turnover rates hinder long-term personnel management. Cultural differences can lead to communication issues and conflicts between headquarters and local branches. ### Entry Strategy To succeed in Hong Kong's Web3 market, strategic approaches include: 1. Establishing trustful relationships with local regulators through active communication, adapting swiftly to the evolving regulatory environment. 2. Combining local and global talent, leveraging understanding of the Chinese market and language skills while incorporating international insights. 3. Forming partnerships with local institutions, leveraging Hong Kong's finance-centric market to enhance trust and stability in Web3 projects. Utilizing government support programs like Cyberport for cost savings and network building is also advantageous. 4. Engaging local Web3 investors like Animoca Brands, Spartan, Hashkey Capital, and Kinetic provides specialized assistance through broad networks and targeted perspectives. A long-term perspective is crucial for success. The potential access to the mainland market is attractive but requires patience and adaptability to regulatory changes. While Hong Kong’s initiatives may not immediately alter China’s overall Web3 policy, they signify gradual change, providing a sensible direction for long-term development. ### Key Contributors Yoon Lee, Head of BD, Tiger Research Margot Lee, Head of Marketing, Tiger Research Ian Yeung, Associate Director, Animoca Brands ### Methodology This report by Tiger Research was crafted during Consensus 2025, based on interviews with various industry professionals and leaders while residing in Hong Kong from February 17 to 21, 2025. The objective was to gain a comprehensive understanding of Hong Kong's unique and complex Web3 market structure. Diverse opinions collected reflect market diversity and enhance overall insight into Hong Kong's Web3 environment. *This article is an excerpt from Tiger Research’s 'Analysis of Hong Kong Web3 Market: From a Financial Hub in Asia to a Web3 Hub.' The full report is available on Tiger Research’s official website.*