Hong Kong Government Bizarrely Picks Metaverse, DeFi
Thought the Metaverse was dead? Thought institutions and governments didn't like DeFi? We did too... But apparently, Hong Kong doesn't.
According to reports by the Hong Kong Academy of Finance (AoF) and the Hong Kong Institute for Monetary and Financial Research (HKIMR), the city is becoming a proving ground for DeFi and the metaverse.
“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,” said Enoch Fung, CEO of the AoF and executive director of the HKIMR.
Don't Knock DeFi
Despite its antithetical stance against centralised finance, DeFi seems to be a hot topic for institutions in Hong Kong.
According to HKIMR's report titled, "Decentralised Finance Current Landscape and Regulatory Developments," 71% of companies are not yet exploring DeFi but the 29% which have developed DeFi protocols have highlighted their new-found "ability to facilitate the exchange of small amounts of assets without the need for intermediaries or minimum limits."
Of course, CeFi offers higher liquidity, is more accessible to all levels of clients, and has a user-friendly interface.
The report states that DeFi offers companies greater opportunities in efficiency and cost savings, access to new financial services, innovation and flexibility, global reach and borderless transactions, transparency and security, financial inclusion, and diversification and risk management.
For those already familiar with the concept, the benefits of DeFi are nothing new, but DeFi has often been at loggerheads with CeFi, and has been unsurprisingly unwelcomed by institutions. Regulatory uncertainty, risk management, technical challenges, and a complete lack of control are issues presented to old-school institutions by DeFi.
Nonetheless, the report argues that Hong Kong's strategic location and connectivity to global markets makes it an attractive destination for DeFi projects looking to expand in the region
It further recommends that "the regulation of DeFi should continue to be inspired by the guiding principle of ‘same activity, same risk, same regulation’, with deep-dive research being of paramount importance to enhance the understanding of the risks associated with DeFi developments."
Making the Most of the Metaverse
According to HKIMR's report titled "The Metaverse: Opportunities and Challenges for the Financial Services Industry," 65% of the financial institutions surveyed were actively involved in the metaverse.
51% of financial institutions said they had no plans to implement Metaverse applications in their businesses but 49% said they already had done or had made relevant investments.
The report argues that financial institutions can use the metaverse to enhance interactions with the public, customers, and employees, leading to improved customer experience and satisfaction.
58% identified the metaverse as a platform that provides unique service offerings while 47% indicated that the metaverse could serve as a distinct marketing channel.
37% of the respondents believed that the metaverse had the capacity to expand its customer base, while 33% expressed the view that metaverse applications could improve operational efficiency.
"The metaverse may provide an opportunity for financial institutions to widen the customer base by expanding their global reach beyond the physical and geographical limitations," the report states.
It also claimed that the metaverse could enable virtual employee training and virtual workspaces, which may reduce operating costs and provide greater flexibility for employees, potentially boosting labor productivity.
However, from the outside looking in, metaverse interest seems to be dwindling. Google Trends data shows that metaverse searches are down more than 50% over the last six months.
That said, globally recognised metaverse firm The Sandbox recently raised $20 million of convertible promissory notes with a $1 billion valuation cap.
"We are deeply honoured by the continuing commitment to the vision of The Sandbox, and we're incredibly excited about the future of composable user-generated content games," said Yat Siu, co-founder and executive chairman of Hong Kong-based Animoca Brands, which owns The Sandbox.
News also broke of Animoca Brands looking to go public in 2025 in Hong Kong or the Middle East. The $5.9 billion-valued Web3 giant was delisted from the Australian Securities Exchange following questions about its accounting in March 2020.
The report further argues that Hong Kong is an ideal environment for developing Metaverse tech. 71% of respondents cited Hong Kong's business-friendly environment and low tax rates as crucial factors. 56% highlighted Hong Kong's robust financial infrastructure and network, while 53% emphasised the significance of a defined regulatory framework and an established legal system.
Hong Kong’s unique advantage as the primary gateway to Mainland China was also another popular reason.
"The findings of the Metaverse Survey revealed that Hong Kong was identified as the primary target market for the metaverse strategy by nearly half of the financial institutions, followed by Mainland China (16%), North and South America (9%) and the Asia-Pacific region excluding Mainland China and Hong Kong (7%)," the report concluded.