How is the compliance of the well-known Web3 project settled in Hong Kong? | Mankip Law

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曼昆律师事务所2024/09/06 06:31

By:曼昆律师事务所

As a financial center in Asia, Hong Kong's virtual currency market has always been at the forefront of regulation globally. For example, the new virtual asset trading platform (VATP) licensing system implemented from June 1, 2023, the recently released stablecoin publish regulatory consultation document, and the sandbox application list all indicate that Hong Kong has taken important steps in virtual currency regulation.

These measures are designed to enhance the overall integrity and stability of the market by enhancing investor protection and market transparency, while also providing clear regulatory guidance for crypto projects operating in Hong Kong, attracting the attention of global investors and crypto businesses.

Lawyer Mankiw is often asked during consultations which well-known projects have settled in Hong Kong. Therefore, this article briefly lists the main encryption projects operating under this strict regulatory background, providing reference for entrepreneurs who hope to settle in Hong Kong.

The following rankings are not in any particular order, only sorted by year of establishment

The Sandbox

#Game #Metaverse #Game Platform

Establishment time: 2012

Official website: sandbox.game

Financing: $117 million, led by Animoca Brands, Hashed, Kingsway Capital and SoftBank Vision Fund

Chains: Ethereum, Polygon

Basic Introduction: The Sandbox is a decentralized, community-driven gaming ecosystem where creators can share voxel assets and gaming experiences on Ethereum and monetize them. In the economic system of The Sandbox, users can use the platform token SAND to engage in gaming activities on the Ethereum blockchain. Its ASSET (assets) and LAND (land) exist in the form of NFTs. In addition to completing tasks in the game, users can also purchase SAND through other cryptocurrency trading platforms and profit from transactions.

Currently, there are no legal regulations or policy supervision for game publishing in Hong Kong. However, The Sandbox involves a large number of NFTs and token transactions of Sand, and the publishing of Sand may also be recognized as an ICO (Initial Coin Offering).

The land, assets, and Sand in The Sandbox are units that express the value of assets in digital form and can be used for investment purposes. They should belong to the virtual assets regulated by the consultation summary. The Sandbox's establishment of a market platform in its game to provide trading venues for land, assets, etc., seems to have led to its being recognized as a service provider of virtual assets and subject to government regulation.

However, from the perspective of actual regulation, the current regulatory focus of the government and the Hong Kong Securities Supervision Commission is mainly on the publishing and trading of tokens that have payment purposes or can be recognized as securities, that is, the publishing and trading of NFTs (land and assets in The Sandbox) that only have commodity attributes are not yet regulated.

Alchemy Pay

#CeFi #Payment

Establishment time: 2018

Official website: alchemypay.org

Financing: 10 million USD

Chain: Ethereum, BNB Chain

Basic Introduction: Alchemy Pay was founded in 2017 with its headquarters located in Singapore. It is a Payment Gateway aimed at seamlessly connecting cryptocurrency with traditional fiat currency for businesses, developers, and users. The platform supports payments in 173 countries.

Alchemy Pay's pick-up and drop-off service provides a one-stop solution for buying and selling cryptocurrency and fiat currency. The platform and decentralized applications (dApps) can be easily integrated according to demand. Its white label encrypted card solution enables enterprises and token publishers to provide users with branded virtual or physical cards for instant global consumption. The NFT checkout function supports direct purchase of NFTs through legal payment methods. ACH is Alchemy Pay's network token, available on the Ethereum and BNB chains.

Alchemy Pay has not been defeated in the increasingly regulated cryptocurrency sub-segment. On the contrary, its advanced compliance business philosophy is helping the company to rapidly develop and rise in overseas markets. In January 2023, Shawn Shi, the founder of Alchemy Pay, was selected for the "2022 Forbes China Web3.0 Innovation Pioneer Selection". Today, Alchemy Pay has become a payment service provider connecting global fiat currencies and cryptoassets with user chains in 173 countries overseas. It has established cooperative relationships with Global Payment channels such as Visa, Mastercard, Discover, Diners Clubs, Google Pay, Apple Pay, as well as hundreds of local payment channels in overseas regions, and gradually built a larger partner network.

In March 2024, cryptocurrency Payment Gateway Alchemy Pay announced that it has successfully obtained a Money Transmitter License (MTL) in New Hampshire, US, following its existing licenses in Arkansas and Iowa. Additionally, it is actively seeking to obtain MTL licenses in other US jurisdictions as part of its efforts to expand its cryptocurrency payment services.

