Hong Kong financial sector eyes DeFi and Metaverse, despite regulatory challenges
On Tuesday, the Hong Kong Institute for Monetary and Financial Research, backed by Hong Kong’s central bank, released some documents suggesting that the financial services industry is keen on DeFi and the metaverse. These documents signal potential growth and innovation in these emerging sectors.
The Hong Kong Academy of Finance (AoF) research arm released two reports, each showcasing how DeFi and Metaverse can help advance the fintech sector.
The reports emphasized the rapid expansion of the ecosystem from a modest $6 billion market capitalization in 2021 to over $80 billion in 2023. Hong Kong Institute for Monetary and Financial Research executive director added:
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.
Enoch Fung, EO of the AoF and executive director of the HKIMR
He added that as the city makes a big push to become a virtual asset and Web3 hub, the reports offer insights for market participants and regulators, locally and internationally, which will be a big boost for policy initiatives and market innovations.
Hong Kong’s efforts against crypto fraud
Hong Kong’s Securities & Futures Commission has been attempting to tame the runaway fraud in the crypto industry in the last couple of months.
According to police officials, last year, investors lost $400 million to crypto fraud in Hong Kong. Rogue exchanges are responsible for much of the losses.
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At the moment, crypto exchanges are expected to submit to a rigorous licensing process. Still, while most adhere to the directive, others have chosen to leave Hong Kong.
The region watchdogs are also developing frameworks for stablecoins and over-the-counter crypto trading. At the beginning of June, Hong Kong lawmaker Johnny Ng announced a new web3 and virtual assets subcommittee within the Legislative Council.
Current engagement levels with Metaverse technology
The Hong Kong Institute for Monetary and Financial Research’s optimism about DeFi and the metaverse appears more aspirational than grounded in reality. The report’s results show that almost 90% of market participants expect metaverse development to impact the financial industry significantly.
Additionally, about 70% of financial services industry respondents said their companies were already engaged with metaverse technology at some level. A little over a quarter were still in the discussion phase. However, the scope of their activities within the metaverse remains limited.
Presently, DeFi accounts for less than 5% of the overall crypto-asset market, which remains widely untapped. More than 70% of crypto firms participating in the study had yet to explore.
At the moment, there is less enthusiasm for using the metaverse as an investment tool. However, financial institutions in Hong Kong have adopted various metaverse applications to enhance interactions with the public, customers, and employees.
The report additionally flagged major hurdles, including data privacy issues, limited platform functionalities, and a scarcity of expertise.
Limited user adoption and interest, high development and maintenance costs, and integration difficulties with existing operations were cited as significant obstacles.
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A total of 59 entities took part in the survey on DeFi, which is the delivery of financial services without traditional financial intermediaries, offering a more cost-effective, accessible and secure alternative. Meanwhile, 55 institutions joined the survey on Metaverse, a technology platform to experience virtual reality.
Cryptopolitan Reporting by Florence Muchai
