Hong Kong Web3 Guide: Which Web3 Companies Are Worth Noticing
What is the current state of Web3 development in Hong Kong, and which Web3 companies are worth paying attention to?Original Title: "What Web3 Companies in Hong Kong Are Worth Noting"
Written by: Peter Pan, BlockBeats
On October 31, the Hong Kong Financial Secretary (Financial Services and the Treasury Bureau) officially released the "Policy Declaration on the Development of Virtual Assets in Hong Kong" (hereinafter referred to as the "Declaration"), clarifying the Hong Kong government's policy stance, regulatory guidelines, and experimental plans regarding the thriving virtual asset industry and ecosystem in Hong Kong. This undoubtedly gives practitioners great confidence and encouragement in developing Web3 in Hong Kong.
However, some believe that this "Declaration" is still a new policy implemented cautiously by Hong Kong. While it has strong innovative and open values, opening a crack in the previously closed door of Web3, it remains more experimental than open.
For instance, the term "virtual assets" is used in the "Declaration" instead of "cryptocurrency." Although the definition is not accurately expressed, the meaning of virtual assets should differ from or be greater than that of cryptocurrencies. Additionally, the term "DLT" (Distributed Ledger Technology) is used instead of "decentralized," indicating a continued focus on technology rather than ideology.
Earlier, Hong Kong successfully nurtured many leading institutions in the crypto industry, such as BitMEX, FTX, and Crypto.com. At that time, BitMEX even rented the 45th floor of the Cheung Kong Center, replacing Barclays Capital, announcing a new era. Moreover, in 2018-2019, the top Asian crypto summit, Asia Crypto Week, was held in Hong Kong, further emphasizing Hong Kong's position in the crypto field.
However, later on, BitMEX and Crypto.com chose Singapore as their new base, and FTX has also moved to the Bahamas last year. Now, only a few well-known crypto companies remain in Hong Kong. So what is the current state of Web3 development in Hong Kong, and which Web3 companies are worth noting?
Global Fast Track 2022
The Global Fast Track is a global initiative organized by InvestHK, gathering innovative fintech companies from around the world. These companies already have commercial clients in their home markets and other regions and can connect with regional businesses and investors through their business solutions. The Global Fast Track will help these companies achieve more feasibility, visibility, and scalability in Hong Kong, Asia, and beyond.
BlockBeats has compiled statistics from 118 outstanding innovative fintech companies in the Global Fast Track 2022 to glimpse the current state of Web3 development in Hong Kong. It found that there are indeed not many Web3 projects born in Hong Kong (or headquartered in Hong Kong), with only 8 companies, accounting for just 6.8%.
HashKey Group
HashKey Group is an end-to-end digital asset financial services group based in Asia, headquartered in Hong Kong, with operations in Singapore and Tokyo, providing new investment opportunities and solutions for institutions, family offices, funds, and professional investors in the digital asset and blockchain ecosystem.
Everest Ventures Group
Everest Ventures Group (abbreviated as EVG) has a portfolio that includes many well-known projects such as Animoca Brands, The Sandbox, Flow blockchain, and Kraken.
Token Bay Capital
Token Bay Capital is an early-stage venture capital fund in Hong Kong that accepts funds from professional investors, mainly providing diversified investments in portfolios of digital assets and blockchain-related companies. Previously, Token Bay Capital invested in Yuga Labs, the parent company of the NFT project BAYC.
Aspen Digital
Aspen Digital is a virtual asset management platform based in Hong Kong, aiming to provide individuals or institutional users with the technology and expertise to build and manage digital asset strategies, helping them access the best and most unique products in the crypto industry. It has received investments from Everest Ventures Group and Token Bay Capital.
Cell Rising Capital
Cell Rising Capital is an early-stage venture capital fund in Hong Kong that invests in companies aiming to change the way traditional industries operate and become future pioneers, helping these startups grow rapidly and thrive. Previously, Cell Rising Capital invested in Animoca Brands.
UVECON
UVECON is a venture capital studio, accelerator, and consulting firm based in Hong Kong, investing in areas including fintech, blockchain, SaaS, and e-commerce.
