How are the well-known Web3 projects settled in Hong Kong doing in compliance? | Mankun Law

As a financial center in Asia, Hong Kongs virtual currency market has always been at the forefront of regulation worldwide. For example, the new Virtual Asset Trading Platform (VATP) licensing system implemented on June 1, 2023, the recently released regulatory consultation document on stablecoin issuance, and the sandbox application list all mark important steps taken by Hong Kong in virtual currency regulation. These measures aim to enhance the overall integrity and stability of the market by improving 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 companies.

Attorney Mankiw is often asked in consultations which well-known projects have settled in Hong Kong. Therefore, this article briefly reviews the main crypto projects operating under this strict regulatory background to provide reference for entrepreneurs who want to settle in Hong Kong. *The following ranking is in no particular order, only sorted by the year of establishment

The Sandbox

#Game #Metaverse #GamePlatform

• Founded: 2012

• Official website: sandbox.game

• Funding: $117 million from Animoca Brands, Hashed, Kingsway Capital, and SoftBank Vision Fund

• Chain: 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 conduct gaming activities on the Ethereum blockchain. Its ASSETs (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 make profits from transactions.

• At present, Hong Kong has not formulated legal regulations and policy supervision on the issuance of games. However, The Sandbox involves a large number of NFT and token Sand transactions, and the issuance of Sand may also be identified as 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 that the consultation summary recommends to be regulated. The Sandbox’s establishment of a market platform in its game to provide a trading venue for land, assets, etc. seems to be likely to lead to its identification as a service provider of virtual assets and government supervision. However, from the actual supervision situation, the current regulatory focus of the government and the Hong Kong Securities and Futures Commission is mainly on the issuance and trading of tokens that have payment purposes or can be identified as securities, that is, the issuance and trading of NFTs (land and assets in The Sandbox) that only have commodity attributes have not been regulated yet.

Alchemy Pay

#CeFi #Payment

• Founded: 2018

• Website: alchemypay.org

• Funding: $10 million

• Chain: Ethereum, BNB Chain

• Basic introduction: Founded in 2017 and headquartered in Singapore, Alchemy Pay is a payment gateway designed to seamlessly connect cryptocurrencies and traditional fiat currencies for businesses, developers, and users. The platform supports payments in 173 countries.

• Alchemy Pays on-boarding and off-boarding service provides a one-stop solution for buying and selling cryptocurrencies and fiat currencies, and platforms and decentralized applications (dApps) can be easily integrated as needed. Its white-label crypto card solution enables businesses and token issuers to provide users with branded virtual or physical cards for instant global consumption. The NFT checkout function supports the direct purchase of NFTs through fiat payment methods. ACH is Alchemy Pays network token, available on Ethereum and BNB chains. In the increasingly regulated crypto asset segment, Alchemy Pay has not been knocked down. On the contrary, its advanced compliance management philosophy is helping the company to develop and rise rapidly 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 that links global fiat currencies and crypto assets for users in 173 countries overseas. It has established partnerships with international payment channels such as Visa, Mastercard, Discover, Diners Clubs, Google Pay, Apple Pay, and hundreds of local payment channels in overseas regions, and has gradually built a larger partner network. In March 2024, the cryptocurrency payment gateway Alchemy Pay announced that it had successfully obtained a money transmitter license (MTL) in New Hampshire, USA, following its existing licenses in Arkansas and Iowa. In addition, it is actively seeking to obtain MTL licenses in other jurisdictions in the United States as part of its efforts to expand crypto payment services.

Bee Computing

#mining

• Founded: 2018

• Official website: bee-comp.com

• Financing: $40 million, acquired by BIT Mining in 2021

• Basic introduction: Bee Computing was founded in March 2018 and is the first company to receive investment from a global semiconductor giant. Inheriting the genes of semiconductors, Bee Computing is proficient in the characteristics and rules of the chip industry. It cooperates with MTK, Asias top chip design company, TSMC, the worlds top semiconductor manufacturer, and ASE, the top IC assembly and testing company, to ensure the advancement and leading position of its product technology. The company has mastered 7-nanometer chip technology, provides advanced mining equipment on the market, and has started to develop Ethereum ASIC chips since 2020.

• Cryptocurrency mining is not an illegal activity in Hong Kong, 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, there are a lot of land use rights issues involved in operating crypto asset mining activities in Hong Kong. At the same time, mining companies must ensure that the buildings they operate in comply with the Building Energy Efficiency Ordinance, a law and regulation passed for intensive electricity demand.

HashKey Group

#CeFi #AssetManagement

• Founded: 2018

• Official website: hashkey.com

• Funding: $100 million

• 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, and HashKey NFT, Web3 PFP incubation and community operation service providers.

