Article Author: Echo, MetaEra

Source: MetaEra

Recently, the MetaEra Hong Kong section has been launched with great fanfare, leading the "Two-Year Anniversary Celebration of Hong Kong's New Crypto Policy" series of events. An important part of this is the "High-End Dialogue: Influential Leaders in Hong Kong Web 3.0," and the featured interviewee this time is Livio Weng, CEO of HashKey Exchange.

## Character Introduction

Livio Weng, Chief Operating Officer of HashKey Group and Chief Executive Officer of HashKey Exchange. He was appointed as the new CEO of HashKey Exchange in 2023. HashKey Exchange is committed to integrating with traditional financial institutions, promoting cooperation with the banking, securities, and payment sectors. Under his leadership, HashKey Exchange has made significant progress in compliance, RWA (Real World Assets), ETF (Exchange Traded Funds), stablecoins, and other potential areas in the cryptocurrency field.

## Key Insights

• The main theme for Hong Kong in the next decade is integration. We will actively build a more open, innovative, and robust financial market under the principles of "no regulation, no finance," "long-termism," and "licenses first."

• Hong Kong can issue both HKD stablecoins and USD stablecoins. The Asian market may also have regulated stablecoins, potentially forming a stablecoin exchange market, which could create new business models worth looking forward to.

• In the future, there may no longer be a clear boundary between Web3 and traditional finance; instead, they will blend together, leveraging their strengths, and the intersection will have a profound impact on the industry.

• We are optimistic about the development potential of Singapore and the Middle East as emerging markets and will focus on these two regions. At the same time, Hong Kong will always be our headquarters.

• In this bull market, competition may not be the main theme for licensed exchanges; rather, it is more about jointly promoting the opening of industry policies.

## Full Interview

MetaEra: Let's start by discussing the founding and development of HashKey. The Hong Kong SAR only released the "Policy Declaration on the Development of Virtual Assets in Hong Kong" in October 2022, but HashKey was established in 2018. In the face of policy uncertainty and the retreat of most peers, how did the HashKey management team persist in its development and growth? What experiences and lessons can you share with us?

Livio Weng: This question is closely related to HashKey's consistent business philosophy, which can be summarized in four words: long-termism. Dr. Xiao Feng recognized the commercial potential of virtual asset exchanges as early as 2013 but chose not to act due to the lack of formal licenses in the industry at that time. As a seasoned financial practitioner, he keenly realized that this was a typical financial business that could be developed, but the lack of licenses could lead to unpredictable issues in the future. As we have seen this year, many unlicensed exchanges are facing civil and even criminal liabilities globally, including in the U.S., mainland China, and Hong Kong. Therefore, we firmly believe that unregulated financial businesses should not be attempted lightly, which is closely tied to our principle of "long-termism." All of HashKey's businesses follow the principle of "license first, then operate." We have obtained licenses in Japan, Singapore, Hong Kong, and more licenses are in the application process. We always insist on conducting business only after obtaining regulatory licenses, adhering to the philosophy of "no regulation, no finance."

Hong Kong began to have a licensing system in 2018. At that time, applying for a license was not mandatory, and there were no consequences for not applying. However, in the past two years, as practitioners, applying for VATP and other licenses has become essential. Dr. Xiao Feng also realized during this period that since Hong Kong began to "have laws to follow," and he has always recognized Hong Kong's unique position, he made an industry-leading decision: to come to Hong Kong and operate the exchange through licensing. In fact, the entire industry has been experiencing a cleanup of unlicensed exchanges over the past two years, and we have witnessed the exit of several large offshore exchanges, marking the official transition of the industry from the unlicensed era to the licensed era. Under the values of "long-termism" and "no license, no finance," we applied for a license in Hong Kong in 2018, officially starting the era of Hong Kong VATP 1.0.

The history of HashKey Group is also quite interesting. In 2015, Ethereum founder Vitalik came to China looking for Dr. Xiao Feng. He had searched globally but found no support. When he arrived in Shanghai, Vitalik had an in-depth conversation with Xiao Feng. Xiao Feng was impressed by the young man's firm beliefs and the charm of blockchain, leading him to lead the first round of investment in Ethereum. From this investment, he took out some profits to establish HashKey. HashKey initially started as a capital investment and later ventured into industry infrastructure and other fields. This is our development history.

