Original｜Odaily Planet Daily
Author: 0x Layman
In 2023, Hong Kongs new licensing policy for regulating virtual asset exchanges was implemented, and it officially announced that it would open its doors to Web3, and quickly became a new gathering place for Web3 in the Asia-Pacific region. Recently, the annual Web3 Carnival was held in Hong Kong. Odaily Planet Daily interviewed Frank Zhang, Executive Director of OKX Hong Kong, to talk about OKX Hong Kongs strategic layout and the future development of the Hong Kong market.
As one of the Executive Directors of OKX Hong Kong, Frank is responsible for leading the business growth and operations of OKX Hong Kong, a virtual asset trading platform. He also leads the exchanges commercial strategy with the goal of providing industry-leading virtual asset services to the Hong Kong market while adhering to the strict regulatory compliance standards under Hong Kongs Virtual Asset Service Provider (VASP) regime. Frank has over a decade of experience in the traditional financial industry, having worked for well-known financial institutions such as Daiwa Capital, CLSA and Liquidnet Asia, where he was responsible for designing and implementing complex algorithmic trading strategies for these companies.
Frank believes that Hong Kong has a special history, a profound background and extensive resources, and is gradually becoming the Web3 center of the Asia-Pacific region. Hong Kongs geographical location, advanced financial infrastructure, sound legal system, long history of financial transactions, the convenience of a free port, and extensive connections with the world make it an ideal place for digital asset innovation, trading and development.
In addition, in order to actively deploy in the Hong Kong market, OKX Eurotrading Platform established OKX Hong Kong in March last year to prepare for the application of the Hong Kong VASP license to provide trading services for the Hong Kong market, and formally submitted the license application to the Hong Kong Securities Regulatory Commission in November of the same year. Frank said, If the Hong Kong license is obtained, it will be an important milestone in OKXs global compliance process. In addition to being one of the first exchanges to submit applications under the new licensing system, OKX Hong Kong has also been actively participating in public consultations on industry compliance before and after the implementation of the licensing system, hoping to contribute and help Hong Kong become one of the worlds leading virtual asset hubs with high regulatory standards. If OKX Hong Kong is successfully licensed, it will not only support the growth of OKXs global business, but also be a very important step for the sustainable development of the Hong Kong market and the industry as a whole.
The following is a transcript of the interview, compiled by Odaily Planet Daily
Odaily Planet Daily: Globalization strategy is currently one of the core strategies of centralized exchanges (CEX), and OKX is no exception. What advantages do you think Hong Kong has among many regions in the world that made OKX choose to set up in Hong Kong?
Frank: I think Hong Kong has a very special position. As one of the traditional financial centers, Hong Kong has a lot of historical background and extensive resources. As an international hub, Hong Kong is a very important channel connecting Asia with overseas. It also has first-class talent resources and a mature regulatory system. On this basis, it will naturally attract more talents and companies to develop in Hong Kong, which is a point we value very much.
Therefore, Hong Kong is a very important market for us, and we plan to continue to invest and develop in the Hong Kong market. We also see that both the Hong Kong government regulators and our partners are eager to build the entire ecosystem. I think we have a tacit understanding with our peers on this point. From this point of view, Hong Kong is indeed a blessed land, and the industry needs to work together to continue to maintain and develop it.
Odaily Planet Daily: With the official launch of the US Bitcoin spot ETF this year, the price of BTC has continued to rise. Can you tell us what changes have taken place in the Hong Kong market?
Frank: First of all, ETF is not a brand new concept or product. ETF has a long history in the traditional stock market in Hong Kong or around the world. Its biggest function is to help users get the benefits brought by the assets represented by ETF by purchasing ETF, so that users can still participate in the investment of the asset without having a deep understanding of the asset or not having much confidence in the asset. Bitcoin ETF is also similar. Even if users do not know much about the currency circle, but want to enjoy the dividends of cryptocurrency, they can try to invest in virtual assets indirectly for the first time by investing in ETF. In fact, I think ETF is a good channel for users who have not realized the charm of cryptocurrency to slowly get in touch with and learn about the currency circle after enjoying the initial dividends. And I think the interesting thing about the currency circle is that it continues to attract new enthusiasts or investors, and ETF has lowered the threshold for entering this circle.
