Hong Kong Web3: 1 year, 1 card, 1 new industry

Author: Zhou Zhou, Foresight News

In the Hong Kong encryption world, there have been important new faces recently—the CEO of the Hong Kong cryptocurrency exchange who came into being due to the Hong Kong encryption new policy. They began to "manage" the first batch of cryptocurrency exchanges under Hong Kong's new system, and were fully responsible for applying for Hong Kong's cryptocurrency licenses.

Foresight News exclusively learned that the CEOs and heads of many Hong Kong cryptocurrency exchanges, including Colin Zhong (HashKey Pro), Lennix Lai (OKX), Patrick Pan (BitgetX), Hugh Madden (OSL), and Kevin (Gate), have taken office. And began to be active in major encryption activities in Hong Kong, and Hong Kong CEOs of cryptocurrency exchanges such as Huobi, Bybit, BitMEX, and BitMart have not yet announced that there is a confirmed candidate, some are internally selected, and some are being externally selected. Recruitment, they will confirm the candidate for the CEO by the end of this year at the latest.

After interviewing several CEOs and current actual leaders of cryptocurrency exchanges in Hong Kong, Foresight News found that they all have rich management experience in large financial institutions or Internet companies, have high financial literacy, and have invested in cryptocurrencies for many years experience of. For example, Gate Hong Kong CEO Kevin and OKX Global Chief Business Officer Lennix Lai both have more than ten years of work experience in traditional financial institutions and many years of management experience in cryptocurrency exchanges. BitgetX CEO Patrick Pan was also the COO of a large cryptocurrency exchange before. He is the CEO of Babytree, a listed company in Hong Kong. He has successively served as the vice president of Keke Fangfang Group, senior director of Alibaba Group, and vice president of 360 Group.

On June 1st, Hong Kong’s new licensing system made them emerge as the times require, becoming the first batch of cryptocurrency exchanges in Hong Kong and even China to be at the helm of a regulatory environment. Under the general environment of rising from east to west, the center of global cryptocurrency is gradually shifting to Hong Kong, and some new CEOs of Hong Kong’s crypto exchanges may therefore move to the center of the crypto world stage.

New CEOs active in Hong Kong

I met Lennix Lai, the global chief business officer of OKX, at a reception held by OKX in April. He spoke Hong Kong Mandarin and greeted the guests. The location of the reception was Denglong Street in Causeway Bay. Many large cryptocurrency institutions I am willing to come here to hold an event. There are huge bitcoin posters about three meters long hanging on this street, and there are several cryptocurrency counter machines in the shops on the corner of the street, where people can freely exchange bitcoins. currency into Hong Kong dollars.

The famous "Crypto Street" in Hong Kong｜Photo by Foresight News

And I met Patrick Pan on the afternoon of June 20th at the Cyberport campus of the University of Hong Kong. As the CEO of BitgetX, he gave a speech to the teachers and students of the University of Hong Kong. The director of Hong Kong Cyberport came with him. Kong Jianping and Meitu founder Cai Wensheng. Many universities in Hong Kong, such as Hong Kong University, Hong Kong University of Science and Technology, and Hong Kong Chinese, have such a Web3 atmosphere. Students can easily contact and interact with some big names and corporate executives in the Web3 field. When answering questions from teachers and students in Hong Kong, Patrick said: "When computers and smartphones became popular, the Internet really benefited the public. Blockchain and cryptocurrency are still in their early stages, and we are waiting for its smartphone moment."

University classes, receptions, conference centers, cyberport... Like most other Chinese Web3 entrepreneurs, the new CEOs are active in Hong Kong, the new cryptocurrency center.

A phenomenon worth mentioning is that from October 2022 to the present, Foresight News has traveled to Hong Kong many times. In the past eight months, Hong Kong’s cryptocurrency craze has hit practitioners wave after wave without stopping. After more than eight months of Web3 heat wave continuously scoured the land of Hong Kong, a brand new piece of fine sand and hot land was finally left behind.

