Qiu Dagen: The Key to Unlocking Hong Kong's Web3 Financial Value

Qiu Dagen believes that Memecoin is a collectible and is not very suitable for trading on licensed exchanges.

Speech: Chiu Tak-gan, Member of the Legislative Council of the Hong Kong Special Administrative Region

Good morning everyone! Just now, you have heard the official statements from the Director and Ms. Cai regarding the development of Web3. From the perspective of a legislator, what I want to share with you today is my personal expectations, which of course do not represent the official opinion of the government. However, I am also involved in the development of Web3 in Hong Kong, so I truly believe that we can create a great Web3 ecosystem in Hong Kong through collaborative efforts.

What is the current state of Web3 in Hong Kong? Of course, we heard representatives from the government share a series of developments here, but what do others feel about the specific situation? So we conducted a survey on the ranking of Web3 in Hong Kong. In terms of trading volume, we saw a significant increase in Hong Kong's cryptocurrency trading volume in 2024, growing by 85.6%. According to the global cryptocurrency asset adoption index ranking, we are currently ranked 30th, which is the figure for 2024, but in 2023 our ranking was 88th, which means there has been a leap in our ranking in this area over the course of a year. Additionally, by 2024, our ranking in Asia will be 60 points, scoring 42.1 points, ranking second in Asia. Of course, this is only related to cryptocurrency, but our efforts in Web3 have gone beyond just cryptocurrency itself.

As the director just mentioned, we have established a dedicated task force. Over the past two years, the task force's goal has been to study how to build a Web3 ecosystem in Hong Kong and accelerate the development of Web3. At the same time, we provide innovators with innovative mechanisms, and a key term here is "trade-off."

Recently, we have also heard comments from some people that Hong Kong is more welcoming to institutional-type digital asset participants rather than crypto-native participants. But if you look at how Hong Kong is building a Web3 ecosystem, if you look at Hong Kong's financial market, because Hong Kong's own financial market is international, not only stocks or bonds, not only allow the participation of institutions and professional participants, but also allow the participation of individual retail participants, in addition to the participation of compliance regulators and all market players. Because we want to make Hong Kong a global leader in Web3, we want to be able to do everything, not only to welcome institutional investors on the regulatory side, but also to make efforts to welcome and give crypto-native players a place to live or thrive, so we did ask industry experts to share suggestions on how to strengthen Hong Kong's position in the Web3 space.

In the past two years, since the release of the virtual asset policy declaration in October 2022, we have published the first virtual asset policy declaration, and so far, it has only been two years. Each year we have added new content to such policies. In addition to the policy declaration released in October 2022, we have researched and introduced the Anti-Money Laundering Act, while also granting some licensed permits. The government is now trying out new RWA products, such as green bonds issued by the government and a series of new products mentioned by Ms. Cai, as well as ETF products. We are currently researching and preparing the second virtual asset policy declaration, hoping to have the official text released soon.

In addition, we have made a series of policy adjustments in Hong Kong. We have just completed discussions regarding the "Stablecoin Bill" and have finished related discussions in the Legislative Council. We hope that the Legislative Council will officially release the "Stablecoin Bill" in May, and that the government will formally launch it in the second half of this year. We are also conducting a second round of public consultation on over-the-counter trading of virtual assets, and we hope that this second round of public consultation can be completed quickly. We are also proposing a licensing mechanism for digital asset custody services.

As mentioned by the representatives of the government from the previous two guests, over the past two years, we have tried many new products, including futures-based ETFs and spot cryptocurrency asset ETFs, all of which are entirely new products. Additionally, Ms. Cai mentioned Hong Kong's progress in this area; we have already approved licenses for 10 institutions under the VATP, and we are currently preparing to grant licenses to another 8 institutions, hoping to have definitive and substantive news soon.

A-S-P-I-Re, the specific details will not be elaborated here. Recently announced, it is hoped that a clear roadmap can be provided from the perspective of regulatory roadmap to promote the development of the industry.

Next, I will share the products, as they are very important for building the Web3 ecosystem in Hong Kong. If we look globally and review the legislation regarding cryptocurrency in different countries, as well as the legislation on virtual asset regulation in different countries, we can see (as shown in the figure) that the blue bars represent developed economies. Among developed economies, 59.5% of countries have legislation on virtual assets, while in emerging countries, only 19.8% do. This means that more than 70% of developed economies worldwide have recognized the cryptocurrency industry. However, for developing economies and emerging economies, including Singapore, Hong Kong, and Dubai, only 19.8% of emerging and developing economies have legislated on relevant assets.

In other words, less than 25% of emerging economies have legislated for the virtual asset industry. Interestingly, developed economies (including the United States) have indeed introduced legislation for Web3, but only 20% of these developed economies have specific rules. This 20% figure is not very high; only 20% of economies have existing specific rules. While developed economies have enacted legislation for this industry, they often rely on existing laws. In contrast, emerging economies, such as Hong Kong, Singapore, and Dubai, typically introduce entirely new legislation specifically for the virtual asset industry, rather than merely applying existing legislation.

Just now, an introduction was made from the perspective of regulation and legislation. We also just heard Ms. Cai discussing various products, including staking, mining, derivatives, lending, and payments. We need to think carefully about which products can be done in Hong Kong and which cannot. In terms of services, there are currently exchange services, brokerage/consulting services, custody services, and advisory services. We hope to soon obtain permission from the relevant regulatory authorities. Advisory services are very important, especially concerning the issuance and listing of products, and which products can be listed in Hong Kong is very important.

