Hong Kong Government Explores DeFi and Metaverse to Boost Fintech Dominance

The Hong Kong government has turned its attention to decentralized finance (DeFi) and metaverse technologies in an effort to strengthen its position in the global fintech landscape.

The Hong Kong Institute for Monetary and Financial Research (HKIMR), the research arm of the Hong Kong Academy of Finance (AoF), recently released two reports that delve into the implications of DeFi and metaverse on the financial sector.

One of the reports pointed out the significant growth of DeFi, which has seen its market capitalization surge from $6 billion in 2021 to over $80 billion in 2023.

DeFi’s Potential Can’t be Ignored: Hong Kong

Hong Kong’s study on DeFi emphasizes the explosive growth of the ecosystem and asserts that its potential cannot be ignored.

Currently accounting for 4% of the overall crypto-asset market, DeFi remains largely untapped.

The study reveals that more than 70% of crypto businesses participating in the research have yet to explore the potential of DeFi.

While challenges around governance, compliance, and vulnerabilities exist, the study remains optimistic about the unique characteristics of DeFi, such as its ability to provide new financial services with enhanced innovation, automation, and financial inclusion.

Turning to the metaverse, the study highlights a moderate level of engagement among local financial institutions despite their high interest in the technology.

This sentiment aligns with the findings from Hong Kong respondents, with over 51% expressing skepticism about the future potential of the metaverse.

However, a sector of the Hong Kong fintech industry is actively pursuing metaverse-related developments, indicating a growing interest and recognition of its potential.

Enoch Fung, CEO of the AoF and executive director of the HKIMR, acknowledges the close connection between DeFi, the metaverse, virtual assets, and Web3 developments.

“The emerging technologies of DeFi and the metaverse, which are closely connected to the broader virtual asset and Web3 developments, will likely present various opportunities for the financial services industry in Hong Kong.”

Hong Kong Officials Promote City in Canada

Hong Kong government entities have attended a tech conference in Toronto , where they showcased the city’s offshore ready-to-move technology hub for Canadian crypto and Web3 startups.

The Hong Kong Economic and Trade Office in Toronto (Toronto ETO), Invest Hong Kong (InvestHK), and StartmeupHK (SMUHK) collaborated to co-host an event at Collision 2024.

While Hong Kong continues to position itself as a crypto-friendly hub, the region witnessed a series of crypto exchange closures in May.

On March 28, 2024, HKVAEX, suspected to be affiliated with Binance, withdrew its license application .

Subsequently, on May 14, IBTCEX, QuanXLab, and Huobi HK followed suit, followed by Gate.HK on May 22, OKX HK on May 24, and Bybit (Spark Fintech Limited) on May 31.

These withdrawals have left only 17 virtual asset trading platforms remaining on the application list, with a total of 11 companies having withdrawn or returned their license applications.

Just recently, Hong Kong Legislative Council member Wu Shuo has voiced criticism against Hong Kong’s cryptocurrency licensing system, citing its impact on market confidence.