On 21 May 2025, the Legislative Council of the Hong Kong Special Administrative Region of the People's Republic of China passed the Stablecoins Bill, establishing a licensing regime for fiat-referenced stablecoins issuers in China's Hong Kong (hereinafter referred to as Hong Kong). This marks Hong Kong as one of the first regions in the world to complete the legislation on stablecoins. Under the Web 3.0 development tactics, Hong Kong is expected to build a clearing and settlement center for the Hong Kong dollar, Renminbi and the US dollar, and become a stablecoin settlement hub in Asia.

 

Hong Kong Web 3.0 Entered A Fast Track in the Past Five Years

Web 3.0 refers to the next stage of internet development that aims to make the online world more open, user-controlled, and secure. Unlike today's internet (Web 2.0), where large tech companies manage most platforms and control user data¹, Web 3.0 uses blockchain technology to allow users to own their digital assets, verify transactions directly, and interact without needing intermediaries. The idea was first introduced around 2014 by Gavin Wood, one of the founders of Ethereum, who envisioned a more decentralized internet where people—not corporations—have greater control over identity, privacy, and value exchange. Today, Web 3.0 is the foundation of many innovations, including cryptocurrencies, decentralized finance (DeFi), and tokenized assets.

 

Over the past five years, Hong Kong has made significant progress in the Web 3.0 tactics and digital asset sectors, with a gradually improving regulatory framework and a steady stream of market innovations. In terms of virtual asset trading platforms, since the Securities and Futures Commission (SFC) introduced a regulatory framework for such platforms in 2019², Hong Kong has begun implementing a licensing regime. At the end of 2020, the first SFC-licensed virtual asset trading platform officially launched operations, followed by more trading platforms obtaining approval in the following years. On June 1, 2023, the "Virtual Asset Service Provider"(VASP) licensing regime was formally implemented, requiring any virtual asset trading platform serving Hong Kong investors to hold an SFC license. As of the end of 2024, the SFC had approved a total of seven licensed virtual asset trading platforms, putting Hong Kong at the forefront of trading platform regulation and market access.

 

Hong Kong has actively promoted compliant digital asset investment products, particularly in the realm of virtual asset Exchange-Traded Funds (ETFs). At the end of 2022, Hong Kong Exchanges and Clearing (HKEX) listed Asia's first crypto-asset futures ETFs (tracking Bitcoin and Ether futures), providing investors with a regulated channel for crypto investment. Going a step further in 2024, on April 30, HKEX simultaneously listed six virtual asset spot ETFs. Among these, the Bitcoin and Ether spot ETFs launched by one of China's largest mutual fund managers quickly established themselves as the leading products of their kind in Asia. The Bitcoin spot ETF alone surpassed HK$2 billion in assets under management, with a single-day turnover exceeding HK$370 million in December 2024—setting a regional benchmark for both scale and liquidity. These ETFs provided investors with a compliant and accessible channel to gain exposure to virtual assets via the traditional securities market, underscoring Hong Kong's growing integration of conventional finance with the digital asset ecosystem.

 

Hong Kong has also achieved groundbreaking results in the tokenization of real-world assets (RWA). In February 2023, the government successfully issued its first tokenised green bond (5-year maturity, totaling HK$800 million)³, making it one of the world's first government-issued tokenised bonds. In February 2024, Hong Kong went further by issuing a multi-currency digital green bond of approximately HK$6 billion (denominated in HKD, USD, EUR, and RMB). It was issued in parallel via the HKMA's Central Moneymarkets Unit (CMU) settlement system and a blockchain platform, becoming the world's first digital bond denominated in multiple currencies. These projects demonstrate the application of blockchain technology in government financing, providing an important reference for other jurisdictions.

 

Hong Kong institutions have also started to explore the issuance of tokenised securities products. For example, the first retail-level tokenised fund in Asia was launched in Hong Kong on February 28 2025 with an initial size of US$110 million. The fund, regulated by the SFC and issued via a licensed platform, focuses on HKD-denominated deposits and money market instruments. It was regarded as a milestone in the integration of traditional finance and digital assets. These innovative pilots indicate that Hong Kong has initially established a relatively complete RWA tokenization ecosystem, covering both public and private offerings, as well as bonds and funds.

