Hong Kong is solidifying its position as a frontrunner in global fintech by focusing on crypto-related sectors such as decentralized finance (DeFi) and the Metaverse.

Recent government-backed studies conducted by the Hong Kong Institute for Monetary and Financial Research (HKIMR), part of the Hong Kong Academy of Finance (AoF), highlight the significance of these digital realms in shaping the future of finance in Hong Kong.

Released on June 25, the reports delve into the impact and potential of DeFi and Metaverse technologies, noting their rapid growth and emerging opportunities.

The research on DeFi points out a substantial increase in market capitalization, rising from $6 billion in 2021 to over $80 billion in 2023, underscoring its expanding potential. Despite DeFi representing only 4% of the overall crypto-asset market, the sector remains largely untapped, with approximately 71% of surveyed crypto businesses in Hong Kong yet to explore its potential.

The report is optimistic about DeFi’s ability to revolutionize financial services through innovations like liquid staking, flash loans, and automated market makers, promising faster transactions and greater financial inclusion.

Simultaneously, the study on the Metaverse indicates high interest from local financial institutions, albeit with cautious engagement levels. While over half of the respondents express skepticism about the Metaverse's potential, some fintech firms in Hong Kong are actively pursuing Metaverse-related initiatives, exploring how virtual environments can integrate into financial services.

Enoch Fung, CEO of the AoF and executive director of the HKIMR, emphasizes the interconnected nature of DeFi, the Metaverse, and broader Web3 technologies as pivotal for Hong Kong’s financial industry. Fung highlights:

"The emerging technologies of DeFi and the Metaverse, closely linked to virtual assets and Web3 developments, present numerous opportunities for Hong Kong's financial services sector."

Hong Kong's broader strategy aims to establish itself as a central hub for cryptocurrency innovation and activity. Recent regulatory advancements, such as initial approvals by the Hong Kong Securities and Futures Commission (SFC) for 11 cryptocurrency exchanges, support this goal. These efforts, including the issuance of virtual asset trading platform (VATP) licenses since 2022, align Hong Kong with leading global crypto hubs like Singapore and Dubai.

Looking ahead, industry leaders anticipate Hong Kong may introduce staking options for spot Ethereum exchange-traded funds (ETFs), enhancing the appeal and functionality of crypto-based financial products across the region.