The Hong Kong Monetary Authority (HKMA) has introduced the Project Ensemble Sandbox, an initiative designed to test tokenization use cases across various asset classes and real-world financial applications, according to an Aug. 28 statement.

The sandbox will explore and refine the use of tokenized money in interbank settlements and transactions involving tokenized assets.

HKMA chief executive Eddie Yue said that launching the Project Ensemble Sandbox represents a significant step toward applying tokenization to real-life business scenarios. He noted the strong industry interest in pioneering solutions to redefine digital finance since Project Ensemble’s launch in March.

Focus areas

In its initial phase, the sandbox will focus on four key areas: fixed income and investment funds, liquidity management, green and sustainable finance, and trade and supply chain finance.

According to the HKMA, banks have already integrated their tokenized deposit platforms with the sandbox, enabling real-time testing of payment-versus-payment and delivery-versus-payment settlement mechanisms.

Furthermore, the Securities and Futures Commission (SFC) will play a vital role in developing a regulatory framework to support the sustainable growth of Hong Kong’s tokenized asset market.

The SFC will also co-lead initiatives with the HKMA in the asset management sector to promote wider adoption of tokenization and bolster Hong Kong’s position as a premier asset and wealth management hub.

Julia Leung, SFC’s Chief Executive Officer, highlighted that the sandbox launch exemplifies how innovation and regulation can work together to chart a new course for financial markets.

HashKey participation

HashKey Group, a leading digital asset financial services provider in Asia, announced its plans to pilot the tokenization and trading of real-world assets, including carbon credits, green assets, and Money Market Funds (MMFs).

Dr. Xiao Feng, Chairman and CEO of HashKey Group, stated that Project Ensemble enables financial institutions to use wholesale central bank digital currency (wCBDC) based on distributed ledger technology.

He added:

“This will facilitate greater interconnection between traditional financial markets and Web3, provide more automated and intelligent services for the fiat system, and promote financial inclusion, signifying a major step forward in supporting financial innovation.”

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Hong Kong’s financial regulators said they have concluded a consultation period over a licensing program initiative for fiat-referenced stablecoin (FRS) providers.

The consultation, which ended in February, received 108 submissions from various stakeholders, including market participants, industry associations, and professional organizations.

The Monetary Authority (HKMA) and the Financial Services and Treasury Bureau (FSTB) announced this development in a joint statement on July 17.

Stablecoin licensing regime

The regulators stated most respondents agreed that a regulatory regime for FRS issuers was necessary, considering the rapid rise of drastic digital assets in recent years. They believe this will manage potential monetary and financial stability risks and ensure transparent and suitable safeguards.

Furthermore, most respondents also supported the proposed regulatory requirements and implementation arrangements required by these stablecoin issuers. The regulators wrote:

“FRS, as compared to other types of stablecoins (e.g. commodity-linked or precious metal-linked stablecoins), is considered as having greater potential to be developed as a commonly acceptable means of payment and hence poses higher and more imminent monetary and financial stability risks.”

Christopher Hui, FSTB Secretary, noted that the licensing regime would bolster Hong Kong’s digital asset framework. He also emphasized that it aligns with international standards, promotes financial stability, and mitigates losses.

The financial regulators said they will consider all the feedback in finalizing the legislative proposal for the regulatory regime and aim to introduce a bill to the Legislative Council soon.

This announcement follows the launch of Hong Kong’s stablecoin regulatory sandbox program in March. HKMA is processing applications for the sandbox, and the list of participants will be announced soon.

Meanwhile, these efforts reflect Hong Kong’s bid to become a hub for crypto innovation. Hong Kong remains one of the few regions focused on regulating the crypto industry, making it a favorable destination for industry participants.

Bybit has removed China from the list of countries whose citizens are restricted from using its services.

CryptoSlate confirmed this development on June 5 via the exchange’s website and noted that the list still includes other countries such as the United States, the United Kingdom, Canada, Singapore, and Hong Kong.

It is unclear if Bybit has secured licensing to operate in China. However, market observers believe the move could attract millions of Chinese users to the platform.

Earlier today, Wu Blockchain reported that the crypto exchange was allowing Chinese users to register. The journalist added:

“Bybit’s competitors have essentially opened registration for Chinese users. However, Bybit’s move has also caused panic among internal employees.”

According to CoinMarketCap, Bybit is the second-largest crypto exchange by trading volume, processing over $4 billion worth of trades in the last 24 hours. Blockchain analytics firm Nansen’s exchange reserve dashboard shows that customers hold over $7 billion worth of assets on the platform.

As of press time, Bybit has not commented publicly on the development or responded to requests for comment.

China’s anti-crypto stance

Bybit’s decision to establish a presence in China is unexpected, given the country’s strict regulatory stance towards the crypto industry. China initially prohibited crypto transactions in 2013 and extended the ban to crypto mining activities in 2021.

This anti-crypto regulatory environment forced several crypto platforms, including Binance and HTX (formerly Huobi), to cease serving customers in mainland China after authorities barred overseas exchanges from providing services to mainland investors.

Despite the ban, reports suggest that crypto traders in China have found alternative ways to participate in the crypto market. A Chainalysis report ranked China as the third Asian country with the highest crypto activities, stating that Chinese crypto received transactions worth $86.4 billion between 2022 and 2023.

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Two prominent global exchanges’ subsidiaries — Gate.io and OKX — have withdrawn their applications for an operational license in Hong Kong in the last two days.

This decision reflects a broader trend, as eight firms—including exchanges backed by Binance and HTX—have also abandoned their licensing efforts in the city-state, according to a notice on the Securities and Futures Commission (SFC) website.