Through a series of measures, we hope to encourage more participation. How exactly do we define the product? Because we all know this is a brand new market, how do we define cryptocurrency, and what exactly is the definition of stablecoins? In fact, over the years, we have had extensive discussions on the definitions of these products. Yesterday, in Mr. Xiao's speech, he categorized Tokens into five types, including Meme and securitized Tokens, etc.

For BTC and ETH, Mr. Xiao's classification is divided into five categories, but I remember another guest made a four-category classification, mainly focusing on whether BTC and ETH belong to the same category. In this regard, Mr. Xiao's classification is more detailed. It includes what the underlying assets of USDC and USDT actually are, and based on the differences in underlying assets, a more detailed classification has been made. It also includes tokens that do not have underlying asset support, as well as functional digital tokens, which fall into four different categories.

How should it be regulated? Other countries have also expressed their regulatory positions, for example, everyone has heard about the progress the United States has made in this regard. The attitude of the U.S. government has actually undergone a 180-degree turn; in the past, enforcement was the method of regulation, but now it is direct regulation. We have also seen the U.S. introduce a series of bills, and stablecoins are developing very rapidly in the U.S. When I was in the U.S., every time I met any American friends, they would share with me the progress of stablecoins in the U.S., with almost new developments every month. Last week, the U.S. also proposed "Covered Stablecoins"; this is not a securities product. It is very important to observe the U.S. government's legislation and attitude.

In addition, the U.S. government has proposed the establishment of a strategic BTC reserve. Although it's called BTC, there is some controversy that the U.S. government may also include other types of crypto assets in this so-called strategic BTC reserve, not just BTC. Why include other crypto assets? In fact, this has sparked a lot of discussion in the U.S. I cannot know the reasons behind it, but it can be closely monitored.

In addition, the "WENIUS Act" in the United States is also the basis of payment stablecoins, and does not classify payment stability as a security, which is also worthy of our reference. We all know that the stablecoin market now has two main issuer issuers, USDT and USDC, but if we look at their total issuance market capitalization of almost $220 billion, but according to other data, the overall global trading of stablecoins reached the trillion-dollar level last year. So I think the market prospects for stablecoins are promising. Although the current market share is already very large, Hong Kong is looking forward to issuing more new products in the stablecoin field.

Of course, I have also paid attention to the 48 questions raised by HESTER, which from the SEC's perspective are categorized into ten categories. These questions are worth our reference and represent significant changes happening in U.S. legislation. The U.S. SEC's approach to cryptocurrency terminology and classification, regardless of whether you classify virtual assets into four categories or five, what are the classification criteria? Should it be classified as securities or commodities? How exactly should it be classified and defined? The U.S. SEC has actually proposed its own classification method to determine whether it belongs to securities-type Tokens or non-securities-type Tokens. In Europe, there is also the so-called "MiCA regulation," which was introduced by the European Union in 2023. Through this regulation, cryptocurrencies are classified into different categories, and different categories of cryptocurrencies are subject to different legal regulations. This depends on whether they are classified as functional Tokens or NFTs, as well as whether there is an issuer categorizing them.

From the perspective of the Hong Kong government, we have been studying the "Basel Classification Standards for Crypto Assets". (As shown in the diagram) This diagram is a classification flowchart, which helps determine the category of a specific crypto asset by following the flowchart. If it is a tokenized bond, it may fall under category 1a. Category 2a includes more familiar mainstream crypto assets, such as BTC and BTH, while 2b is more related to crypto products. This flowchart invites global discussions on how to define crypto products. Such definitions will also affect the final regulatory framework for the products.

MemeCoin must also be mentioned, as it has been a very hot topic in the United States over the past few months. I personally agree with the SEC that MemeCoin should be considered a collectible, just like artwork. Whether it can actually be traded on licensed exchanges is another question. My personal feeling is that it is not very suitable for trading on licensed exchanges. If MemeCoin is just a commodity, then we view more of those who buy and sell MemeCoin as investors rather than traders. Traders are more involved in trading stocks, trading cards, etc. Therefore, whether MemeCoin should be traded on exchanges is worth careful consideration. Of course, you need to classify MemeCoin. Should it be included among those? This is my personal opinion, and it depends on whether it is traded on licensed exchanges, which requires consensus and discussion from the entire society.

Time is limited, let's look at some final thoughts. I need to clarify which type of token asset is currently facing this situation; is it just a tokenized security asset? Is that the case? Technology can change efficiency and provide more transparent and efficient ways to regulate and trade, and it's not just because it has been tokenized that it must be viewed differently.

At the same time, we also need to define cryptocurrency assets, for example, the risk level should be something that both professional traders and ordinary investors can participate in. This is something we need to clarify as soon as possible so that the public can understand Hong Kong's stance. For instance, which tokenized assets can be issued in Hong Kong? Personally, I do not wish to only allow people to buy and sell existing cryptocurrency assets. How can we allow new cryptocurrency assets and new tokens to be issued in Hong Kong? This can also enable global investors to participate, which is a way for us to build the market and promote the development of Hong Kong.

Thank you all for listening, this concludes my sharing for today.