In summary, long-termism does involve some short-term sacrifices, such as not being able to participate in operations during the early golden period of industry development. However, it lays a solid foundation for long-term operations in the future. For example, we now find that having a license allows us to establish more and deeper connections with the global market, especially with traditional finance. Licensing will also bring more possibilities for the development of exchanges in the new era. Losing something in one area can lead to gains in another. You give up some things but gain more important and long-term benefits.

MetaEra: The Hong Kong Securities and Futures Commission released the VATP license manual and transitional arrangements for the licensing system on May 31 last year. The transition period has now ended, and HashKey Exchange has obtained a full license and can operate legally. However, it is rumored that some unlicensed exchanges are still operating and can facilitate deposits and withdrawals. How do you view this ambiguous "gray area"? What changes do you expect in the future?

Livio Weng: This is actually the core principle we have been advocating to the industry: those who follow the rules should not suffer losses. Those who comply with the rules will constrain their behavior according to the rules, while those who do not will act recklessly. Over time, this will lead to the phenomenon of bad money driving out good money. Therefore, we see that especially in the retail market, there are still many unlicensed exchanges active in Hong Kong. Currently, while Hong Kong is issuing more licenses, the first consideration should be how to take effective measures against platforms that do not comply with the rules; otherwise, the authority and seriousness of licenses in Hong Kong will be questioned.

MetaEra: The public has a rich impression of HashKey, with HashKey Group, HashKey Exchange, HashKey Capital, HashKey Global, HashKey Capital Liquid… each representing a diverse aspect of this brand. What does the ecological landscape that HashKey has established look like, and how is it divided? Where do you plan to achieve new breakthroughs in the future?

Livio Weng: People may be most familiar with the HashKey Capital brand, which is one of the top three cryptocurrency funds globally and the largest in Asia. In the past two years, you may have heard more about HashKey Exchange, which is our exchange in Hong Kong and the largest licensed virtual asset exchange in Hong Kong, with a capital scale exceeding HKD 5.5 billion and a total trading volume surpassing HKD 545 billion, with rapid breakthroughs in multiple business areas.

Additionally, there is HashKey Global, which is our licensed exchange in Bermuda. Our plans also include infrastructure services, such as HashKey Cloud, as well as HashKey Japan, and planned sub-brands in the Middle East, Europe, and other regions. Overall, after more than ten years of development, the cryptocurrency industry has formed many segmented business areas. Major exchanges have built their own ecological prototypes or have already taken shape.

Typically, exchanges are viewed as the main business of the ecosystem because their business model and profitability are the clearest and most central in the entire industry. Many exchanges start with trading and then expand into mining pools, wallets, and other businesses. HashKey has taken the opposite approach, as the regulation of exchanges took a long time to finalize. We started with investment and then extended to exchanges. Now, the exchange has become the core of the entire group. Our future plans will also revolve around the exchange, including the future HashKey Chain, which may be a public chain with financial regulatory characteristics, primarily aimed at financial institutions. These sub-businesses will form the core strategic landscape of HashKey at different levels, with the exchange as the central business and other sub-businesses flourishing with their unique characteristics.

MetaEra: Previously, it was reported that HashKey would collaborate with YuanCoin Technology and ZhongAn Bank to issue stablecoins in Hong Kong. Currently, HKD stablecoins and other stablecoins have been gradually implemented within Hong Kong's compliance framework. What role do you think stablecoins play in the development of Web3? Will they be the first point of contact with traditional finance?

Livio Weng: Stablecoins have become a hot topic recently and have been brewing for a long time. HKD stablecoins are significant for enriching Hong Kong's Web3 industry segment. Hong Kong is not only one of the global financial centers but also an Asian transshipment trade center, which is an important pillar of Hong Kong's economy. In cross-border trade, cross-border settlement is a common pain point. The traditional SWIFT system, centered on Europe and the U.S., has shown various delays, including high costs, poor timeliness, and unavailability on holidays. With the rise of blockchain and stablecoins, alternative solutions have begun to emerge in many areas. For example, the Yiwu small commodity market has already started using stablecoins for cross-border transaction settlements.

