Hong Kong's aspirations to become a hub for Web3 and cryptocurrency have hit a roadblock as prominent exchanges like Binance, Huobi, and OKX have withdrawn their applications for trading licenses from the Securities and Futures Commission (SFC). The decision comes after the exchanges faced challenges in excluding mainland Chinese users, a requirement mandated by the SFC.

The SFC's licensing process has been met with skepticism from industry insiders, who argue that the strict regulations and lack of flexibility have led to a decline in competitiveness. The requirement to sign a letter of commitment, promising not to have mainland Chinese users, has been particularly challenging for traditional offshore exchanges. OKX attempted to form an alliance to contest this stipulation but ultimately failed.

The withdrawal of these exchanges raises questions about the viability of Hong Kong's Web3 ambitions. Critics argue that the authorities' conservative approach has weakened the competitiveness of the licenses, leading to the withdrawal of applications. The SFC's policies and measures for the development of Hong Kong's virtual asset market have been criticized for lacking cohesive strategic considerations.

The author highlights several areas of concern with the new licensing system. Firstly, the policies and measures related to the development of Hong Kong's virtual asset market were designed by different departments without considering the overall strategic development of the industry. This has led to a protracted process that has struggled to keep pace with the rapid evolution of technology.