Despite the government’s support for mainstream digital assets like Bitcoin, this marks a rare instance of its support for DeFi.
Hong Kong government officials have recently expressed their commitment to advancing financial innovation, highlighting several key areas of focus: financial technology, green finance, Web3-related decentralized finance (DeFi), and virtual assets.
On May 31, during the 2024 Finance New Summer Summit, Huang Wei Lun, Director of the Financial Secretary’s Office, emphasized Hong Kong’s unique advantage of leveraging its connection with mainland China and the global market. He called for the need for the region to innovate and look for new growth in different sectors like finance, innovative technology, companies, and talent.
“The SAR Government will ensure that financial risks are stabilized at a manageable level and will continue to expand the interconnection between Hong Kong and the financial markets of Mainland China,” Huang stated.
This follows the China Securities Regulatory Commission’s announcement of five capital market cooperation measures with Hong Kong on April 19. Soon after this, Hong Kong launched Asia’s first set of Bitcoin and ether spot exchange-traded funds (ETFs).
These measures are anticipated to enhance investment product offerings and opportunities through greater interconnection.
Shift in Stance
Notably, despite the government’s support for mainstream digital assets like Bitcoin, this marks a rare instance of its support for DeFi. Historically, the Hong Kong Securities and Futures Commission (SFC) has mandated that DeFi adheres to the same regulatory requirements as traditional financial entities.
It also states that if a decentralized platform facilitates transactions that constitute securities or futures as defined by the Securities and Futures Ordinance (SFO), the platform and its operators must obtain a license for the seventh category of regulated activities.
Previously, in April 2023, Cai Zhonghui, Interim Director of the Intermediary Department of the SFC, acknowledged the opportunities presented by Web3, virtual assets, NFTs, and GameFi. While the SFC had expressed its support for the innovation of Distributed Ledger Technology, it had been skeptical when it came to Web3-related DeFi.
Cai highlighted the financial stability risks associated with DeFi and the virtual asset ecosystem. These risks stem from the lack of transparency due to insufficient data and the unregulated status of many related companies.
“The DeFi ecosystem faces market integrity issues, such as price manipulation, preemptive trading, and other types of abuse. It is worth noting that the scale of cyber attacks is becoming larger and larger, which has caused concerns about investor protection,” he stated at the time.
However, the shift in stance displayed by Huang indicates a more inclusive financial ecosystem. As per Huang, “Hong Kong looks forward to these measures falling to the ground, and expects interconnection to cover more investment products and investment opportunities”.
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