In the global trade system, due to settlement issues, many companies have to resort to barter. This situation is still common in cross-border trade. For example, Huawei, one of the world's largest "beef traders," exports equipment to many countries but has to barter due to settlement issues. With the rise of trade protectionism and trade diversification, the traditional system can no longer meet the demand, and stablecoins have become a more effective supplement or even alternative. In the past, stablecoins like USDT dominated the market, but because they are not fully compliant, many institutions are hesitant to use them. Hong Kong's policy does not allow local users to trade USDT on licensed exchanges, which is also for risk prevention and protection of retail investors. Therefore, under the future environment for institutional entry, how institutions adopt stablecoins becomes a question.

Hong Kong's licensed stablecoin plan aligns with the industry's needs. In some previously non-mainstream cross-border payment and settlement scenarios, it has indeed become a real demand. RD InnoTech is fully promoting the issuance of the stablecoin HKDR, ensuring it meets strict regulatory standards and preparing for international payments. In October, RD InnoTech also announced plans to officially launch HKDR on HashKey Exchange with the approval of the Hong Kong Securities and Futures Commission, promoting more efficient and compliant cross-border payments.

The issuance of stablecoins in Hong Kong is very helpful in addressing the global institutional demand, which in turn gives the team more confidence: Hong Kong can not only issue HKD stablecoins but also USD stablecoins. The Asian market may also have regulated stablecoins, potentially forming a stablecoin exchange market, which could create new business models worth looking forward to.

MetaEra: The Hong Kong FinTech Week will be held on October 28, 2024, and the Hong Kong Stock Exchange will launch the Hong Kong Stock Exchange Virtual Asset Index Series on November 15. This is undoubtedly a great benefit for HashKey, but at the same time, Secretary Chan Mo-po also stated that more exchanges will obtain licenses in Hong Kong, which will bring more competition. How do you view these new policy updates, and what are your thoughts on the Hong Kong FinTech Week?

Livio Weng: My impression of this Hong Kong FinTech Week is that compared to last year, there has been a significant increase in scale, the number of participating institutions, and the overall activity and liveliness of the venue. Last year, the market liquidity was severely impacted; the financial industry lost liquidity, which is akin to losing vitality. This year, with the beginning of interest rate cuts, the market expects liquidity to be released, and the financial industry as a whole is showing a clear active trend, which is my first impression.

My second impression is that the depth and quality of the conference content have significantly improved. Almost all topics revolve around Crypto, especially discussions about virtual assets. There have been many discussions about RWA, new cryptocurrencies, and the development of Hong Kong VATP. The volume of discussions about virtual assets at the entire conference has noticeably increased. Compared to last year, the details discussed this year are even more, and the specific developments and measures are more tangible. I believe Hong Kong has indeed reached this point.

Regarding competition, I think Hong Kong is still in the early stages of the entire industry. In the past, as the largest licensed exchange in Hong Kong, we mainly promoted the opening of policies; relying on one exchange alone is weak. If we can unite more exchanges to promote policy openness together, it will be very beneficial for the short- and medium-term development of the industry. In the medium to long term, we also need to guard against excessive competition, as the retail potential in the Hong Kong market is very limited. Many licensed exchanges are considering differentiated development to ensure survival space.

Historically, Hong Kong has experienced the issue of "Nine Dragons Managing Water." Back then, there were seven licensed exchanges as predecessors to the Hong Kong Stock Exchange, leading to chaotic competition and disorderly market entry, resulting in several closures. Ultimately, the Hong Kong government intervened to unite the remaining exchanges and establish the Hong Kong Stock Exchange. This historical lesson reminds us that too many licenses may lead to undifferentiated competition in the industry, especially since the tradable crypto assets in Hong Kong are still very limited. Currently, the cryptocurrencies available to retail investors are mainly Bitcoin, Ethereum, and two other cryptocurrencies approved this year, and for institutional investors, it is limited to just over 20 cryptocurrencies. In this situation, if everyone competes indiscriminately for limited cryptocurrencies, it will pose challenges to revenue and overall development, potentially leading to a price war.

