Hong Kong energizes Fintech scene with focus on DeFi and Metaverse

The Hong Kong government has shifted its focus to decentralized finance (DeFi) and metaverse technologies to strengthen its global financial technology position.

Recent reports from the Hong Kong Institute of Monetary and Financial Research (HKIMR), the research division of the Hong Kong Academy of Finance (AoF), support this move.

The HKIMR report DeFi is noted to be growing substantially, with market capitalization increasing from $6 billion in 2021 to over $80 billion in 2023. Despite this rapid expansion, DeFi currently only represents 4% of the overall cryptoasset market. The report suggests that more than 70% of crypto companies need to fully explore the possibilities of DeFi.

The report recognizes The Challenges of DeFi, including governance, compliance and vulnerabilities. Nevertheless, he remains optimistic about the potential of DeFi to introduce innovative financial services. These services can improve automation and financial inclusion, making them a notable aspect of future financial systems.

Metaverse engagement among financial institutions

The second HKIMR report The study focuses on the metaverse, revealing a moderate level of engagement among financial institutions in Hong Kong. Despite this interest, more than half of respondents (51%) expressed skepticism about the future potential of the metaverse. However, some segments of Hong Kong’s fintech industry are actively pursuing metaverse-related developments, indicating a growing recognition of its possibilities.

Enoch Fung, CEO of AoF and Executive Director of HKIMR, commented on the synergy between emerging technologies and financial services.

“Emerging DeFi and metaverse technologies, which are closely linked to broader developments in virtual assets and Web3, will likely present various opportunities for the financial services sector in Hong Kong.”

Promoting Hong Kong on the international technology scene

Hong Kong government officials have taken steps to promote the city as a prime location for fintech and Web3 startups. Representatives attended the Collision 2024 technology conference in Toronto, demonstrating Hong Kong’s desire to serve as an offshore technology hub for Canadian crypto and Web3 Companies. The event was co-hosted by the Hong Kong Economic and Trade Office in Toronto (Toronto ETO), Invest Hong Kong (InvestHK) and StartmeupHK (SMUHK).

Despite positioning itself as a crypto-friendly hub, Hong Kong has seen a series of crypto exchange closures. In March 2024, HKVAEX, allegedly affiliated with Binance, withdrew its license application. This was followed by the release of IBTCEX, QuanXLab, Huobi HK, Gate.HK, OKX HK and Bybit (Spark Fintech Limited) in May. These departures leave 17 virtual asset trading platforms on the application list, with 11 companies withdrawing or returning their license applications.

The withdrawal of license applications has raised concerns about Hong Kong’s cryptocurrency licensing system. Wu Shuo, a member of Hong Kong’s Legislative Council, has publicly criticized the system, arguing that it undermines market confidence. Recent shutdowns and withdrawals have highlighted the difficulties crypto businesses face navigating Hong Kong’s regulatory landscape.

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