• HashKey Group has virtual asset operating licenses issued by the Hong Kong Securities and Futures Commission and the Japanese Financial Services Agency, and has also obtained the operating qualification exempted from the Payment Services Act by the Monetary Authority of Singapore. On November 10, 2022, Hash Blockchain Limited (HBL), a subsidiary of HashKey Group, was issued a license by the Hong Kong Securities and Futures Commission, approving it to operate a virtual asset trading platform through Category 1 (Securities Trading) and Category 7 (Providing Automated Trading Services) licenses to provide services to professional investors. In 2023, it announced that it had obtained approval from the Hong Kong Securities and Futures Commission (SFC), and its subsidiary Hash Blockchain Limited (HBL) could conduct over-the-counter trading (OTC) outside the virtual asset platform. When there is a demand for trading tokens that are not listed on the exchange, HBL can act as an intermediary to match the transactions between the two parties. On April 8, 2024, HashKey Group Chief Operating Officer Weng Xiaoqi said in an interview that he had obtained Bermudas Full License for Digital Asset Investor Protection System and would 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 a 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 mainland China, Hong Kong, the United States, and countries that have clearly stated that they are not allowed to operate virtual production platforms. The main source of customers is expected to be overseas Chinese and users in Southeast Asian countries. On August 3, 2024, the over-the-counter trading department of HashKey Group obtained a payment license from the Monetary Authority of Singapore. The license was launched under the Payment Services Act of 2019, allowing the company to provide digital payment token services in Singapore.

OSL

#CEX #Broker #Custody #OTC

• Founded: 2018

• Official website: osl.com

• Funding: $90 million

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

• OSL platform In January 2022, the Hong Kong Monetary Authority and the Hong Kong Securities and Futures Commission issued a joint circular, allowing registered institutions and licensed entities to cooperate with virtual asset trading platforms licensed by the Hong Kong Securities and Futures Commission to provide digital asset investment services. The Hong Kong Securities and Futures Commission released its second quarter report for 2024, emphasizing major progress in digital asset regulation, including the inclusion of 9 entities in the warning list of suspicious virtual asset trading platforms during the quarter. As of the time of publication, the total number of suspicious virtual asset trading platforms reached 42, and there were only two licensed virtual asset trading platforms, OSL and HashKey. 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 #AssetManagement #HedgeFund

• Founded: 2019

• Official website: maicapital.io

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

• MaiCapitals fund management business is licensed under a Type-9 license and also holds a Type-4 investment advisory license. In addition, compared to traditional asset management, cryptocurrency assets have their own unique risks, so if a licensed asset manager wishes to hold more than a certain percentage of virtual assets in its portfolio, it is necessary to upgrade from the Type-9 license and submit additional reports to the SFC to obtain a license. In 2022, the Hong Kong Securities and Futures Commission (SFC) licensed MaiCapital to manage a portfolio of up to 100% virtual assets.

MANTRA

#Infrastructure #Layer 1 #RWA

• Founded: 2020

• Official website: mantrachain.io

• Funding: $11 million, led by Shorooq Partners

• Basic introduction: 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 a regulatory-ready blockchain. Through the MANTRA Chain compliance framework, TradFi companies can easily switch to and utilize asset tokenization and blockchain solutions, thereby promoting the growth of global RWA.

• Applications built on MANTRA Chain benefit from a compliant environment that allows 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 has positioned itself at the forefront of the rapidly growing RWA industry in the Middle East and Asia, with a goal of tokenizing a diverse portfolio of assets including real estate, private market funds, private equity, art and government bonds in 2024. In addition, on August 13, 2024, the Hong Kong High Court has ordered key figures involved in the MANTRA DAO project to disclose financial records in response to allegations of asset misappropriation and unauthorized control.

Attorney Mankiws Summary

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

*Image source: Foresight News

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

• For virtual asset trading platforms. The Hong Kong Securities and Futures Commission (SFC) requires virtual asset trading platforms to obtain a license issued by it in order to operate legally. This means that any platform that provides virtual asset trading services in Hong Kong needs to comply with the SFCs strict requirements, including but not limited to anti-money laundering (AML) and know your customer (KYC) regulations.

• About security tokens. If virtual assets are identified as security tokens (i.e., they have the characteristics of traditional securities, such as equity or dividends), then 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, the Hong Kong Monetary Authority (HKMA) and the SFC are developing a specific regulatory framework for stablecoins, especially for stablecoins pegged to fiat currencies, requiring issuers 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 Asias virtual asset and financial technology center. Therefore, the government has maintained a certain degree of inclusiveness in certain non-security tokens and decentralized finance (DeFi) projects. Hong Kong has launched a regulatory sandbox program to allow financial technology companies to test their innovative products and services in a limited environment. This mechanism allows companies to make innovative attempts while accepting supervision. Overall, Hong Kong has adopted an inclusive and prudent attitude in the regulation of virtual currencies, encouraging innovation while focusing on risk prevention. For Web3 entrepreneurs, Hong Kong is a good place to settle.