At present, I believe that in the short term, cooperation to jointly promote industry development is far more important than competition, as we have come a long way. Transitioning from obtaining a license to actual operations is not easy; after obtaining a license, many technical solutions, systems, and apps need to be reported, along with corresponding personnel, management systems, and risk control systems, which may take six months to a year to truly operate. In this bull market, competition may not be the main theme for licensed exchanges; rather, it is more about jointly promoting the opening of industry policies. We welcome more practitioners to join the industry and work together to promote the development of Hong Kong's financial technology.

MetaEra: How do you think Web3 will change the existing financial market system in the next decade, especially regarding the coexistence of traditional finance and token-based crypto finance?

Livio Weng: I believe the main theme for the next decade can be summarized in two words: integration. We are already actively working on this. This can be clearly seen from our recent developments. First is the integration with traditional banking. In the past, the banking industry was cautious about opening accounts and providing services for crypto, but now that we have obtained licenses, the banking sector is willing to provide us with services. The trust that banks have in us is built on our strict adherence to various policies, which are, in some respects, even stricter than those in traditional finance. Therefore, banks have adopted a more trusting attitude towards us, which reflects a form of integration.

At the same time, we are also integrating with the securities industry. Major securities firms in Hong Kong are providing clients with trading matching, clearing, and asset custody services, as well as channels for fund inflows and outflows. With the activity in the Hong Kong stock market, funds are flowing between Asia and Hong Kong, potentially entering licensed cryptocurrency exchanges in Hong Kong through the stock market, either directly or indirectly through ETFs, with final custody and trading completed here, which is another form of integration.

The third form of integration is reflected in Hong Kong's payment institutions. These payment institutions serve global clients, and ultimately their business is also processed here. The banking sector is similar; ZhongAn Bank has announced that it will provide cryptocurrency trading services to clients, and other banks are following suit. We are currently collaborating with multiple banks. Additionally, we are working with traditional funds, such as jointly issuing ETFs with Bosera, promoting more imaginative products like Ethereum ETF Staking, which not only allows subscriptions but also generates returns.

Overall, we are undergoing substantial integration with traditional finance. This integration is most representative in Hong Kong, aside from the U.S. We hope that through our efforts, we can transform components of traditional finance, including the index funds issued by the Hong Kong Stock Exchange mentioned earlier, into a fusion of Web3 and traditional finance. In the future, there may no longer be a clear boundary between Web3 and traditional finance; instead, they will blend together, leveraging their strengths, and the intersection will have a profound impact on the industry. I believe this will be the main theme of the financial industry development in Hong Kong over the next decade.

MetaEra: For those starting and striving in Web3, choosing to go overseas is undoubtedly the right choice. How do you view the entrepreneurial environment, employment environment, and compliance policies in the three major Web3 cities: Singapore, Dubai, and Hong Kong?

Livio Weng: We are optimistic about all three places, but we will focus on each differently. In Singapore, we have already obtained some licenses and are applying for more, while Dubai is also actively applying for licenses and may have further progress and announcements soon. These will lay a solid foundation for our global development.

Our horizontal comparison of these regions shows that their development paths are slightly different. Singapore was initially more open, but later, due to some events, such as the FTX incident, policies tightened. Dubai was relatively conservative before but has recently begun to vigorously promote its development due to recognizing potential in certain sectors. Hong Kong has always maintained a supportive attitude; although it only began to make clear statements in 2022, it has always regarded cryptocurrency as one of the important financial industries.

We chose Hong Kong as our headquarters not only because of its status as a global financial center but also because it is backed by mainland China, which can attract fintech talent from the mainland. This industry heavily relies on talent. The achievements we have made ultimately stem from the organic integration of Hong Kong's financial compliance and risk control talent with the technology and internet talent from mainland China, laying a solid foundation for the development of Web3. Because of this, we have been able to rapidly develop the "Hong Kong model" and replicate it in other regions globally. Therefore, Hong Kong will always be our headquarters. At the same time, we are also optimistic about the development potential of Singapore and the Middle East as emerging markets and will focus on these two regions.