Odaily Planet Daily: In this round of bull market, the market news mainly focuses on North America, such as ETF, Coinbase, or various entrepreneurial projects. Singapore, Dubai, etc. are actively seizing their positions. From your perspective, what is the role of Hong Kong in the global Web3 ecosystem?
Frank: This round of crypto market trend can be said to have originated in North America, so the focus of the market and public opinion is naturally concentrated here. This is not surprising. It should be said that this is an inevitable reflection and performance of the market.
Since last year, US regulators such as the SEC and CFTC have had many enforcement cases. At the same time, relevant agencies have approved the listing and circulation of ETFs in US stocks. A series of actions by US regulators on the cryptocurrency market have not only caused market turmoil, but also pushed the price of Bitcoin to a record high. This leads to two issues. First, the passage of ETFs means that crypto assets have been accepted by traditional financial markets, thus triggering a wave of market conditions in the crypto market; second, the enforcement actions against US regulators have triggered expectations of the regulatory direction and concerns about tightening of the situation among practitioners. In this case, how should Web3 entrepreneurs and builders seize opportunities to ride the wave, adapt to the regulatory situation, and stay steady under legal norms?
Speaking of regulation, in fact, most Web3 practitioners have an almost common expectation, that is, they expect regulatory rules to be not only open and transparent, but also have strong certainty and consistency. At present, the regulatory frameworks in different parts of the world are indeed different, and countries and regions are constantly adjusting their own regulatory frameworks according to their different national conditions and historical backgrounds. However, in recent years, global regulators have begun to have a common response in anti-fraud, anti-money laundering, strengthening fund custody requirements, and increasing transparency. Therefore, the regulatory methods and regulatory details adopted by various jurisdictions have also begun to refer to each other and become similar.
Several major crypto market sectors around the world are constantly colliding and changing, and the evolution and changes in the Asia-Pacific sector are particularly eye-catching. The current global Web3 ecosystem is composed of technology, market, and legal systems including supervision. Web3 in the Asia-Pacific region, or the Asia-Pacific sector of the crypto market, is unique in that it is ahead of other sectors in terms of technology, market, and the combination of the two. This large sector is in need of a fertile ground for the healthy development of Web3, so Hong Kong has the right time, place, and people to develop Web3.
Hong Kong has unique advantages in terms of the elements that regulatory policies and regulatory frameworks should have. Hong Kong is a long-standing financial center with a relatively open regulatory environment, a mature legal system, and a global financial network. It has always played the role of a global capital flow hub. In addition to having a good foundation, in terms of the construction and development of the Web3 ecosystem, Hong Kong has taken the lead in welcoming and supporting the development of Web3 in Hong Kong and providing policy support for it. In terms of the regulatory framework of centralized exchanges (CEX), which is most valued by everyone, Hong Kong has been formulating and improving a series of more stable regulations. As an important global trading and capital flow hub, and a special link between the East and the West, Hong Kong is generally more rigorous, stable and universal in terms of legislation and regulatory framework.
In short, Hong Kongs geographical location, advanced financial infrastructure, sound legal system, long history of financial transactions, the convenience of a free port, and extensive connections with the world make it an ideal place for digital asset innovation, trading and development. The Hong Kong government is currently actively building its own Web3 ecosystem and actively promoting the regulatory framework and standardization of the digital asset industry. By introducing relevant laws and policies, Hong Kong is committed to creating a transparent, secure and sustainable digital asset market, attracting more and more innovators and investors to settle down, and providing strong support for the development and innovation of the web3 industry.
Odaily Planet Daily: Web3 has been talking about Mass Adoption and hopes to introduce more fresh blood. Where is the direction for further growth of the entire Web3 industry?
Frank: In the Web3 industry, Mass Adoption has always been an important goal, allowing blockchain technology to expand from closed small-scale, small-range applications to more users and participants joining this ecosystem. For example, NFT, blockchain games, RWA, DePIN, etc., these are tracks that have a close foundation with Web2 users.
An important condition for Mass Adoption is to have a secure and easy-to-use infrastructure to lower the threshold for users to participate in Web3 and allow Web2 users to seamlessly enter the Web3 world.