Meanwhile, the regulator is still reviewing applications from several other crypto exchanges, including Crypto.com, Bullish, and Matrixport. Notably, the SFC has approved licenses for only two exchanges in the region, OSL and HashKey.

OKX bows out

In a May 24 notice, Hong Kong-based crypto exchange OKX HK announced the withdrawal of its application for a Virtual Asset Service Provider (VASP) license in the region. The exchange stated:

“OKX will cease to provide centralized virtual asset trading services to Hong Kong residents by 31 May 2024 (Friday) in accordance with regulatory requirements. Customer funds remain safe and withdrawal services will not be affected. After 31 May 2024, customers will only be able to withdraw.”

Consequently, OKX advised its customers to refrain from making deposits after May 31, as these deposits may not be processed automatically. The exchange also set an Aug. 31 deadline for users to withdraw their assets from its platform.

Gate.HK application withdrawal

Similarly, Gate.io’s Hong Kong unit announced on May 23 that it had withdrawn its application for a virtual asset trading platform license.

The firm explained that the decision was part of a comprehensive platform overhaul strategy that would halt the registration of new users, deposits, and marketing activities in Hong Kong. Additionally, the platform intends to delist all major tokens, including Bitcoin, Polkadot, Ethereum, and others.

The platform said it will cease all trading services by May 28 and advised users to withdraw their assets before Aug. 28.

Launched in 2023, Gate.HK submitted its license application to the SFC in February in compliance with new regulations mandating that exchanges serving Hong Kong customers must obtain an operational license in the region.

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Hong Kong’s Office of the Privacy Commissioner for Personal Data (PCPD) has prohibited Worldcoin from collecting data in the region due to privacy violation concerns, according to a May 22 notice.

The privacy regulator alleged that Worldcoin collected iris and facial images from 8,302 residents using an iris-scanning device. This data collection aimed to verify user identity and generate iris codes in exchange for WLD tokens. Worldcoin has repeatedly affirmed that biometric data is hashed, meaning no images of Iris scans are stored. However, its terms and conditions do assert that users can ‘opt-in’ to share Iris images to help Worldcoin improve its system.

These actions, according to the regulator, were in violation of local privacy laws. It stated:

“The PCPD considered that the face and iris images collected by the Worldcoin project were unnecessary and excessive, contravening the requirements of DPP.”

Furthermore, the regulator criticized Worldcoin for not providing sufficient information to users, which impeded informed consent. The investigation noted that Worldcoin’s privacy notice was not available in Chinese, making it inaccessible to non-English speaking participants. The PCPD added:

“The Privacy Notice at the material time was not available in Chinese. The PCPD was of the view that participants using Chinese as native language would not be able to clearly understand the relevant policies and practices, terms and conditions of the Worldcoin project, and hence there was a lack of transparency.”

Notably, this enforcement action against Worldcoin aligns with recent measures taken by other countries. Spain, Portugal, and Buenos Aires in Argentina have also acted against the crypto project for similar privacy violations.

However, despite these regulatory hurdles across various borders, Wordlcoin adoption continues to soar. In April, World App, the first native wallet for the crypto project, reached 10 million users in less than 12 months of its launch.

Improving privacy

Worldcoin has recently garnered praise for its data privacy efforts, including commendations from Ethereum co-founder Vitalik Buterin.

In March, co-founder Alex Blania announced that Worldcoin had open-sourced the core software of its ORB technology. This move was paired with the introduction of new features that empower users to control their data usage.

Blania also highlighted Worldcoin’s dedication to working with regulators to enhance their operations.

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Hong Kong’s debut of Bitcoin and Ethereum exchange-traded funds (ETFs) commenced with modest trading volumes, tallying up to 87.58 million HKD, equivalent to $11.19 million, based on Hong Kong Stock Exchange data.

This trading volume falls significantly short of the issuers’ initial expectations, which anticipated volumes surpassing $100 million. Moreover, the trading volume pales compared to the US debut, where the 11-listed spot Bitcoin ETF products saw $4.6 billion in trading volume.

How they performed

The inaugural trading day showcased six newly introduced spot Bitcoin and Ethereum ETFs issued by China Asset Management, Harvest Global, Bosera, and HashKey.

According to HKEX data, China Asset Management’s “ChinaAMC Bitcoin ETF” led in trading volume, clocking HK$37.16 million in turnover during the initial trading session. Its Ether ETF also secured the highest volume among the Ethereum-based ETFs with a volume of HK$12.66 million.

Notably, Wu Blockchain reported that China Asset Management’s Initial Offering Period scale was HK$1.1 billion, valued at approximately $142 million for both products. The Bitcoin ETF pegged at HK$950 million, while the ETH ETF pegged at HK$160 million.

Other issuers like Harvest’s spot Bitcoin ETF recorded HK$17.89 million, while the Ether ETF garnered HK$4.95 million. Similarly, the Bosera HashKey Bitcoin ETF reported a volume of HK$12.44 million, and the ETH ETF stood at HK$2.48 million.

These ETFs had targeted international investors adhering to local compliance standards. By adopting this approach, the companies aimed to expand the investor base, augment liquidity, and bolster market stability. Consequently, these ETFs were accessible in various currencies, including Hong Kong dollars (HKD), US dollars, and China’s Renminbi (RMB).

Despite the subdued trading volume, stakeholders anticipate a significant market impact. Gabor Gurbacs, the founder of crypto-related firm PointsVille, said:

“The East-West Bitcoin ETF competition is heating up. Hong Kong wouldn’t launch Bitcoin ETFs without China’s approval. China is determined to put up competition on institutional Bitcoin capabilities. Full nation state adoption game theory in effect.”

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