**The birth of new cryptocurrency exchanges and the emergence of their leaders is an extremely important result and beginning of this change. This group of new CEOs has come to the front of the encryption world in Hong Kong and has become a key player connecting the encryption world and the traditional financial world, and their institutions are forming a new industry in Hong Kong that is regulated by the government. **

According to statistics from Foresight News, at least 10 institutions have announced to apply for the Hong Kong VASP license. This license is also the most content and comprehensive cryptocurrency license issued by Hong Kong. Among them are encrypted institutions, such as HashKey, OKX, and Huobi. , Bitget, BitMart, Bybit, BitMEX, OSL and Gate, as well as traditional financial institutions, such as Yibo Finance. A person familiar with the matter said that Internet brokerages such as Tiger Securities and Greenland Group are also very concerned about Hong Kong’s encryption licenses. It is reported that Tiger Securities and Futu Securities have applied for local cryptocurrency-related licenses in the United States, Singapore and other places.

**Among these ten institutions, there are currently 5 CEOs and leaders active in the Hong Kong encryption arena: **HashKey Pro CEO Colin Zhong, OKX Global Chief Business Officer Lennix Lai, BitgetX CEO Patrick Pan, OSL CEO Hugh Madden and Gate Hong Kong CEO Kevin. It is worth mentioning that most of them are locals in Hong Kong, and most of them have more than 10 years of management experience in traditional financial institutions. They are also ROs (the person in charge and executor of the license required by Hong Kong).

According to the requirements of the new licensing system, these encrypted exchanges need to find two ROs without exception. A Hong Kong cryptocurrency platform practitioner said: “Each financial license category needs to be matched with a qualified RO to operate.” The current CEOs of Hong Kong cryptocurrency exchanges are also RO holders.

“RO is a relatively difficult problem to solve. It cannot be solved by capital. RO needs to have trading experience and financial management experience, and needs to meet the requirements of the Securities Regulatory Commission. It also needs to have a number of years.” Darin, head of BitMart Hong Kong Foresight News said. "At least 3 years of industry experience in the past 6 years. This experience can be direct experience in operating a virtual asset trading platform, or virtual asset-related experience holding a No. 1 or No. 7 RO license." And meet this requirement ROs are scarce.

The shortage of RO is a headache for many licensed institutions in Hong Kong. This has also led to an increase in the annual salary of the RO and the CEO of the Hong Kong Stock Exchange. **A related person from a cryptocurrency exchange who did not want to be named revealed to Foresight News that RO’s current annual salary is about HK$2 million, and another person from an anonymous Hong Kong cryptocurrency exchange said that it is up to HK$3 million. **

Foresight News learned that each exchange has different progress in RO. For example, OSL has 5 ROs; OKX has more than two ROs; BitgetX currently has two ROs: Patrick Pan (CEO) and Daniel Lai ( CLO), the exchange will also recruit an RO holding No. 1 and No. 7 licenses respectively. And more cryptocurrency exchanges have no RO or only 1 RO, and they need to pay more costs to attract ROs that meet the requirements. It is reported that the total number of qualified ROs in Hong Kong is just over 100.

Although there is a shortage of ROs, the first batch of ROs and CEOs in the Hong Kong encryption market are ready, and they are becoming key figures connecting the encryption world and the traditional financial world. Hong Kong has taken action, and SFC (Hong Kong Securities Regulatory Commission) has officially supervised the cryptocurrency industry and issued licenses. "This means that in Hong Kong, cryptocurrency exchanges, like stock exchanges, fund companies, and credit companies, are also part of the financial industry." Darin, Hong Kong head of cryptocurrency exchange BitMart, told Foresight News. BitMart is a comprehensive cryptocurrency exchange. At present, there are about six or seven people stationed in Hong Kong. In the future, they will continue to expand their staff in Hong Kong.

