Author: Yue Xiaoyu Hong Kong's blockchain industry was booming before, but it seems to have recently come to a standstill. What is the current state of the cryptocurrency market in Hong Kong? I've been living in Hong Kong recently, and I've been communicating frequently with many friends and projects there. I've gradually gained a clearer understanding of the regulatory environment and policy trends for Web3 in Hong Kong. This can be summarized into 10 points. 1. To sum it up: I am pessimistic about the development of Hong Kong's Web3 industry in the short to medium term, but optimistic in the long term. 2. The pessimism in the short to medium term stems from the repeated shifts in regulatory policies and the internal conflict between different perspectives. It's not just the central government and the Hong Kong government fighting each other; the Hong Kong government's executive and regulatory departments are also fighting each other. The central government wants financial stability, the Hong Kong government wants to develop new industries, the executive branch wants to innovate, and the regulatory branch wants to be conservative. The most fundamental contradiction lies in the fact that the decentralization and global liquidity of blockchain are inherently mutually exclusive with the government's strong foreign exchange controls and restrictions on capital outflows. 3. Long-term optimism stems from the irreversible trend and the genuine value of stablecoins, which represent a significant transformation, especially for cross-border trade and payments. Meanwhile, the United States is accelerating legislation for the cryptocurrency industry, seizing legislative power and dominance. Sooner or later, other countries and regions will be forced to "open their doors". It's just that it's not time to make a decision yet, so we can still waver and wait and see. But the longer we delay, the more passive we will become. Of course, it cannot be denied that Hong Kong has at least taken a crucial step and opened a door, which can then be gradually expanded. More importantly, Hong Kong remains China's window to the outside world, or financial backdoor. It may have been closed a little or tightened control, but this window must remain. 4. The first phase of Hong Kong dollar stablecoin licenses will only be granted to local consortia, with a maximum of 5 licenses. The core reason why JD.com and Ant Group withdrew their applications for stablecoin licenses is that the Chinese government is concerned that these technology companies are too large and the risks are difficult to manage. Of course, for tech giants like JD.com and Ant Group, if Hong Kong doesn't issue licenses, they can apply in other regions. As a city with a population of 7 million, Hong Kong's market size is not that large, but tech giants still have to engage in stablecoin business. 5. It is unlikely that a Hong Kong dollar stablecoin will be launched, not only because of licensing issues, but also because the biggest obstacle is the restriction on the scope of business under strict risk management. For example, one of the biggest limitations of Hong Kong's current stablecoin policy is that end users must undergo KYC (Know Your Customer) procedures. This means that Hong Kong dollar stablecoins have no secondary market and can only circulate within the whitelist of addresses. This was actually intended to further limit the scope of risk, but it also sacrificed the usability of stablecoins, ultimately becoming a Hong Kong version of the "digital yuan". 6. While Hong Kong dollar stablecoins are not viable, RWA has great potential! Hong Kong's regulatory logic is to implement tiered regulation based on the underlying assets. Stablecoins are based on fiat currency, so they are subject to the highest regulatory requirements. Secondly, RWAs with underlying financial assets may be classified as securities. Finally, RWA, which is based on physical objects, has the lowest regulatory requirements. 7. Currently, there are many RWA projects based on physical assets, but very few RWA projects based on financial assets. However, RWA based on financial assets is far superior to RWA based on physical assets, because physical assets need to be financialized before they can be tokenized, which is a long, costly and low-return process. The current lack of transparency in physical asset RWA is too high. The physical asset portion is basically a black box, and most projects are either just riding the wave of the concept or suspected of money laundering. 8. I used to think that high-quality assets in the traditional financial world were scarce and would be snapped up. However, after talking with the RWA startup team, I realized that high-quality assets in the traditional financial world still lack funding sources. It can be said that high-quality assets outweigh the amount of capital. The value of tokenization lies in its ability to lower the barrier to accessing funds. 9. The evolution of RWA still follows this path: fiat currency on-chain -> bonds on-chain -> stocks on-chain -> financial derivatives on-chain -> physical assets on-chain. Putting fiat currency on the blockchain has too high regulatory requirements and is not something small businesses can participate in; Physical assets that are not high-quality assets are put on the blockchain; once they are on the blockchain, they are no longer high-quality assets. The on-chaining of standard financial products in the middle section has enormous potential, truly solving the problems of insufficient funds on the asset side and insufficient assets on the funding side. 10. Don't try to guess the regulator's attitude; you'll only lose badly. Looking at this issue from another perspective: the lack of clear and effective regulation actually serves as a protection and barrier for existing cryptocurrency practitioners. If we wait until the regulations are actually implemented and large companies rush in, what opportunities will we have? So now is a great window of opportunity. Opportunity favors the prepared mind; those who waver withdraw, while those who are determined seize the time to build. The road to success is never crowded. Once the technology and products are ready, we can go all out when the regulatory authorities give the starting gun. The premise is that industry practitioners must believe in the industry and that the projects they are working on are genuinely addressing market needs and problems.Author: Yue Xiaoyu Hong Kong's blockchain industry was booming before, but it seems to have recently come to a standstill. What is the current state of the cryptocurrency market in Hong Kong? I've been living in Hong Kong recently, and I've been communicating frequently with many friends and projects there. I've gradually gained a clearer understanding of the regulatory environment and policy trends for Web3 in Hong Kong. This can be summarized into 10 points. 