 

In terms of market environment and policy support, the Hong Kong SAR Government has in recent years displayed a supportive stance toward the development of virtual assets. In October 2022, the government released the Policy Statement on the Development of Virtual Assets in Hong Kong, expressing that it would promote the virtual asset industry on the basis of prudent regulation and explore the gradual opening of retail participation. From the end of 2022 onward, the authorities have progressively allowed retail investors to participate in the virtual asset market through regulated channels (for example, by buying crypto-asset ETFs or trading major tokens on licensed exchanges).

 

In May 2023, the government also proposed a tax exemption plan for cryptocurrency investment income of private funds and family offices, in order to enhance Hong Kong's attractiveness to crypto investors. In addition, Hong Kong set up a government-led "Task Force on Virtual Asset Development"in 2023 and allocated funding in the budget to foster the Web 3.0 ecosystem, demonstrating official attention and support. With the dual momentum of stricter regulation and ongoing innovation, Hong Kong has gradually cemented its status as a digital asset hub in Asia.

 

HKMA and SFC Initiated Guidelines Actively on Blockchain Financial Products

Over the past two years, the Hong Kong Monetary Authority (HKMA) and the SFC have introduced a series of new regulatory initiatives around blockchain and digital asset financial products, covering tokenised products, stablecoins, central bank digital currencies (CBDCs), and more. This reflects a regulatory approach that seeks to strike a balance between protecting investors and fostering innovation.

 

Regulatory Guidelines on tokenised Product Issuance and Distribution

In February 2024, the HKMA issued a regulatory circular titled "Sale and Distribution of Tokenised Products."This circular set out guidelines that financial institutions must follow when launching and selling tokenised asset products. It strengthened oversight of tokenised product issuance by requiring issuers to ensure transparency of the underlying assets, secure custody, and appropriate investor suitability. This move filled a regulatory gap in banks' distribution of security token products, laying an institutional foundation for the future public issuance of more tokenised funds and bonds.

 

Around the same time, the SFC was also studying a regulatory framework for tokenised securities. In November 2023, the SFC issued two tokenization-related guidance documents, which allow traditional fund units authorized by the SFC to be tokenised under certain conditions and set out compliance requirements for intermediaries participating in tokenised securities activities. These measures indicate that regulators have begun to establish a clear pathway for compliant trading of tokenised securities.

 

Building a Stablecoin Legal Framework and Sandbox Mechanism

Hong Kong is accelerating the establishment of a legal framework for stablecoin issuance and circulation. The HKMA conducted a consultation on stablecoin regulation in early 2022 and published its conclusions in 2023, proposing a licensing regime for stablecoin issuers. Subsequently, the Financial Services and the Treasury Bureau (FSTB) and the HKMA drafted the Stablecoins Bill, which was gazetted in December 2024.

 

The Stablecoins Bill proposes imposing a licensing and regulatory regime on issuers of stablecoins pegged to official currencies (i.e. fiat-backed stablecoins). It covers the entire chain of activities including issuance, reserve custody, and marketing, and confers on the HKMA corresponding supervisory and enforcement powers. On May 21, 2025, the Legislative Council of Hong Kong officially passed the Stablecoins Bill, making Hong Kong one of the first jurisdictions globally to complete stablecoin legislation.

 

Such a framework will help ensure that stablecoins remain "stable and reliable"by requiring adequate reserves and secure fund custody, while guarding against a collapse similar to that of overseas algorithmic stablecoins. Notably, in the United States, the "GENIUS Stablecoin Act"was passed by the Senate Banking Committee in March 2025 and advanced to full-chamber debate in May. These parallel developments underscore an international consensus that regulatory clarity is essential to fostering responsible innovation in the digital asset space.

 

Against this backdrop, Hong Kong has also begun experimenting with blockchain-based financial infrastructure to support tokenised financial products. Prior to formal legislation, the HKMA had already launched a Stablecoin Sandbox pilot in 2023, inviting select institutions to test the issuance and use of HKD- or RMB-pegged stablecoins within a regulatory sandbox. These trials have provided practical evidence to inform future regulation.

 

Project Ensemble: Pilot for Synchronized Settlement of tokenised Currency and Assets

Project Ensemble is a major HKMA initiative in tokenised financial market infrastructure. The project was launched in March 2024 with the aim of building a next-generation trading platform that facilitates seamless interbank settlement of tokenised money.The Ensemble sandbox uses a wholesale central bank digital currency (wCBDC) as the ultimate settlement tool, prompting multiple commercial banks to issue Hong Kong dollar tokenised deposits (i.e. bank-issued stablecoins) and using them for on-chain securities trade settlement. The sandbox covers four application scenarios: tokenised bonds, liquidity management, green finance, and trade finance.