Kevin, head of Gate Hong Kong, a large cryptocurrency exchange, pointed out the potential financial opportunities brought about by licensed operations in Hong Kong: "On the one hand, there are more than 7 million local users in Hong Kong. Building a bridge of capital circulation between compliant capital and cryptocurrency exchanges is also the significance of this license.” ** “Hong Kong’s cryptocurrency exchanges are not only aimed at Hong Kong users, but also rely on Hong Kong’s international financial center It can also attract global compliance capital.”** Kevin added to Foresight News.

Hong Kong’s supervision of cryptocurrencies has sent an important signal to the capital market and the financial market: capital that was previously unable to enter the cryptocurrency market because it was not regulated by the government will be able to enter the cryptocurrency market through Hong Kong, a financial center; Traditional financial institutions that conduct business cooperation with cryptocurrency institutions will be able to cooperate with cryptocurrency institutions. At present, Hong Kong subsidiaries under the background of state-owned assets such as Bank of China International and Pacific Insurance have begun to explore the field of cryptocurrency, and this trend is happening globally.

In some countries, there are already precedents of cooperation between compliant cryptocurrency institutions and traditional financial institutions, such as Visa cryptocurrency debit cards, Bitcoin funds, stock tokenization, and financial products denominated in cryptocurrencies.

And Lennix Lai, Kevin, Colin Zhong and other Hong Kong encryption exchange CEOs who have experience in international traditional financial institutions and cryptocurrency experience are born to play the role of introducing cryptocurrency into compliance and introducing cryptocurrency into traditional financial markets. The financial center of Hong Kong has become a more active role.

100 million, get the VASP license

For the CEO of the Hong Kong encryption exchange under the new license system, obtaining the VASP license is the most urgent task at present.

**“Some asset management companies and banks have prepared HK$100 million to HK$200 million in order to apply for a Hong Kong VASP license.” **An industry insider told Foresight News. This is the "ticket" for traditional financial institutions to enter cryptocurrency. Since traditional financial institutions have no relevant layout before, and have gone from 0 to 1 in various aspects such as products and teams, the cost appears to be very high. However, even for an experienced cryptocurrency institution, the cost of obtaining a license is not cheap.

The Hong Kong government has set up many thresholds to achieve the goal of screening high-quality encryption exchanges. For example, it is necessary to set up a physical office in Hong Kong, at least two ROs (heads of licensed encryption institutions) with years of management experience in traditional financial institutions and years of experience in virtual currency transactions, and a certain number of cryptocurrency users before June 1 The number and transaction volume, the TCSP license and the No. 1 and No. 7 licenses need to be obtained, and the formal license can only be obtained after one year of official business and regulatory approval... This is a good thing for institutions that want to get the license There are relatively high requirements for financial resources, experience and time.

Encryption institutions intending to apply for VASP licenses now basically have a certain number of users and cryptocurrency trading volume, but most institutions have not disclosed specific data. As one of the earliest cryptocurrency exchanges in Hong Kong, **OKX disclosed the latest data to Foresight News. As of June 27, 2023, OKX Hong Kong has accumulated more than 8,800 registered users, and the total cryptocurrency transaction volume has reached 150 million US dollars . **

**BitMart revealed that its latest users in Hong Kong are around 300. **Currently, there are 11,000 Hong Kong users on the organization's global website, which have not yet been migrated to the Hong Kong platform. "But new users in Hong Kong can only apply on the new platform." Darin said.

At the University of Hong Kong, BitgetX CEO Patrick Pan is talking about the global cryptocurrency exchange landscape ｜Photo by Foresight News

Such as OKX and Gate, because of their early deployment, they have already occupied a lot of opportunities in the Hong Kong market. "OKX's Hong Kong team has 500 people, and there are about 60 people who are responsible for licenses." Lennix Lai, OKX's global chief business officer, said.