Bee Computing

#Mining

Establishment time: 2018

Official website: bee-comp.com

Financing: 40 million USD, acquired by BIT Mining in 2021

Basic Introduction: Bee Computing was established in March 2018 and is the first company to receive investment from global semiconductor giants. Inheriting the genes of semiconductors, Bee Computing is proficient in the characteristics and rules of the chip industry. It cooperates with Asia's top chip design company MTK, the world's top semiconductor manufacturer TSMC, and the top IC assembly and testing company ASE to ensure the advanced and leading position of its product technology. The company has now mastered 7-nanometer chip technology, provided advanced mining equipment on the market, and has been developing Ethereum ASIC chips since 2020.

In Hong Kong, cryptocurrency mining is not an illegal activity, but if the activity is carried out on a large scale, it may be regulated by Data Center laws. Due to the scarcity of land in Hong Kong, operating cryptocurrency mining activities in Hong Kong will involve a large number of land use rights issues. At the same time, mining companies must ensure that the buildings they operate comply with the Building Energy Efficiency Ordinance, a law and regulation passed for intensive electricity demand.

HashKey Group

#CeFi #Asset Management

Establishment time: 2018

Official website: hashkey.com

Financing: 100 million USD

Basic Introduction: HashKey Group is an end-to-end Asian digital asset Financial Services group that provides new investment opportunities and solutions for institutions, family offices, funds, and professional investors in the digital asset and blockchain ecosystem. The group provides a complete ecosystem in the entire digital asset field, including venture capital fund HashKey Capital, blockchain node verification service provider HashKey Cloud, tokenization service provider HashKey Tokenization, as well as HashKey NFT, Web3 PFP incubation, and community operation service providers.

HashKey Group has virtual asset operation licenses issued by the Securities Supervision Commission of Hong Kong and the Financial Services Agency of Japan, and has also obtained operational qualifications exempted from the Payment Services Act by the Monetary Authority of Singapore.

On November 10th, 2022, Hash Blockchain Limited (HBL), a subsidiary of HashKey Group, has been granted a license by the Hong Kong Securities Supervision Commission to operate a virtual asset trading platform through Class I (securities trading) and Class VII (providing automated trading services) licenses, providing services to professional investors.

In 2023, it announced that it had obtained approval from the Hong Kong Securities and Futures Commission ("Securities Supervision Commission"). Its subsidiary, Hash Blockchain Limited ("HBL"), can conduct over-the-counter business (OTC) for virtual asset platforms. When there is a demand for trading tokens that have not been listed on the exchange, HBL can act as an intermediary to facilitate transactions between the two parties.

On April 8th, 2024, Weng Xiaoqi, the Chief Operating Officer of HashKey Group, stated in an interview that it has obtained a "comprehensive license for digital asset investor protection system" in Bermuda and will launch the HashKey Global trading platform. In the first phase, it can provide more than 20 currencies to qualified retail investors, and is expected to launch futures, pledge and other products within one quarter. However, he pointed out that the two platforms have different positioning. HashKey Exchange, which has obtained a Hong Kong license, focuses on Hong Kong and surrounding markets, as well as institutional clients. HashKey Global serves retail investors who cannot enter the Hong Kong market, but does not include Chinese mainland, Hong Kong, the US, and countries that have explicitly stated that they do not allow the operation of virtual asset platforms. It is expected that the main customers will be overseas Chinese and users from South East Asia countries.

On August 3, 2024, HashKey Group over the counter was granted a payment license by the Monetary Authority of Singapore, which was launched under the Payment Services Act 2019 and allows companies to provide "digital payment token" services in Singapore.

OSL

#CEX #Broker #Hosting #OTC

Establishment time: 2018

Official website: osl.com

Financing: 90 million USD

Basic Introduction: OSL is an Asian digital asset management company that provides brokerage, custody, exchange, and software-as-a-service (SaaS) services to institutional clients and professional investors. OSL is the first company to obtain Class 1 and Class 7 digital asset licenses issued by the Hong Kong Securities and Futures Commission.

OSL platform. In January 2022, HKMA and Hong Kong Securities Supervision Commission issued a joint circular allowing registered institutions and licensed entities to cooperate with Hong Kong Securities Supervision Commission-licensed virtual asset trading platforms to provide digital asset investment services. Hong Kong Securities Supervision Commission released its Q2 2024 report, emphasizing significant progress in digital asset regulation, including adding 9 entities to the suspicious virtual asset trading platform warning list during the quarter. As of the time of writing, the total number of suspicious virtual asset trading platforms reached 42, and only OSL and HashKey were licensed virtual asset trading platforms. OSL CEO Cui Song said: Holding a license is not only to comply with regulations, but also to ensure the highest security standards and investor protection.