 

For example, in the fixed income scenario, Ensemble explored the use of tokenised deposits and wCBDC to facilitate settlement of tokenised bonds or fund units.In the trade finance scenario, it explored tokenizing trade assets such as accounts receivable and settling them with tokenised currency.

 

After the sandbox officially opened in August 2024, technology firms also participated, co-developing the tokenised asset trading platform and validating the feasibility of cross-institution on-chain settlement. This is among the few innovative pilots globally that combine commercial bank digital currencies with central bank digital currencies for real financial transaction settlement, foreshadowing a potential new paradigm for future financial market infrastructure.

 

Retail-Level CBDC: The e-HKD Pilot Program

Hong Kong's efforts in central bank digital currency focused on the retail level. In 2023, the HKMA launched the first-phase pilot program for the e-HKD, selecting 16 institutions to test 14 use cases—including programmable payments, government subsidy disbursement, cross-border payments, Web 3.0 settlement, digital identity, and compliance-integrated payments. One important scenario is "e-HKD payment for fund subscription/redemption,"that is, simulating investors using the digital HKD to directly subscribe to tokenised fund units to verify the CBDC's functionality in investment transactions. Through these pilot trials, the HKMA has explored the technical architecture and feasible models for a retail CBDC in areas such as smart contract functionality, digital identity verification, and AML/KYC integration.

 

HKMA emphasizes that the launch of e-HKD will proceed in a phased and prudent manner. This indicates that Hong Kong aims to expand the role of CBDC from a pure payment tool to a medium that supports financial products and new trading ecosystems, enhancing the flexibility and innovation of the payment system while maintaining financial stability.

 

In summary, Hong Kong's regulators have been taking proactive steps in tokenised products, stablecoins, and wholesale/retail CBDC initiatives, reflecting a regulatory approach of taking advantage of innovation while avoiding its pitfalls. On one hand, they embrace the financial innovation benefits of blockchain technology (such as higher settlement efficiency and a broader range of investment products); on the other, they mitigate risks and refine oversight by establishing licensing regimes and conducting sandbox tests. This combination of measures is expected to solidify Hong Kong's position as a front-runner in global digital asset regulatory reform, providing market participants with clearer compliance guidance and greater room for innovation.

 

Payment Transformation: Hong Kong's Stablecoin Development, Policy Support, and RMB Internationalization

 

In the payments domain, stablecoins are becoming a key driver of change. As an international financial center, Hong Kong is actively exploring the development of stablecoins denominated in the Hong Kong dollar and the renminbi, with a view to improving payment efficiency and supporting the strategy of RMB internationalization.

 

HKD Stablecoins: Current Development Status and Regulatory Framework

Currently, most mainstream stablecoins globally are pegged to the US dollar, whereas stablecoins pegged to the Hong Kong dollar are relatively rare. With Hong Kong improving its stablecoin regulations, HKD stablecoins are likely to receive official support in the future. In fact, the HKMA has already allowed institutions to test the issuance of HKD stablecoins in its stablecoin sandbox. Some Hong Kong financial institutions have shown interest, aiming to issue stablecoins backed 1:1 by HKD bank deposits (also known as tokenised deposits).

 

HKD stablecoins could be applied in local and cross-border payment scenarios—for example, enabling 7×24 instant clearing without being constrained by bank operating hours, thereby improving cash turnover efficiency. Additionally, HKD stablecoins would make it easier for investors to settle and arbitrage on digital asset platforms, increasing the use of the Hong Kong dollar in virtual asset markets.

 

From a policy perspective, Hong Kong's planned stablecoin licensing regime will cover stablecoin issuance pegged to fiat currencies (including the HKD), meaning that compliant HKD stablecoin issuers will be able to operate under HKMA supervision. Regulators emphasize that stablecoins must remain "stable,"requiring issuers to hold high-quality, sufficient reserve assets and to disclose information regularly, to ensure an HKD stablecoin maintains a 1:1 peg to its underlying currency. With regulatory safeguards in place, HKD stablecoins are expected to serve as a bridge between the traditional financial system and the crypto market, providing users a safe and reliable tool for value storage and transfer.