ParticleX
ParticleX is also an accelerator based in Hong Kong, aimed at accelerating the growth of tech startups focused on blockchain, big data, artificial intelligence (AI), the Internet of Things (IoT), robotics, and more.
Global Digital MOJO
Global Digital MOJO (formerly Asia Digital MOJO) is an international digital strategy and production agency established in Hong Kong in 2009, with 6 studios worldwide, aiming to provide digital transformation services and create AI metaverse products for professionals.
The New Hong Kong Competition
It is evident that in just two years, Hong Kong seems to have fallen from its former status as Asia's crypto hub, with talent loss, project migration, and ecological decline, all of which are being injected into Singapore.
Indeed, the number of Web3 companies in Singapore is gradually increasing, especially after this year's Token2049 was held locally, leading many Chinese to have a simple intuition that Web3 entrepreneurship should go to Singapore. However, from another perspective, the conclusion of the competition between Hong Kong and Singapore as Asia's crypto center seems not yet settled. While Singapore has become an important base for Web3 development in Asia, not all projects are suitable for Singapore.
For example, Singapore's Monetary Authority (MAS) has explicitly stated that it will take a tough stance on unregulated retail public participation, as retail investors should not engage in cryptocurrencies. In contrast, Hong Kong's regulatory agencies are considering allowing retail investors to invest directly in crypto assets, and the SFC will conduct public consultations on the appropriate extent to which retail investors can buy and sell virtual assets under the new licensing system.
Therefore, choosing which region to establish a startup is a very complex issue that must be comprehensively assessed based on various factors, including the commercial nature of the specific project, compliance risks, team background, industry resources, and product characteristics.
For entrepreneurs with Chinese backgrounds, the future of Hong Kong's more open Web3 market, gradually stabilizing regulatory system, improved infrastructure, and the free flow of capital and information may still help Hong Kong replace Singapore as the best choice for Chinese Web3 entrepreneurship.
The release of this "Declaration" in Hong Kong also provides an additional option for projects in various Web3 tracks such as virtual asset trading, NFTs, metaverse, GameFi, and crypto funds regarding future business divisions, financing structures, and team distributions.
Virtual Asset Trading and Management
Overall, Hong Kong currently has three main regulatory agencies for virtual assets (cryptocurrencies, etc.) and trading: the Securities and Futures Commission (SFC), the Financial Services and the Treasury Bureau (FSTB), and the Hong Kong Monetary Authority (HKMA).
Among them, the SFC is the main regulatory force, with regulatory objectives including: maintaining and promoting fairness, efficiency, competitiveness, transparency, and order in the securities and futures industry; minimizing criminal and improper conduct in the securities and futures industry; and reducing systemic risks in the securities and futures industry.
In Hong Kong, cryptocurrencies are mainly classified into securities-type cryptocurrencies, NFTs, and virtual goods (such as Bitcoin). Different regulatory policies are applied to different types of cryptocurrencies. The SFC further categorizes securities-type cryptocurrencies into the following three types:
- Representing equity (entitling holders to dividends and participation in the distribution of remaining assets upon company liquidation);
- Representing debt (where the issuer can repay the principal and pay interest to token holders on specified dates or upon redemption);
- Usable for obtaining returns from "collective investment schemes."
Additionally, the FSTB and HKMA assist in regulation from different regulatory perspectives. The FSTB, as the second regulatory force, mainly combats money laundering and terrorist financing activities related to virtual assets. The HKMA is responsible for Hong Kong's financial policies and banking and monetary management, acting similarly to a central bank.
The "Declaration" mentioned that while intensifying preparations for a new licensing system for virtual asset service providers, it is also willing to connect with the global virtual asset industry and invite relevant trading platforms to explore business opportunities in Hong Kong. So what licenses are needed to legally conduct crypto financial activities in Hong Kong, and what leading players currently exist in the market?
The SFC has specified a total of 12 regulated activities, and engaging in these activities requires obtaining the corresponding licenses for regulation. Among them, the licenses related to trading platforms, funds, and fund management platforms associated with cryptocurrencies mainly include Type 1, Type 4, Type 7, and Type 9 regulatory licenses. The main companies in the market that have obtained relevant licenses include OSL, HashKey, and NH Asset.