Moreover, such large-scale cryptocurrency exchanges also have considerable advantages in terms of cost due to their earlier internationalization. "Products, risk control, and technology are common across the platform, so most of the 500 people are actually OKX global employees." Lennix Lai said. "OKX's products will automatically adapt to different compliance entities such as Hong Kong and Singapore." According to Foresight News, the same is true for platforms such as Gate and BitMart, which will greatly reduce their costs.

But even so, if a cryptocurrency exchange wants to apply for a VASP license, it still needs to pay a lot of cost.

Darin, the person in charge of BitMart in Hong Kong, has roughly calculated this: **“On the basis of BitMart’s global site, applying for a VASP license also needs HK$20-50 million.” **According to Cobo COO Lily to the interface The news revealed: "The annual operating cost may be around 20 million Hong Kong dollars, and the initial cost may be 30 million to 40 million Hong Kong dollars." For institutions that have no cryptocurrency-related business before, the basic investment of 100 million Hong Kong dollars is not enough. It's an exaggeration.

The CEOs of Hong Kong cryptocurrency exchanges need to complete the goal of obtaining the Hong Kong VASP license within limited time and money.

1 year, 1 card, 1 new industry

How long does it take for a new industry to emerge? Hong Kong wants this period to be one year.

June 1st, 2023-June 1st, 2024 is the critical year. During this year, the Hong Kong Securities Regulatory Commission will examine whether the cryptocurrency exchanges meet its requirements, and there will be an expected 5-10 The company obtained the VASP license and became the first batch of cryptocurrency exchanges regulated by the Hong Kong Securities Regulatory Commission. A new industry-Hong Kong cryptocurrency industry was initially established.

The Hong Kong directors of OKX, Gate, BitMart and other cryptocurrency exchanges told Foresight News: "It is expected that the first batch of companies will obtain VASP licenses in early 2024 and become Hong Kong's compliant cryptocurrency exchanges." Regarding the specific number of companies in a group, Lennix Lai predicts that there are less than 10 companies that can meet the requirements of the China Securities Regulatory Commission.

Of course, this is just the beginning. More importantly, in addition to cryptocurrency exchanges, there will be more members in this industry ecology: stablecoin companies, NFT startups, cryptocurrency professional investment institutions, and cryptocurrency departments of financial institutions.. ...and Hong Kong has made it clear that stablecoins will be regulated in the second half of 2024, and this new industry is not just cryptocurrency exchanges. Cryptocurrency exchanges are just the beginning. Hong Kong hopes to form a brand-new industry ecology - cryptocurrency ecology.

As for whether Hong Kong’s cryptocurrency ecosystem can be built well, the first key point is whether Hong Kong’s selection of cryptocurrency exchanges and supervision are appropriate. No matter which region, as long as an FTX incident occurs, the entire local encryption ecosystem will be severely hit, as is the case in the United States and Singapore.

For this reason, during this year, Hong Kong has set multiple time points and many thresholds for cryptocurrency exchanges. **Darin divides how to apply for a VASP license into three stages. **

**The first stage is before June 1, 2023. Exchanges that intend to apply for a license must have a substantial cryptocurrency trading platform business operation in Hong Kong. At this point in time, cryptocurrency exchanges in Hong Kong need to find a reliable consulting law firm and build a good platform with a certain number of users and cryptocurrency transaction volume. **Darin said: "In mid-April, BitMart started testing, such as KYC and AML, and users were allowed to start using the platform in late May." As for finding a consulting law firm, Darin's suggestion is to find someone with a previous SFC background law firm.

At this stage, cryptocurrency exchanges in Hong Kong have basically found offices. For example, the office of BitgetX is located in the center of Tsim Sha Tsui, while BitMart has set up offices in Tsuen Wan, Cyberport, and K 11 respectively. Foresight News understands that setting up offices in different locations has different functions. For example, setting up an office in Cyberport, because Cyberport is relatively remote from the urban area, is more for connecting government and industry resources.

