As Zeng Baoji pointed out in an interview, "Standing at the historical intersection of Hong Kong's traditional finance and Web3, we are full of confidence in the future."
Written by: Yangz, Techub News
"Compliance" has long become the main theme for the development of the Web3 industry in Hong Kong.
Since the release of the policy declaration regarding the development of virtual assets in Hong Kong on October 31, 2022, the Hong Kong government has been continuously exploring the compliance boundaries of Web3, laying the foundation for the healthy development of the virtual asset market in Hong Kong and providing clear compliance guidelines for industry participants. On the occasion of this 2nd anniversary, Techub News had the honor of interviewing Zeng Baoji, the head of sales trading at OSL Exchange, to discuss the current state and future possibilities of compliant exchanges in Hong Kong from the perspective of the oldest compliant virtual asset trading platform in Hong Kong. As Zeng Baoji pointed out in the interview, "Standing at the historical intersection of Hong Kong's traditional finance and Web3, we are full of confidence in the future."
Investor Demand vs. Compliance Demand
Whether it is the Solana ecosystem that exploded in popularity at the beginning of the year or the recent AI Meme wave represented by GOAT, "Memecoin" is a major hot topic that the Web3 industry cannot avoid this year. In addition to Launchpad represented by Pump.fun, some centralized exchanges, including Binance and OKX, have also listed various memecoins, not only catering to the frenzied demand of investors but also validating their previous commitments to support small and medium-sized projects that had caused community dissatisfaction due to "high FDV + low circulation" tokens.
In the Web3 industry, meeting investor demand is something that every exchange must prioritize. However, looking at the three compliant virtual asset exchanges in Hong Kong, apart from HashKey Exchange listing DOGE, the other two do not involve any Memecoins (Note: HKVAX has not yet launched trading services and is expected to do so in the fourth quarter). Additionally, these compliant exchanges have also categorized investors into two types. Taking OSL Exchange (hereinafter referred to as OSL) as an example, the only virtual assets currently available to retail investors are Bitcoin and Ethereum, while the assets available for professional investors to trade are only 14 types, including Bitcoin, Ethereum, LTC, BCH, LINK, USDC, USDT, AAVE, BAT, COMP, GRT, UNI, SOL, and XRP.
It is clear that compared to investors in other parts of the world, the demands of Hong Kong Web3 investors are not being met. However, Zeng Baoji believes that "ensuring the long-term sustainable development of the industry is key."
Zeng Baoji stated, "Currently, the asset choices for retail investors are limited, which is not unrelated to the trend of Bitcoin and Ethereum accounting for about 70% of the total market capitalization of the global cryptocurrency market. Although retail investors do hope for more choices, the actual demand gap may not be as large as imagined." Furthermore, "theoretically, introducing new tokens to professional investors first is the best choice, as they usually have a stronger ability to understand and analyze new products, and this phased approach also allows exchanges to collect valuable feedback, giving regulators and the entire industry enough time to familiarize themselves and adapt."
According to Zeng Baoji, as the first trading platform in Hong Kong to obtain a virtual asset license, OSL is committed to closely cooperating with regulators to help shape the healthy development momentum of the virtual asset market, including actively participating in the Hong Kong Securities and Futures Commission (SFC) sandbox program and regulatory consultations. In addition, OSL also provides one-stop solutions for institutions, enabling them to explore and integrate digital assets into their businesses.
When discussing "how to assess the potential risks of assets" and "future specific expansion plans," Zeng Baoji stated that exchanges prioritize providing mainstream tokens, which can effectively manage risks, while blindly expanding trading services due to market demand will only backfire. In the future, OSL will continue to align its plans for launching new assets with compliance frameworks while actively listening to and meeting customer needs, "bringing global technology to the local market, helping Hong Kong become a leader in digital assets."
Market Competition and Industry Ecology
Although it has been two years since the official announcement of the development of the Web3 industry, Hong Kong still has a long way to go to become a "Web3 highland."
From a macro perspective, although Hong Kong has caught the attention of the Web3 industry, both local investors and foreign financial institutions remain cautious about the development of the virtual asset industry in Hong Kong. Compared to the Bitcoin and Ethereum ETFs in the United States, the trading volume of the six virtual currency ETFs in Hong Kong is "unsatisfactory." Additionally, the awareness and risk consciousness of local investors regarding virtual assets urgently need to be improved. According to data from the Hong Kong police, there were over 3,415 crimes related to virtual assets in Hong Kong in 2023, involving amounts as high as HKD 4.3 billion. From a more detailed perspective, in addition to the contradiction between investor demand and compliance demand mentioned in the previous section, many local investors have also reported that compliant exchanges fall short of platforms like Binance and OKX in terms of user experience regarding deposits and withdrawals.
In response to various doubts, Zeng Baoji stated that the primary focus of compliant exchanges in Hong Kong, compared to their global counterparts, is "safety, transparency, and customer asset protection," and it is precisely this "high standard commitment to compliance and safety" that makes compliant exchanges in Hong Kong stand out.
Zeng Baoji introduced that, taking OSL as an example, the exchange currently offers investors an insurance coverage of USD 1 billion, underwritten by A-rated global insurance giants Canopius and Lloyd's of London Syndicate, providing customers with peace of mind. In addition, OSL has partnered with several banks to provide customers with seamless fiat currency deposit and withdrawal channels, avoiding the risk of account freezes. Zeng Baoji stated, "This reliable experience not only helps enhance customer confidence in the platform but also boosts their overall confidence in digital assets."
Furthermore, when discussing the advantages of compliant exchanges in Hong Kong compared to their Southeast Asian counterparts, Zeng Baoji summarized the following key points:
- Stable currency and financial infrastructure: Hong Kong has a stable currency (Hong Kong Dollar) pegged to the US dollar, along with a sound financial infrastructure and advanced banking network, providing essential safety guarantees for institutional participation in digital assets;
- Clear and explicit regulatory framework: Hong Kong has a clear regulatory system in the field of digital assets, and this transparency enhances the confidence of investors and institutions, making Hong Kong an attractive digital asset trading center;
- Strategic market positioning: Hong Kong is a melting pot that integrates various businesses, capital, and talents from both East and West, and this unique strategic positioning promotes collaboration and innovation in the Web3 field, facilitating interaction among various stakeholders;
- Comprehensive service system: Leveraging the above advantages, compliant exchanges in Hong Kong have the capability to provide a comprehensive one-stop service to meet customer needs and drive industry growth.
As for how to face the competition among local compliant exchanges in Hong Kong and how to view the issue of competition (Note: Currently, there are three compliant exchanges in Hong Kong. The Financial Secretary of Hong Kong, Paul Chan, recently stated that several more virtual asset trading platform licenses are expected to be issued by the end of the year), Zeng Baoji is very optimistic. He stated that OSL's business has continued to grow steadily in recent years, especially last year, when both trading volume and user numbers saw significant growth. In addition, to further drive growth, OSL has recently expanded its core team, adding several excellent new members, including Chief Institutional Business Officer Eugene Cheung and Chief Marketing Officer Jack Tan.
Zeng Baoji stated, "As one of the first players striving to participate in the construction of industry standards and expand the compliant digital asset market, we are pleased to welcome new participants to join, as effectively and responsibly expanding the market requires the joint efforts of all parties. The potential in the digital asset field is enormous, and we believe that a growing market benefits all participants. Through competition and cooperation, we can drive innovation and enhance user services, creating a vibrant digital asset ecosystem in Hong Kong."
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