1. To sum it up: I am pessimistic about the development of Hong Kong's Web3 industry in the short to medium term, but optimistic in the long term. 2. The pessimism in the short to medium term stems from the repeated shifts in regulatory policies and the internal conflict between different perspectives. It's not just the central government and the Hong Kong government fighting each other; the Hong Kong government's executive and regulatory departments are also fighting each other. The central government wants financial stability, the Hong Kong government wants to develop new industries, the executive branch wants to innovate, and the regulatory branch wants to be conservative. The most fundamental contradiction lies in the fact that the decentralization and global liquidity of blockchain are inherently mutually exclusive with the government's strong foreign exchange controls and restrictions on capital outflows. 3. Long-term optimism stems from the irreversible trend and the genuine value of stablecoins, which represent a significant transformation, especially for cross-border trade and payments. Meanwhile, the United States is accelerating legislation for the cryptocurrency industry, seizing legislative power and dominance. Sooner or later, other countries and regions will be forced to "open their doors". It's just that it's not time to make a decision yet, so we can still waver and wait and see. But the longer we delay, the more passive we will become. Of course, it cannot be denied that Hong Kong has at least taken a crucial step and opened a door, which can then be gradually expanded. More importantly, Hong Kong remains China's window to the outside world, or financial backdoor. It may have been closed a little or tightened control, but this window must remain. 4. The first phase of Hong Kong dollar stablecoin licenses will only be granted to local consortia, with a maximum of 5 licenses. The core reason why JD.com and Ant Group withdrew their applications for stablecoin licenses is that the Chinese government is concerned that these technology companies are too large and the risks are difficult to manage. Of course, for tech giants like JD.com and Ant Group, if Hong Kong doesn't issue licenses, they can apply in other regions. As a city with a population of 7 million, Hong Kong's market size is not that large, but tech giants still have to engage in stablecoin business. 5. It is unlikely that a Hong Kong dollar stablecoin will be launched, not only because of licensing issues, but also because the biggest obstacle is the restriction on the scope of business under strict risk management. For example, one of the biggest limitations of Hong Kong's current stablecoin policy is that end users must undergo KYC (Know Your Customer) procedures. This means that Hong Kong dollar stablecoins have no secondary market and can only circulate within the whitelist of addresses. This was actually intended to further limit the scope of risk, but it also sacrificed the usability of stablecoins, ultimately becoming a Hong Kong version of the "digital yuan". 6. While Hong Kong dollar stablecoins are not viable, RWA has great potential! Hong Kong's regulatory logic is to implement tiered regulation based on the underlying assets. Stablecoins are based on fiat currency, so they are subject to the highest regulatory requirements. Secondly, RWAs with underlying financial assets may be classified as securities. Finally, RWA, which is based on physical objects, has the lowest regulatory requirements. 7. Currently, there are many RWA projects based on physical assets, but very few RWA projects based on financial assets. However, RWA based on financial assets is far superior to RWA based on physical assets, because physical assets need to be financialized before they can be tokenized, which is a long, costly and low-return process. The current lack of transparency in physical asset RWA is too high. The physical asset portion is basically a black box, and most projects are either just riding the wave of the concept or suspected of money laundering. 8. I used to think that high-quality assets in the traditional financial world were scarce and would be snapped up. However, after talking with the RWA startup team, I realized that high-quality assets in the traditional financial world still lack funding sources. It can be said that high-quality assets outweigh the amount of capital. The value of tokenization lies in its ability to lower the barrier to accessing funds. 9. The evolution of RWA still follows this path: fiat currency on-chain -> bonds on-chain -> stocks on-chain -> financial derivatives on-chain -> physical assets on-chain. Putting fiat currency on the blockchain has too high regulatory requirements and is not something small businesses can participate in; Physical assets that are not high-quality assets are put on the blockchain; once they are on the blockchain, they are no longer high-quality assets. The on-chaining of standard financial products in the middle section has enormous potential, truly solving the problems of insufficient funds on the asset side and insufficient assets on the funding side. 10. Don't try to guess the regulator's attitude; you'll only lose badly. Looking at this issue from another perspective: the lack of clear and effective regulation actually serves as a protection and barrier for existing cryptocurrency practitioners. If we wait until the regulations are actually implemented and large companies rush in, what opportunities will we have? So now is a great window of opportunity. Opportunity favors the prepared mind; those who waver withdraw, while those who are determined seize the time to build. The road to success is never crowded. Once the technology and products are ready, we can go all out when the regulatory authorities give the starting gun. The premise is that industry practitioners must believe in the industry and that the projects they are working on are genuinely addressing market needs and problems.