Cai Wensheng, the founder of Meitu, is teaching at HKU Cyberport｜Photo by Foresight News

**The second phase is from June 1, 2023 to March 1, 2024, which is a critical time for obtaining a VASP license. During this period, the company's two ROs and the actual helm or CEO will basically be determined. **

During this period, the cryptocurrency exchange has obtained the Hong Kong TCSP license, established a trust company, and obtained the No. 1 and No. 7 licenses.

For the TCSP license, some institutions have prepared earlier. For example, Huobi Trust, a subsidiary of Xinhuo Technology (formerly Huobi Technology), obtained the Hong Kong TCSP license in January 2022, and Gate also obtained the TCSP license in February 2022. Owning a TCSP license and establishing a 100% holding trust subsidiary, so that the user's cryptocurrency assets can be placed in the trust company, which is convenient for regulatory agencies to conduct fund review, and to a certain extent can avoid the cryptocurrency industry. Frequent misappropriation of client funds occurs.

Previously, FTX, the world's second largest cryptocurrency exchange, embezzled customers' funds and eventually closed down. This incident directly led to a severe crackdown on the cryptocurrency market in the United States, and the entire US encryption market was bleak for a year. And because of the FTX incident, Singapore had no choice but to slow down its process of actively embracing encryption.

On the other hand, cryptocurrency companies also need to contact third-party auditing companies to audit their user data and financial data, and they submit them to the SFC, a regulatory agency. Foresight News learned that OKX is already at this step, and their relevant financial data is audited by Deloitte.

**The third phase is from March 2024 to June 2024, and the first batch of cryptocurrency transactions in Hong Kong may be born. **

"Before March 2024, the audit company will basically audit the relevant data in accordance with SFC standards and requirements. All exchanges that are willing to operate licensed in Hong Kong must submit an application form. The application form includes the establishment time of the office, The operation situation of the Hong Kong station, the situation of employees, the situation of internal compliance and risk control, etc., also include some safety measures, such as measures for the safety protection of investors’ funds, etc. After submission, SFC will have a demand for assessment and review. After that, a batch of licensed exchanges will be announced at the end of May 2024," Darin said.

During this process, cryptocurrency exchanges need to make adjustments to the areas that need to be adjusted according to the requirements of the SFC. If the first batch is unsuccessful, it may be a few years before the next license.

"Get the deemed license first, and then get the formal formal license. Regulatory agencies such as SFC may hope to improve some detailed requirements of the exchange management through this method." Darin said.

During this year, if a cryptocurrency exchange wants to obtain a VASP license, it needs to cooperate with various institutions, including law firms, third-party financial audit agencies, technical audit companies, RO recruitment agencies, and SFC. These are all the steps you need to go through to get the license this time.

write at the end

Hong Kong's financial industry has finally ushered in a new member - a licensed (VASP license) cryptocurrency exchange and its new CEOs, and also ushered in a new industry that is thriving - the cryptocurrency industry.

Holding a VASP license not only means that institutions can legally provide cryptocurrency trading services for residents in Hong Kong, but also means that crypto companies, like other financial institutions regulated by the Hong Kong Securities Regulatory Commission, have officially become part of Hong Kong's financial industry. It represents possibilities that were unimaginable before.

Cryptocurrency is still a very high-risk industry, with crises hidden everywhere like a dark forest. Mentougou, Luna, FTX, Three Arrows Capital and other incidents seem like yesterday. In the foreseeable future, such destructive events will inevitably keep happening. However, once a technological trend or a financial trend takes shape, it is as if it has life, and it is difficult to be stifled. This is not transferred by human will. There are only two choices: passive acceptance and active choice, and Hong Kong has undoubtedly become the latter.

This time, the world has once again turned its attention to Hong Kong, a city that is striving to become a cryptocurrency center. The brand-new industry formed in this city will become an important case for the global financial market to learn or learn from in the future.