As U.S. regulators continue to increase scrutiny of cryptocurrencies, startups and founders in the space are looking overseas for more friendly environments to support their growth.
One such destination is Hong Kong, which is looking to regain its status as a financial hub and is banking on favorable crypto regulations to attract a new wave of entrepreneurs, technologists, and investors. ing. So far, that strategy seems to be working.
In mid-April, the annual Web3 Festival in Hong Kong attracted more than 50,000 attendees. Compared to last year, there was a significant increase in participants from the Western Hemisphere, making the event feel more like a gathering of people looking to escape mainland China's restrictive crypto policies.
This year's event included buttoned-up city officials, who listened intently to stories from shabby-dressed founders battling jet lag. Although she did not attend the event in person, Ark Invest founder and billionaire Cathie Wood spoke via video. Then Ethereum Nomad founder Vitalik Buterin showed up at the last minute.
Excitement in Hong Kong's web3 scene began to build in June last year when the government legalized crypto trading by retail investors. Since then, the city has implemented a series of measures to regulate crypto-related activities, including a sandbox for stablecoin issuance and a licensing system for crypto exchange operators. Following the United States, Hong Kong also just listed a batch of virtual currency exchange traded funds (ETFs) in late April.
These moves are in stark contrast to the US government's hardline stance on virtual currency businesses. Web3 Festival attendees, who flew in from regions including the United States, Europe, the Middle East and India, expressed optimism about Hong Kong's momentum. For example, First Digital's FDUSD, issued under Hong Kong's Digital Asset Regulations and backed by US Treasury bills, quickly became the world's fourth-largest stablecoin by market capitalization.
At the same time, people are also aware of Hong Kong's limitations as a crypto hub. First, it is a relatively small market with a population of 7 million people, and mainland China's huge market will be off-limits, at least for the time being. Additionally, the regulation prioritizes investor protection, which could increase compliance costs and discourage companies favoring a freer business environment.
Still, Hong Kong remains one of the few jurisdictions, along with the United Arab Emirates, Japan, and Singapore, to demonstrate a clear commitment to cryptocurrencies. Jack Jia, head of cryptocurrencies at global payments firm Unlimit, said: “The fact that Hong Kong is coming up with any kind of crypto regulation should be on everyone's radar from a reputational and optical standpoint.'' Deaf,” he said.
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In fact, Hong Kong does not have the most lenient cryptocurrency regulations. In fact, crypto successor Hashkey is seeking a license in Bermuda due to strict rules for exchange operators. The world's largest cryptocurrency exchanges, namely Binance, Coinbase and Kraken, are noticeably absent from the city's list of 22 applicants for a virtual asset exchange license.
However, Hong Kong's biggest attraction lies in its efforts to clarify regulations on cryptocurrency activities.
“The SEC is notorious. “Everything is a security, but they're not going to tell you clearly what kind of license you need to apply for, so they might deny your application anyway. “Yes,” Zia said, explaining the U.S. Securities and Exchange Commission's stance on regulation. Cryptocurrency company. “There is no set SEC process. However, the Hong Kong regulator has a process in place to hear your views.”
In fact, multiple crypto executives told TechCrunch that they have met privately with Hong Kong government representatives. San Francisco-based Chainlink works to feed real-world data into smart contracts (lines of code that execute predefined rules), according to its co-founders, and will power Hong Kong's key financial infrastructure. The company is said to be in discussions about providing its technology. Sergey Nazarov.
“People don't fully understand that capital markets and cryptocurrencies are very compatible. Coming to Hong Kong, first of all because the government and regulators are more open to that compatibility. We found that compatibility accelerates here,” said Nazarov, who invited Hong Kong Deputy Finance Minister Joseph Chan to speak. I chatted with him by the fireplace at SmartCon, Chainlink's annual conference in Barcelona last year.
According to Nazarov, this year Chainlink will hold an event in Hong Kong at the invitation of the local government, making Hong Kong the first city in Asia to host the conference.
“Hong Kong regulators have set regulations for stablecoins, [digital] assets. This means that Hong Kong can be a place where assets and payments can be made in a regulated manner to ensure that they function in one system. This is important. Because if things are not regulated, hundreds of trillions and trillions of dollars and banks won't be able to transfer all that,” Nazarov added.