 

CNH Stablecoins: Prospects and Issuance Recommendations

Compared to the HKD, launching a CNH stablecoin carries greater strategic significance and complexity. Hong Kong, as an offshore RMB hub, could serve as a testing ground for a CNH stablecoin. In recent years, the internationalization of the renminbi has accelerated, but the global settlement system remains heavily reliant on the US dollar. Issuing an offshore CNH stablecoin could offer the international market a digital value vehicle pegged to the RMB, making it easier for both domestic and overseas parties to use the currency.

 

On one hand, in cross-border payment scenarios, a CNH stablecoin can significantly improve payment efficiency and reduce costs. For example, within the Guangdong-Hong Kong-Macao Greater Bay Area, businesses and individuals could use a CNH stablecoin for trade settlement and remittances without being limited by banking hours and at low fees, which would help small and medium-sized enterprises improve cash flow. Additionally, for some trade partners unable to directly access the SWIFT network, a CNH stablecoin would provide a new payment avenue, enhancing transaction resilience. On the other hand, from an investment and hedging perspective, a CNH stablecoin can serve as a unit of account and store of value for investors in digital asset markets. When emerging markets face risks of local currency depreciation or capital controls, holding a digital currency pegged to the RMB can be a hedge. This would, to some extent, expand the RMB's influence and scope of use.

 

The HKMA has recognized the potential of a CNH stablecoin and has included CNH-pegged stablecoin tests in its regulatory sandbox. Some studies have recommended that Hong Kong proactively support the issuance of a stablecoin based on offshore RMB (CNH) and incorporate it into Greater Bay Area financial cooperation plans. Such a CNH stablecoin could be issued by mainland Chinese banks in Hong Kong or other licensed institutions, backed by 100% offshore RMB deposits. This model ensures the stablecoin is fully supported by actual RMB funds, while leveraging Hong Kong's sound legal and regulatory environment to guarantee issuance transparency and fund safety.

To control risks, regulators would need to clarify anti-money laundering requirements and fund flow monitoring measures for a CNH stablecoin, possibly requiring issuers to implement mechanisms like whitelisted wallets and transaction reporting, so that the stablecoin circulates only within a legal, controlled scope. Therefore, for Hong Kong to introduce a CNH stablecoin, it must coordinate closely with national financial regulators, ensuring that it does not undermine onshore RMB capital controls while providing a digital channel for the RMB to "go out"internationally.

 

Stablecoins Supporting RMB Internationalization and Currency Diversification

The significance of a CNH stablecoin goes beyond the technology itself. It lies in serving the broader goal of advancing the internationalization of the renminbi. As the global financial landscape evolves, there is growing demand for more diversified and flexible cross-border payment instruments. The issuance of a CNH-denominated stablecoin in Hong Kong would be a timely response to these trends. On one hand, it would consolidate Hong Kong's status as an offshore RMB center and increase the supply of CNH-denominated digital assets in local and regional markets. On the other, it could provide a new digital payment channel for international trade and investment, improving settlement efficiency while expanding the scope of RMB usage in cross-border scenarios.

 

In particular, the availability of a CNH stablecoin could help address the need for alternative settlement instruments in jurisdictions where traditional infrastructure may be limited or where participants seek greater flexibility in currency choice. For emerging markets, it may serve as a useful complement in hedging local currency volatility or facilitating participation in digital asset markets using a widely recognized, stable denomination. In this way, a CNH stablecoin could enhance the currency's presence in international trade and finance through practical and market-driven means.

 

It is also worth noting that the potential for a CNH stablecoin to work alongside the e-CNY, onshore retail-focused digital currency. While the e-CNY is designed for use within domestic payment scenarios, a CNH stablecoin issued in Hong Kong would primarily serve offshore and cross-border functions. In the long run, the two may form a coordinated system, with technical bridges enabling interoperability between the onshore and offshore RMB digital currency ecosystems. This would support the RMB's transition into the digital era across a broader range of use cases.

 

Under the guidance of clear regulatory boundaries and in coordination with national policy, Hong Kong is well positioned to take the lead in this area. With its legal infrastructure, financial expertise, and connectivity to both international markets and the Mainland, Hong Kong can pilot RMB digitization initiatives in a safe and transparent manner. These efforts, while advancing the city's fintech competitiveness, also provide practical support for the ongoing globalization of the renminbi.