OSL is a wholly-owned subsidiary of BC Technology Group, a digital asset listing company in Hong Kong, and the first company to obtain Type 1 and Type 7 regulatory licenses issued by the SFC.
OSL not only provides secure and frictionless multi-currency digital asset trading but also offers services such as large-scale brokerage, digital asset storage custody, and comprehensive digital asset trading solutions.
HashKey includes several business lines such as HashKey Capital, HashKey Pro, HashKey Custody, and HBL (Hash Blockchain Limited). Currently, HashKey Capital has obtained a Type 9 license, while HBL has obtained Type 1 and Type 7 regulatory licenses.
NH Asset (New Fire Asset Management "Hong Kong" Limited) is a wholly-owned subsidiary of New Fire Technology (formerly "Huobi Technology"), providing securities consulting and asset management services for professional investors. It has currently obtained Type 4 and Type 9 regulatory licenses, while the Type 1 and Type 7 licenses for regulating virtual asset trading platforms are still being applied for by the Huobi Technology subsidiary.
Currently, NH Asset has launched 4 asset management products aimed at professional investors: New Fire Bitcoin Fund, New Fire Ethereum Fund, New Fire Multi-Strategy Virtual Asset Fund, and Private Equity Fund.
In addition to the 12 types of licenses issued by the SFC mentioned above, some digital asset trading platforms in Hong Kong have obtained TCSP (Trust or Company Service Provider) licenses, such as HKD.com and OKLink Trust. However, OKLink has not yet started providing trust or company services.
HKD.com (Hong Kong Digital Asset Exchange) is dedicated to the trading and popularization of digital currencies, established in 2019, and holds a Hong Kong TCSP license. In addition to a secure online digital currency trading platform, HKD.com has also established a nearly 10,000 square foot physical digital currency trading store in Hong Kong's central business district, aiming to materialize and popularize digital currencies.
HKD.com Physical Store
Bond (Security) Tokenization
Bond tokenization will help improve the efficiency of bond issuance and settlement, reduce costs, and attract more investors to the market. The "Declaration" mentioned that Hong Kong will experiment with issuing tokenized green bonds, initially issuing a smaller scale primarily for institutional investors, aiming to become the world's first tokenized government green bond.
The Hong Kong Monetary Authority has also stated that it has completed Project Genesis with the Hong Kong Center under the Bank for International Settlements Innovation Hub, and has completed the conceptual certification for issuing tokenized green bonds to retail investors in Hong Kong. It will further study the feasibility of issuing tokenized green bonds through the government green bond program.
OSL
On July 26 of this year, OSL announced that it would distribute security tokens in private security token offerings (STOs) and become the first digital asset broker to obtain SFC Type 1 registration and conduct STOs with professional investors. Participants in this issuance include Animoca Brands, Head and Shoulders Financial Group, China Fortune Financial Group Limited, Volmart, and Monmonkey Group Asset Management Limited.
Knight Dragon
Knight Dragon is a real estate developer under Hong Kong billionaire Cheng Ka-shun. It announced on June 21 of this year that it would issue 100,000 security-type tokens "KDB4," which will entitle holders to share 80% of the gross profit generated by Knight Dragon's Building 4. Knight Dragon expects the KDB4 Token value to reach £140 million (approximately $172 million), and the token sale date has not yet been confirmed.
NFT
Under the planning of the three regulatory agencies, Hong Kong's licensed regulatory system for virtual assets is gradually becoming clearer. Regarding NFTs, Hong Kong's regulation has been further refined, categorizing NFTs into financial asset NFTs and collectible NFTs.
For financial NFTs, their promotional trading must be strictly regulated by the SFC and can only be conducted after obtaining a license. In contrast, collectible NFTs do not fall under the SFC's regulatory scope. Notably, during the "Hong Kong FinTech Week 2022," the organizers issued limited edition NFTs as attendance certificates for participants, allowing holders to create their exclusive virtual avatars through 3D scanning and gain priority access to other industry events in the future.