MaiCapital

#CeFi #asset management #hedge fund

Establishment time: 2019

Official website: maicapital.io

MaiCapital is a hedge fund service provider specializing in blockchain and cryptocurrency investments. The company is licensed by the Securities Supervision Commission to operate Class 9 (asset management) and Class 4 (securities advisory) businesses in Hong Kong. Its flagship product, Blockchain Opportunity Fund, is a multi-strategy hedge fund that adopts quantitative trading and arbitrage strategies.

MaiCapital's fund management business is licensed with a Type-9 license and also holds a Type-4 investment advisor license. In addition, compared to traditional asset management, cryptocurrency assets have unique risks. Therefore, if a licensed asset manager wants to hold more than a certain proportion of virtual assets in their investment portfolio, they need to Uplift on the basis of the No. 9 license and submit a report to the SFC to obtain a license. In 2022, the Hong Kong Securities and Futures Commission (SFC) licensed MaiCapital to manage up to 100% of its virtual asset investment portfolio.

MANTRA

#Infrastructure #Layer1 #RWA

Establishment time: 2020

Official website: mantrachain.io

Financing: $11 million, led by Shorooq Partners

MANTRA aims to be the first RWA L1 blockchain that can comply with and enforce real-world regulatory requirements. By accelerating the adoption of tokenized RWA, MANTRA has the potential to unlock the $16 trillion RWA economy through regulatory-ready blockchain. Through the MANTRA Chain compliance framework, TradFi companies can easily switch to and leverage asset tokenization and blockchain solutions, thereby promoting global RWA growth.

Applications built on MANTRA Chain benefit from a compliant environment that allows for the construction and access of regulated digital assets, as well as the construction of a transparent ecosystem. By obtaining its first financial license in the UAE, MANTRA positions itself at the forefront of the rapidly developing RWA industry in the Middle East and Asia, with the goal of tokenizing a variety of asset portfolios including real estate, private market funds, private equity stakes, art, and government bonds by 2024. In addition, on August 13, 2024, the Hong Kong High Court ordered point persons participating in the MANTRA DAO project to disclose financial records in response to allegations of asset misappropriation and unauthorized control.

Summary by Lawyer Mankun

Of course, there are many Web3 projects settled in Hong Kong, such as SocialFi's CrossSpace and Kikitrade, media Forkast, Wallet's TokenPocket and HyperPay, DeFi's Linear Finance and Wombat Exchange, NFT's Animoca Brands and Artifact Labs, incubator Brinc, and so on.

Source: Foresight News

Hong Kong presents a dual feature of "strict regulation and development promotion" in the regulation of virtual currencies. For areas that may bring systemic risks, such as virtual asset trading platforms and security tokens, Hong Kong has adopted strict regulatory measures, while in areas that encourage innovation, such as DeFi and non-security tokens, Hong Kong has shown a relatively relaxed regulatory attitude.

For virtual asset trading platforms. The Hong Kong Securities Supervision Commission (SFC) requires virtual asset trading platforms to obtain a license issued by it in order to operate legally. This means that any platform providing virtual asset trading services in Hong Kong needs to comply with SFC's strict requirements, including but not limited to Anti Money Laundering (AML) and Know Your Customer (KYC) regulations.

About security tokens. If virtual assets are recognized as security tokens (i.e. have the characteristics of traditional securities such as equity or dividends), they will be subject to securities regulations. Projects offering these tokens need to obtain relevant securities licenses and comply with the regulatory standards of the Hong Kong securities market.

In addition, regarding stablecoins. HKMA (HKMA) and SFC are developing a specific regulatory framework for stablecoins, especially for stablecoins pegged to fiat currencies, requiring publishers to obtain licenses and comply with strict regulatory requirements to ensure market transparency and investor safety.

Of course, the Hong Kong government supports innovation in Web3 technology, blockchain, and virtual assets, and strives to build Hong Kong into a virtual asset and fintech center in Asia. Therefore, the government has maintained a certain degree of inclusiveness in certain non-security tokens and decentralized finance (DeFi) projects. Hong Kong has launched the "Regulatory Sandbox" program, allowing fintech companies to test their innovative products and services in a limited environment. This mechanism allows companies to make innovative attempts while accepting regulation

Overall, Hong Kong has adopted a "tolerant and cautious" attitude towards the regulation of virtual currencies, encouraging innovation and emphasizing risk prevention. For Web3 entrepreneurs, Hong Kong is a good place to settle.

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Disclaimer: The content of this article solely reflects the author's opinion and does not represent the platform in any capacity. This article is not intended to serve as a reference for making investment decisions.

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