Odaily Planet Daily: The Hong Kong government will implement the virtual asset service provider (VASP) licensing system in June 2023 and grant a one-year transition period. OKX officially submitted its license last year. What do you think will be the different implications for OKX Hong Kong if the license is successfully issued?
Frank: As one of the worlds leading Web3 technology companies and crypto asset exchanges, OKX has always embraced regulation, firmly believes that compliance is the future of the global digital asset ecosystem, and is committed to providing users with a more secure and trustworthy trading environment. As early as 2022, OKX has voluntarily published monthly proof of reserve reports through innovative technologies such as zkSTARK, leading the industry in self-regulation and improving transparency.
We have been actively preparing to apply for a VASP license. We first established the OKX Hong Kong entity in March last year and completed the application for a license in November. In addition to being one of the first exchanges to submit applications under the new licensing system, OKX Hong Kong has been actively participating in public consultations on industry compliance before and after the licensing system was implemented, hoping to help Hong Kong become one of the worlds leading virtual asset trading hubs with high regulatory standards. If OKX Hong Kong is successfully licensed, it will be an important milestone in OKXs global compliance process - this is not only a support for OKXs global business growth, but also a very important step for the overall sustainable development of the Hong Kong market and the industry. Previously, OKX has achieved good results in license applications around the world. For example, OKX Middle East has obtained a VASP license issued by the Dubai Virtual Asset Regulatory Authority (which will only take effect after the remaining conditions are met), and OKX Singapore has also obtained the principle approval of the large payment institution license of the Monetary Authority of Singapore.
Odaily Planet Daily: We know that Frank has more than 10 years of experience in traditional finance and has worked in well-known financial institutions such as Daiwa Capital, CITIC CLSA Securities and Liquidnet Asia. I am very curious about the traditional capitals you know. What are their views on Bitcoin and cryptocurrencies? Are they interested in adding Bitcoin to their balance sheets?
Frank: In fact, many of the traditional financial industry and industry-leading investment banks or funds (such as Blackstone Capital, Goldman Sachs in Europe and the United States, etc.) have already participated in the layout of ETFs with virtual assets such as BTC as underlying assets a few years ago.
As cryptocurrencies are increasingly recognized by global investors and regulators, they have naturally become one of the asset types that the general public wants to invest in or hold. The current market sentiment and demand growth for virtual assets is not a sudden stimulus, but a natural development over time, and it continues to exist, and it is the result of accumulation after many objective conditions are met. Now many regions have legislated or provided some basic protections for virtual asset investors through regulatory frameworks, such as requirements for fund custody to ensure that customer assets will not be moved or occupied at will. With increasingly perfect regulatory protections, many institutional investors have begun to think that the time has come to enter the market, so OKX Hong Kong, as a centralized exchange (CEX), must also meet user needs in this regard.
Odaily Planet Daily: How has your personal experience in the traditional financial field helped advance OKX Hong Kongs business?
Frank: What I learned in the traditional financial industry is mainly the understanding of the regulatory system and compliance operations. This is not limited to understanding the detailed requirements of the relevant regulations or rules and regulations. A deeper understanding requires understanding the principles, legislative concepts, and regulatory objectives behind each regulatory principle. For example, the original intention behind the strict detailed requirements for KYC under the Hong Kong VASP system is to verify the identity of each user to ensure that exchanges and other users are protected from the risk of trading or cooperating with fraudsters and terrorists, while protecting the assets of other users. Because I have accumulated a certain amount of compliance experience in the traditional financial industry, I have a more comprehensive framework of the current regulatory measures and future development of the virtual asset industry, which helps to lead OKX Hong Kong to respond to regulatory requirements quickly or make preparations for future regulatory development trends in advance. Since some partners in the virtual asset industry do not need to apply for a license under the current legal framework, OKX Hong Kong also undertakes compliance education when cooperating with these peers, explaining some of the business restrictions as a license applicant or future licensed institution, as well as due diligence and risk management requirements for partners.
In addition, my experience in the traditional financial industry is mainly about providing services to institutional users or B-end users, and some of these areas are actually applicable to how to improve the quality of service to retail or C-end users. OKX Hong Kong also focuses on using innovative technology to continuously improve user experience, so the first step is to pay attention to and understand the real needs of our users, which is actually very similar to traditional finances commitment to providing customized, compliant and competitive services and products.