 

Investment and Financing Transformation: RWA Tokenization Trends, Global Developments, and Hong Kong's Practice

Real-world asset tokenization (RWA tokenization) is sparking a new wave of transformation in global capital markets. RWA tokenization refers to using blockchain technology to map real-world financial or physical assets into digital tokens on-chain, endowing them with features such as programmability, divisibility, and 24/7 tradability. In recent years, as regulatory frameworks have gradually clarified and institutional participation has increased, RWA tokenization has moved from experimentation to practical use, exhibiting an accelerating growth trend.

 

Global RWA Tokenization Market Trends and Representative Cases

From a global perspective, major financial markets are all actively exploring RWA tokenization applications. According to a report by Boston Consulting Group (BCG), in 2022 the global value of tokenised assets was about US$310 billion, and by 2030 this figure is expected to grow 50-fold to roughly US$16 trillion—around 10% of global GDP. This means that over the next decade, a large volume of traditional assets (such as equities, bonds, real estate, commodities, intellectual property, etc.) could be traded in tokenised form.

 

In Western markets, Europe implemented a Distributed Ledger Technology (DLT) pilot regime in 2023, allowing regulated exchanges to use blockchain for issuing and trading security tokens. The EU also passed the MiCA regulation, which clarified the legal status and disclosure requirements for security tokens. The United States, although it has yet to introduce unified regulations, has seen several major financial institutions take the lead by developing blockchain platforms for settling tokenised deposits and bonds, or experimenting with issuing digital bonds on private chains. In Asia, Singapore—through a sandbox initiative code-named Project Guardian—has partnered with banks to pilot tokenised bonds and loans, using a principles-based regulatory approach to encourage innovation.

 

It is evident that the establishment of standards and regulatory liberalization are paving the way for RWA tokenization. Once transparency and compliance are assured, institutional investors' interest in tokenised assets would grow steadily. In recent years, several notable projects have emerged — for example, a tokenised bond issued by a major European stock exchange, and tokenised structured notes launched by certain banking groups — all indicating that traditional finance and blockchain technology are rapidly converging.

 

Hong Kong's Leading Role in RWA Pilots

Hong Kong is regarded as one of the pioneers in RWA tokenization. With a robust legal environment and a regulatory stance that embraces innovation, Hong Kong has seen the emergence of numerous groundbreaking RWA cases. On the government side, as mentioned earlier, Hong Kong's issuance of a digital green bond was among the world's first sovereign tokenization projects. At the market level, activity has been even more vibrant. Asia's first tokenised fund for retail investors was launched in Hong Kong in early 2025, the result of a collaboration between a large asset management company and a regulated platform. This fund received approval from the SFC and was listed on a licensed digital asset trading platform, investing primarily in HKD-denominated bank deposits and money market instruments with an initial size of US$110 million. As a tokenised version of a traditional money market fund, it offers investors the same stable returns as a conventional fund, but with added advantages of high liquidity and convenient trading. Investors can trade the fund 24/7 with immediate settlement of subscription and redemption, and can transparently view on-chain disclosures of its holdings and net asset value. The industry has hailed the launch of this product as an important milestone in the convergence of traditional finance and digital assets, indicating that Hong Kong's regulatory framework can support the compliant issuance of retail-level tokenised products.

 

Beyond funds, Hong Kong companies are also experimenting with Security Token Offerings (STOs) as a means of raising capital. For example, some technology startups have explored issuing tokenised equity or debt via regulated platforms in Hong Kong to reach qualified investors globally. Such STOs have already seen preliminary trials in Hong Kong, though overall they remain in regulatory sandboxes or limited pilot stages. However, since 2023 the SFC has signaled an open stance toward security tokens and released guidelines to regulate intermediaries' participation in STO activities, so more Hong Kong enterprises are expected to pursue compliant fundraising through tokenization in the future. Compared to a traditional IPO or private placement, a tokenised issuance can improve efficiency, reduce costs, and broaden the investor base (including overseas investors). At the same time, with the support of regulatory technology (RegTech), on-chain trading and transfer of these securities can be monitored to ensure anti-money laundering and securities law requirements are met. This trend will inject new vitality into Hong Kong's capital markets.