Currently, several high-profile NFT projects and related infrastructures have emerged in Hong Kong, with notable NFT projects mainly coming from the crossover of many Hong Kong stars, such as Edison Chen and Shawn Yue. However, the prices of these projects' NFTs have dropped by more than 80% from their peak, so the following is just an introduction to these projects and not investment advice.
The Heart Project NFT comes from a collaboration between Edison Chen and Los Angeles-based street artist Stefan Meier, featuring heart pattern elements from the limited capsule series created for Emotionally Unavailable. The total number of The Heart Project NFTs is 10,000, with 5,000 of them pre-sold to community members as whitelist sales.
ZombieClub is an NFT project launched by Shawn Yue, based on the concept of zombies and Frankenstein, designed to include 9 ethnic character roles, each with different attributes, with a total of 6,666 NFTs.
Artifact Labs is a multi-chain NFT ecosystem established by the South China Morning Post after spinning off its blockchain-based NFT business, aiming to transform the art, photos, and content of the 118-year-old English newspaper into tradable NFTs. Additionally, Artifact Labs can help turn properties of other organizations, including schools and museums, into digital collectibles.
Red Hare is an NFT analytics and big data platform in Hong Kong that launched Asia's first NFT index in May 2022. Its products and services mainly include NFT indexing and analysis suites, NFT big data, Tech Stack services (NFT product accelerators and incubators), and NFT incubation services.
Metaverse / GameFi
The metaverse is an immersive virtual space that provides users with rich consumption content and a fair creation platform, allowing users to engage in various activities such as culture, socializing, and entertainment. In the past two years, multiple factors have propelled the metaverse from concept to popularity, bringing development opportunities not only for the combination of gaming and socializing but also for retail, e-commerce, and industrial internet sectors.
In Hong Kong, the development of the metaverse has also brought a series of breakthroughs in academia and industry. Not only has the Hong Kong University of Science and Technology announced the establishment of an extended reality campus, MetaHKUST, in the metaverse to provide immersive learning experiences, but well-known companies like Meta and Yahoo Hong Kong are also launching a series of plans to support metaverse development in Hong Kong. Furthermore, leading projects like The Sandbox have established a thriving metaverse ecosystem.
The Sandbox is a blockchain-based 3D open-world metaverse launched by Animoca Brands in November 2021.
Currently, many institutions in Hong Kong have established virtual worlds in The Sandbox. For example, the MTR Corporation has reached a cooperation agreement to build a railway-centered virtual space within it; and Hong Kong-listed companies PCCW and Hong Kong Telecommunications have also announced partnerships, becoming the first CMT (Communication, Media & Technology) institutions in Hong Kong to enter The Sandbox metaverse. Additionally, Hong Kong real estate giant New World Development Group's CEO, Cheng Chi-kong, announced a $5 million investment in it.
STEPN is a Web3 application that has become popular in the crypto field this year, attracting widespread adoption from users both within and outside the crypto circle through its "Move to Earn" model. After being invited by George Lam, the former chairman of Cyberport, STEPN has now established its first regional headquarters outside Australia in Hong Kong.
Crypto VC
In addition to the crypto funds mentioned in the Global Fast Track 2022, such as EVG and Token Bay Capital, there are currently some other noteworthy crypto VCs and funds in Hong Kong.
Animoca Brands aims to drive digital ownership through NFTs and gaming, building an open metaverse. Currently, Animoca Brands has over 380 investments in its portfolio, including Colossal, Axie Infinity, OpenSea, Dapper Labs (NBA Top Shot), Yield Guild Games, Harmony, Alien Worlds, Star Atlas, and more.
Additionally, Animoca Brands is a developer and publisher of games and other applications for smartphones and tablets, with original games such as The Sandbox, Crazy Kings, and Crazy Defense Heroes.
Kenetic Capital is a proprietary trading and venture capital firm in Hong Kong focused on digital assets and blockchain-related companies, with a portfolio that includes many well-known crypto projects such as FTX, BlockFi, Alchemy, Polkadot, and IoTeX.
Chiron is a venture capital firm in Hong Kong that launched a $50 million crypto fund, primarily investing in DeFi and NFT projects related to the metaverse.
