Exterior of the Hong Kong Legislative Council Complex

It’s not just tango that takes two. For Web 3.0 to take off, it needs services rendered to both the real economy and the market. Since the 2022 publication of the Policy Statement on Development of Virtual Assets in Hong Kong, the city has stepped up its efforts to build itself into a global virtual asset center with fresh vigor, exploring how Web 3.0 can unlock growth opportunities for the real economy.

Insights into the great Hong Kong experiment can be found in many successful use cases, such as the application of distributed ledger technology (DLT) and the tokenization of traditional financial assets and real-world assets (RWA). In February 2023, the government announced the offering of HK$800 million of tokenized green bonds, using DLT to enable legally definitive and final records of token ownership. A prime example of fintech innovation integrating with the real economy, this underscores the city’s flexible legal and regulatory environment. In September 2023, with the approval of the Securities and Futures Commission of Hong Kong (SFC), the city’s first real estate fund security token offering (STO) was launched. In August 2024, the Hong Kong Monetary Authority (HKMA) reported on the progress made in the initial phase of Project Ensemble, including the first renewable-energy RWAs tokenized in China: over 9,000 electric vehicle charging stations. All these applications are bringing new growth vectors to Hong Kong.

That’s not the end of the story.

Web 3.0 has enormous potential in protecting and trading intellectual property (IP) and associated rights, the catalysts for innovation. For example, IP and copyrights can be converted into non-fungible tokens (NFTs), the ownership and circulation of which are publicly documented and cannot be changed. This not only reduces the time and costs of IP management but also creates a new market for a sector that lacks liquidity, thus helping Hong Kong fulfill its role as a regional IP trading center.

Blockchain technology can significantly reduce a company’s trust costs, e.g., through smart contracts that enable programmable settlement for automatic execution, making settlements and payments more direct, fast, and secure.

The marriage of Web 3.0 and smart hardware is giving form to a new iteration of the Internet of Things (IoT), the decentralized physical infrastructure networks (DePINs). Within such a network, using virtual assets as incentives can effectively mobilize individual devices to participate in smart computing and data sharing, promising opportunities never before possible.

Web 3.0’s integration with the IoT is expected to contribute new solutions to the smart management of transportation, energy, and the environment, realizing Hong Kong’s vision as a truly smart city.

Such commendable progress would not have been possible without active and measured guidance and support from the city’s financial watchdogs, who have devoted themselves to finding how Web 3.0 can serve the real economy and further improving the regulatory framework governing virtual asset-related activities.

To provide clarity for the tokenization market, the SFC has issued the “Circular on intermediaries engaging in tokenized securities-related activities” and the “Circular on tokenization of SFC-authorized investment products”, setting out its expectations on investor protection. Regulators are also planning to expand their regimes to cover, among others, trading activities conducted outside of virtual asset trading platforms. Also underway is work on regulating stablecoin issuers and guiding banks to provide virtual asset custody services. There are high-profile events to provide market participants with greater exposure and better communication, such as the Hong Kong FinTech Week, organized by the Financial Services and the Treasury Bureau (FSTB), and the Global Fast Track, hosted by Invest Hong Kong. These events facilitate Web 3.0’s deeper integration with the real economy, particularly in technology, capital, and market, converging to form a synergy for a larger and richer ecosystem.

A unique combination of financial energy and an air of innovation has made Hong Kong arguably the best location to observe how Web 3.0 is and can empower the real economy. With ongoing projects such as e-HKD and mBridge promising more opportunities for the Web 3.0 ecosystem, we look forward to seeing more Hong Kong solutions being adopted worldwide.