 

Hong Kong Regulators' Strategy for Supporting RWA Development

In advancing RWA tokenization, Hong Kong's regulators have demonstrated a spirit of regulatory innovation. On one hand, they have gained experience through pilot projects — for example, the HKMA's Project Ensemble applied tokenised deposits + wCBDC for RWA settlement, validating the feasibility of on-chain atomic settlement. On the other hand, Hong Kong has adopted a step-by-step approach to permitting market innovation: it began with pilots for institutional private products (such as tokenising Water Authority bonds and private funds), and once the technology proved mature and risks were controlled, gradually extended to public retail offerings. This progression from simpler to more complex projects has ensured financial stability while allowing Hong Kong to maintain a competitive edge in the global RWA trend.

 

Overall, RWA tokenization represents a major transformation in investment and financing models, giving traditional assets new liquidity and programmability. Leveraging its strengths, Hong Kong has set important examples on both the government side (digital bonds) and the market side (tokenised funds), establishing a relatively complete pilot ecosystem. This ecosystem provides valuable experience for Mainland China and other regions: with sound regulatory measures in place, RWA products can indeed be introduced safely to the retail market and gain traction among investors. In the future, as Hong Kong continues to promote the tokenization of a greater variety of assets (such as green financial assets, carbon credits, real estate investment trusts, etc.), its standing in the global digital asset investment and financing landscape is expected to be further enhanced.

 

Future Outlook: Hong Kong's Strategies in Global Web 3.0 and Digital Asset Development

Looking ahead, Hong Kong has the potential to play an even more pivotal role in global Web 3.0 and digital asset development. After years of exploration and groundwork, Hong Kong has established a foundation in regulation, markets, and technology. Going forward, it should capitalize on this momentum while clearly recognizing the challenges it faces, and devise corresponding strategies to strengthen its international competitiveness.

 

Positioning Hong Kong: Connecting East and West with Bridging Systems

Hong Kong is poised to serve as a bridge between Eastern and Western digital asset markets, as well as an innovation sandbox. On one hand, leveraging its position backed by Mainland China and open tothe world, Hong Kong can connect to the Mainland's huge pools of capital and investment demand while also attracting international capital and projects. In the digital asset arena, Hong Kong can utilize this unique advantage to facilitate connectivity between onshore (Mainland) and offshore markets.

 

For example, the author suggests that Hong Kong explore establishing a "Digital Asset Connect"mechanism, drawing on the model of the Shanghai–Hong Kong and Shenzhen–Hong Kong Stock Connect programs. This would allow eligible Mainland investors, within set quotas, to invest through specific channels in regulated digital asset products in Hong Kong—such as virtual asset spot ETFs and securities tokens (including tokenised money market funds and RWA tokens). By setting an annual aggregate quota (initially, say, RMB 5 billion per year) and a per-investor cap (e.g. RMB 100,000 per person per year), along with investor qualification criteria such as a minimum asset threshold or passing a risk assessment), the market could be gradually opened to individual investors under controlled risk. At the same time, strict cross-border capital supervision and anti-money laundering checks would be put in place, leveraging the existing Stock Connect infrastructure to build a cross-border digital asset trading system. If realized, this mechanism would become an important channel for Mainland funds to participate in legal, compliant digital asset investments, and further solidaify Hong Kong's status as an offshore digital asset hub.

 

Optimizing Policies and Promoting Institutional Participation

Strategically, Hong Kong should continue to optimize its business environment to attract global top blockchain companies and talent. The city has already introduced measures such as a licensing regime for the entire virtual asset service ecosystem, such as exchanges, custody, OTC, and tax incentives. In the future, it can further streamline compliance procedures and improve regulatory transparency, giving innovative projects clearer implementation expectations. At the same time, traditional financial institutions should be encouraged to participate in Web 3.0—for example, by supporting banks to issue tokenised products and allowing eligible mutual funds and insurance companies to invest in digital assets. This will help expand institutional investor participation, providing the market with greater liquidity and credibility.

 

Additionally, Hong Kong should strengthen education and training to elevate investors' understanding of digital assets and risk awareness while cultivating local talent in blockchain technology and compliance. Only by establishing a sufficient base of skilled talent and knowledge can the industry's long-term development be sustained.