Steve Yun, chairman of the Dubai-based TON Foundation, Telegram's official blockchain partner, also shared his bullish view, saying that Hong Kong is “trying to come up with a very comprehensive framework that will help other cryptocurrencies. “This may be the biggest competitive advantage over hubs.” It makes builders and entrepreneurs feel more comfortable and helps attract talent. ”
Hong Kong's financial regulations are complex, but Charles Dorsey, CEO of the Switzerland-based dYdX Foundation, has experience leading the fintech division at InvestHK, the foreign direct investment arm of the Hong Kong government, and is familiar with financial regulations. Familiar. The executive said DYdX, the decentralized finance (DeFi) protocol backed by the dYdX Foundation, has historically been popular among Chinese-speaking users, so the foundation hopes to continue attracting more people. .
“The Hong Kong government was very open to cryptocurrencies in the early days,” Dorsey recalls. Like other jurisdictions around the world, the city has cracked down on cryptocurrency activity to protect investor interests as market volatility spirals out of control.
“But I think about a year or so ago they understood that there was a new market out there and they needed regulation to make sure they didn't miss out on this opportunity. That's when you saw the HKMA [Hong Kong Monetary Authority] We will continue to work on CBDC [central bank digital currencies]Hong Kong SFC [Securities and Futures Commission] We issue licenses for virtual currency exchanges and ETFs,” Dorsey said.
Access to China
When Hong Kong opened up to cryptocurrencies last year, there was widespread speculation that mainland China would follow suit. That hope remains remote as China continues to ban its citizens from trading in cryptocurrencies. Nevertheless, businesses are now realizing Hong Kong's potential as a gateway to China's other valuable resources.
While Hong Kong attracts financial talent, its neighbor to the south, Shenzhen, is home to some of the world's biggest technology companies, including Huawei, DJI and Tencent. Naturally, crypto companies are taking advantage of the combination of Hong Kong's friendly regulations and Shenzhen's proximity to developer resources.
One player taking advantage of Hong Kong's geographical location is the TON Foundation. As part of its efforts to become a super app, Telegram has partnered with his TON, which will allow third-party developers to build blockchain apps. During Web3 week, the Foundation held a bootcamp in Hong Kong in hopes of attracting Chinese developers familiar with WeChat's established mini-app ecosystem.
“We're now reaching out to a region that has a lot of developers and entrepreneurs, especially people who grew up using super apps to kind of mini apps, and people who have participated in the growth of that kind of ecosystem. “We are working hard,” Yun said. .
For example, A16z-backed Aptos hosted a three-day hackathon in Shenzhen in February, attracting hundreds of applicants and bringing DeFi events to Hong Kong. Aptos, which is run by the team that previously worked on Meta's Diem blockchain, is also partnering with Alibaba's cloud computing arm to attract Asian developers.
Some foreign founders have gone a step further by establishing a physical presence in the city. ZkMe was founded by German entrepreneurs and chose to locate their headquarters in Hong Kong to enable private credentials.
“We came here to build a sustainable business and leverage the technology expertise here, and obviously working with the Greater Bay Area would also be very beneficial,” Founder of zkMe Alex Scheer, CEO and CEO, spoke about the initiative. The aim is to integrate Hong Kong with nine neighboring Chinese cities through policies such as tax incentives for Hong Kong companies setting up in Shenzhen. Of the 16 members of zkMe's team, 14 are based in the Shenzhen office.
Some founders are more optimistic that Hong Kong will pave the way for China to embrace cryptocurrencies in the future. Anurag Arjun, founder of Dubai-based modular blockchain company Avail, believes that governments that fully understand the benefits of cryptography will eventually take a more lenient stance.
“[The crypto industry has] We've built some very advanced technology over the past few years. Some examples include zero-knowledge proof technology,” he said, noting that the underlying technology behind cryptocurrencies is not intended to support fraudulent NFTs or speculative trading, but rather to support industry foundational technology. It was suggested that it was developed to strengthen.
“Due to the strategic nature of Hong Kong, we feel that Hong Kong is an important location as a gateway to China in the future,” Arjun said. “If China opens up in the future, and we are able to talk to more government officials and advocate on the technology, not just the currency component, what we are doing in Hong Kong will help us expand into China. It will also be a useful lesson.”
