Web3 technologies, like blockchain, cryptocurrencies and the metaverse, are enabling a new decentralized internet and a new world of digital assets.
This will have a profound impact on the global financial ecosystem. Banks and insurance firms are already using blockchain technologies and smart contracts to monitor and audit financial activities, improving transparency, speed, and efficiency.
Investors are building diversified portfolios that mix traditional assets with crypto, stablecoins, NFTs and other virtual assets. Businesses are seeking to create new revenue streams by offering online content or services based on micropayment models.
However, some market players remain cautious. The collapse of FTX, once the second-largest cryptocurrency exchange in the world, over just a few days in November 2022, was a stark reminder of the volatility of the crypto market.
Even some web3 proponents have raised concerns about the security and stability of the industry and the potential for criminals to misuse virtual assets to launder money and fund illegal activities.
Stricter oversight will be necessary to ensure the ongoing stability of financial services in the web3 world. Greater regulatory clarity will also create the appropriate conditions for the industry to flourish through innovation.
Evolving the financial ecosystem
To ensure stability, governments and regulators worldwide are considering how to regulate cryptocurrencies and DeFi. Approaches vary across jurisdictions.
In Asia, Hong Kong is emerging as a global web3 hub. The Hong Kong Securities and Futures Commission introduced a new virtual-assets regime in May 2023 with the announcement of rules allowing retail trading of cryptocurrencies by licensed exchanges.
Like traditional financial institutions, these newly licensed platforms must meet strict requirements around safe custody, asset segregation and cybersecurity to protect investors and prevent money laundering. The Hong Kong Monetary Authority is also developing a framework for the regulation of stablecoin transactions and licensed stablecoin businesses.
The European Union is taking a similar approach. Its new Markets in Crypto Assets (MiCA) legislation establishes rules for stablecoins and exchanges across the region. The US, on the other hand, is looking to apply existing laws to digital assets.
Its Securities and Exchange Commission is currently seeking court rulings on whether cryptocurrencies can be classified as securities and regulated accordingly.
Incentivising innovation and investment
In every jurisdiction, regulatory clarity is welcomed by legitimate web3 companies. It provides a level playing field to help them innovate and create new products that solve real-world challenges. It also strengthens market confidence through rules that protect investors and consumers and provide peace of mind for those adopting digital assets.
Hong Kong’s regulatory stance aims to enable web3 innovators to build a thriving local ecosystem and flourish. Among the local startups poised for growth is a decentralized finance firm that provides loans to China’s cross-border e-commerce merchants.
Another web3 firm helps financial institutions use speech recognition for compliance, risk management and workflow automation. An innovative web3 company deploys big data to help companies and investors solve environmental, social and governance (ESG) challenges.
Other technology companies are working together to create a virtual assets hub that provides opportunities for web3 innovators to collaborate with one another, connect to sources of capital, access an exceptional talent pool, and build partnerships with traditional financial service leaders and other leading global enterprises.
Supporting enterprising web3 innovators
Hong Kong is home to more than 600 fintech firms and nine unicorns, and these numbers are increasing at pace. By June 2023, more than 150 new web3 firms have set up operations at Hong Kong Cyberport.
The city’s innovation hub had earlier received a US$7 million government investment to promote the development of web3 startups using blockchain technology.
In addition, the HKSAR government has set out its position to build a vibrant ecosystem in its policy statement last October and reiterated its commitment to promoting sustainable and responsible development of the city’s virtual asset sector, including its web3 ecosystem.
It further established a task force, chaired by the Financial Secretary, to promote web3 development last June.
Hong Kong Science and Technology Parks Corporation (HKSTP) is another key part of the local innovation ecosystem. It graduated a record 437 entrepreneurs from its incubation programmes in May 2023, with 61 per cent converted into Science Park companies for commercialization of their technology-driven business ideas.
HKSTP also saw the total company valuation of startups in its Acceleration Programme grow over 250 per cent from 2021-2022, with capital investment doubling over the same period.
These successes reflect Hong Kong’s growing importance as a web3 innovation hub in which entrepreneurs can seek resources, grow their networks, and capture business opportunities.
[1] For reference only: Qupital is the decentralised financing firm that provides loans to China’s cross-border e-commerce merchants. Fano Labs helps financial institutions use speech recognition for compliance, risk management and workflow automation. MioTech deploys big data to help companies and investors solve environmental, social and governance (ESG) challenges.
–
Editor’s note: e27 aims to foster thought leadership by publishing views from the community. Share your opinion by submitting an article, video, podcast, or infographic
Join our e27 Telegram group, FB community, or like the e27 Facebook page
Image credit: Shubham’s Web3 on Unsplash
The post How regulatory clarity can supports Web3 innovation in Asia appeared first on e27.