 

Addressing Challenges: Regulation, Technology, and International Competition

Maintaining regulatory balance remains a primary challenge: how can Hong Kong protect investors and guard against financial crime without smothering innovation? Hong Kong's experience suggests that the principle of "same activity, same risk, same regulation"is effective. Going forward, Hong Kong must continuously refine its rules as the market evolves, and provide timely guidance on new emerging sectors (such as decentralized finance and NFT marketplaces) to prevent regulatory voids or arbitrage. In parallel, it should stay aligned with international regulatory developments and actively participate in setting global digital asset standards, ensuring Hong Kong's regulations remain internationally in sync as well as competitive.

 

Technological and security challenges cannot be overlooked either. Blockchain technology is continuously evolving, and Hong Kong needs to invest resources in researching critical issues such as smart contract security, privacy-preserving computation, and scalability, to ensure that systems remain secure and stable at scale. If a serious smart contract vulnerability or exchange failure were to occur, it could damage investor confidence and disrupt market stability, so contingency plans must be prepared in advance.

 

Lastly, Hong Kong faces competitive pressure from other regions. Singapore, Dubai, the United States and others are racing to become hubs for crypto and Web 3.0, offering various incentive policies to attract projects. Hong Kong must leverage its unique advantages — including judicial independence, well-developed financial infrastructure, and close ties with Mainland China — to achieve leadership in differentiated areas. For example, in CNH stablecoin and cross-border regulatory cooperation, Hong Kong possesses unique value that other centers cannot match. By deepening collaboration with the Mainland in areas like digital currency and capital markets tokenization, Hong Kong can consolidate its irreplaceable strategic position.

 

Outlook: Hong Kong's Path to International Leadership in Web 3.0 and Digital Assets

Hong Kong's journey into the Web 3.0 and digital asset era has been characterized by both opportunities and challenges, and this duality will continue into the future. Looking ahead, Hong Kong must maintain its balanced approach of encouraging innovation while ensuring prudent oversight. In practice, this means adhering to the parallel principles of open innovation and robust regulation as new technologies and business models emerge. Hong Kong's regulators have already signaled such a stance: for instance, the SFC's recent digital asset roadmap emphasizes that innovation can "thrive within guardrails”, underscoring that adaptive regulation and investor protection will go hand-in-hand. By treating its regulatory framework as a "living blueprint"rather than a static edict, Hong Kong can continuously adjust rules to keep pace with Web 3.0 developments without compromising market integrity.

 

A key priority moving forward is to refine and expand regulatory policies in light of market evolution. Hong Kong should proactively fill any regulatory gaps in areas like decentralized finance (DeFi), non-fungible token (NFT) marketplaces, and other emerging niches, ensuring that "same activity, same risk, same regulation"remains the guiding principle across old and new domains. This could involve introducing new licensing categories or guidelines for activities that are currently not fully covered under existing law. Notably, the SFC has indicated willingness to explore previously restricted activities – such as token issuance, crypto derivatives, staking and lending services – under proper oversight. Gradually permitting these activities for licensed institutions (with appropriate risk mitigation and investor eligibility criteria) would expand Hong Kong's market offerings and competitiveness. At the same time, Hong Kong should continue to align its rules with international standards and best practices, participating in global regulatory dialogues to help shape cohesive standards for digital assets. By refining policies in tandem with international developments, Hong Kong can provide regulatory clarity to market participants and avoid regulatory arbitrage, all while staying competitive as other jurisdictions race to update their own frameworks.

 

In tandem with policy refinement, Hong Kong needs to expand market openness and infrastructure to support a larger, more international Web 3.0 ecosystem. This involves further opening the market to both domestic and foreign participants in a calibrated manner. For example, mechanisms like the proposed "Digital Asset Connect"(modeled after the Stock Connect model) could be pursued to allow controlled cross-border investment in Hong Kong's regulated digital asset products, linking Mainland China's investors with global markets via Hong Kong. Such initiatives, if implemented, would further solidify Hong Kong's role as the gateway between Mainland China and the world in the digital asset space. Additionally, Hong Kong can attract more global Web 3.0 projects, exchanges, and service providers by streamlining entry procedures and offering a transparent, rule-of-law-based operating environment. Building out market infrastructure is also crucial: ongoing efforts like Project Ensemble to enhance on-chain settlement systems and the e-HKD pilot for retail CBDC should be carried forward to improve transaction efficiency and interoperability. By investing in next-generation trading, payment, and custody infrastructure, Hong Kong will provide the backbone needed for a thriving global digital asset hub.

 

Another strategic focus area is talent and education. Sustaining leadership in Web 3.0 requires a deep pool of skilled professionals – from blockchain developers and cybersecurity experts to compliance officers and investment analysts versed in digital assets. Hong Kong should continue to cultivate local talent through university programs, public-private partnerships, and professional certification initiatives. Government-backed efforts (such as dedicated Web 3.0 funds and incubators) can nurture startups and help attract international experts to Hong Kong. Equally important is broad-based investor education and protection. As retail participation grows, regulators and industry bodies must ramp up efforts to inform investors of the opportunities and risks of digital assets. Clear guidelines, risk disclosures, and perhaps sandbox environments for retail experimentation can help foster informed participation. Coupled with stringent enforcement against fraud and market misconduct, these steps will bolster investor confidence in Hong Kong's digital asset markets.

 

To fully realize its forward-looking vision, Hong Kong should also deepen institutional participation and product innovation. While the past few years saw initial pilots in tokenised bonds, funds, and deposits, the next phase could scale up these initiatives. Hong Kong's financial institutions – banks, asset managers, insurance companies – should be encouraged through policy incentives to issue and use tokenised financial products. For example, commercial banks could expand trials of tokenised deposits and lending on blockchain, while asset managers might launch more tokenised funds spanning asset classes like real estate or private equity. The regulatory authorities can facilitate this by providing more granular guidance on tokenization (building on the 2023 SFC and HKMA guidelines for tokenised securities) and by possibly creating regulatory sandboxes specifically for institutional DeFi applications. As more traditional institutions enter the Web 3.0 arena, their involvement will bring additional liquidity, credibility, and variety to Hong Kong's digital asset offerings. In turn, a rich variety of compliant products – from virtual asset ETFs and security tokens to stablecoins and CBDCs – will cement Hong Kong's status as a comprehensive global digital asset marketplace.

Maintaining a global leadership role will also require Hong Kong to actively engage in international cooperation and standard-setting. The digital asset space is borderless, so Hong Kong's influence hinges on collaboration with other major financial centers and international bodies. Hong Kong can take a lead in forums like the Financial Stability Board, IOSCO, and the BIS Innovation Hub to contribute its regulatory experiences and learn from others' best practices. By championing high standards for anti-money laundering (AML), consumer protection, and technological interoperability, Hong Kong can help shape a safer and more connected global Web 3.0 environment. Additionally, hosting international conferences, hackathons, and think-tank initiatives on Web 3.0 would reinforce Hong Kong's image as a thought leader and convenor in the digital asset field. Such soft-power moves complement the hard infrastructure and policy measures, ensuring that Hong Kong not only implements global norms but also helps define them.

 

Hong Kong's ambition is bolstered by strong support under national policy. With Mainland China positioning fintech and digital currency development as national priorities, Hong Kong enjoys a unique advantage of policy backing to experiment at the frontier. Under the guidance of national strategy, Hong Kong can boldly pilot projects (for example, offshore CNH Stablecoins) that contribute to China's broader financial innovation goals while still managing the risks within a smaller sandbox. This symbiotic relationship allows Hong Kong to benefit from Mainland resources and market scale, while the Mainland leverages Hong Kong's international outlook and legal framework to test innovations that might later be expanded more widely. Going forward, close coordination with Mainland regulators will remain essential – Hong Kong must ensure initiatives like an offshore CNH stablecoin or Digital Asset Connect complement Beijing's capital management policies and RMB internationalization efforts, rather than undermine them. By finding this alignment, Hong Kong can unlock tremendous opportunities (such as becoming the key offshore center for RMB digitization) that other global hubs cannot easily replicate.

 

In summary, Hong Kong's prospects in the global Web 3.0 and digital asset arena is extremely promising. By continuing to refine its regulatory regime, nurture innovation, and leverage its East-meets-West advantages, Hong Kong is poised to seize the initiative in the next wave of fintech and finance transformation. The city is in a strong position to offer the world a "Hong Kong model"– a successful model of integrating a traditional international financial center with the cutting-edge of digital assets. This model, characterized by rigorous oversight, market openness, and technological innovation, could serve as a valuable reference for other jurisdictions exploring their own digital asset frameworks. If Hong Kong acts on these tactics, it will not only solidify its status as a frontrunner and innovator in the international digital asset landscape, but also help shape the future of the global digital economy.

 

Haokang Thomas Zhu is the Head of Digital Assets and Head of Family Office Business at China Asset Management (Hong Kong)