In the era of the digital economy, the global economic and financial landscape is undergoing significant transformation. As leading Asian and international financial centers, both Hong Kong and Singapore are aggressively advancing into the third generation of the internet, often referred to as Web3 or Web3.0, aiming to capture new opportunities in the financial sector.
"The rise of blockchain technology has led many to believe that the internet has entered the Web3 era," stated Paul Chan, Financial Secretary of the Hong Kong Special Administrative Region, during the Hong Kong Web3 Festival held in April.
Indeed, Web3.0 is rapidly emerging as a promising frontier in global finance, and the competition between Hong Kong and Singapore is particularly intense.
Two Financial Giants Competing for Web3.0 Dominance
In recent years, both Hong Kong and Singapore have hosted major events and introduced various policies to actively promote the development of Web3.0.
In 2022, Hong Kong FinTech Week incorporated Web3 and metaverse concepts as new elements, including distributing limited-edition attendance proof protocol (POAP) tokens in the form of non-fungible tokens (NFTs) to participants. In April 2023, the Hong Kong Web3.0 Association was officially established, coinciding with the Hong Kong Web3 Carnival and the Digital Economy Summit. The four-day carnival was a grand gathering of global Web3 technology leaders, experts, scholars, and industry elites, attracting over 10,000 registered participants.
Singapore's exploration of Web3.0 began slightly earlier. In November 2021, the Singapore FinTech Festival (SFF) was held with Web3.0 as its central theme. The three-day SFF2021 brought together global experts to discuss how Web3.0 and key technological advancements would shape the future of financial services.
"With the rapid development of technology, the internet has evolved from a specific institutional communication channel to Web1.0, which gave rise to a batch of enterprises based on aggregating and distributing information," explained Mr. Chan. Over the past two decades, the internet further developed into Web2.0, incorporating social interaction elements. Coupled with the proliferation of mobile devices, this era created a new generation of giant corporations. Web2.0 is characterized by a centralized internet, where user data and information are collected and controlled by large internet platform companies. In contrast, Web3.0 leverages blockchain technology to offer immediacy, transparency, efficiency, disintermediation, and de-platformization. This breaks the previous model where specific internet platforms controlled data, allowing builders and users to co-own data and creating a 'decentralized' internet.
"Of course, Web3 is still in its infancy. Current common applications include cryptocurrency, decentralized exchanges, digital identity verification, decentralized finance (DeFi), blockchain games, and NFTs, among others. However, it is conceivable that many new applications and opportunities will emerge in the future," Mr. Chan added.
Despite Web3 being in its early stages, the rivalry between Singapore and Hong Kong in this domain is intensifying.
"The competition between Singapore and Hong Kong in the Web3.0 space can be traced back to their emphasis on fintech and innovation. Both are international financial centers with robust financial and technological infrastructures, providing excellent conditions for advancing Web3.0 development," noted Yu Jianning, Executive Director of the Metaverse Industry Committee of the China Mobile Communications Association and Honorary Chairman of the Hong Kong Blockchain Association.
Mr. Yu believes that Singapore holds some first-mover advantages in developing Web3.0. The Singaporean government has actively promoted the development of digital assets and blockchain technology through regulatory policies, enhanced public-private partnerships, and international cooperation. Singapore's strengths lie in its high degree of internationalization, sound legal environment, and relatively comprehensive regulatory framework, which have attracted numerous international financial and technology enterprises.
However, Hong Kong is quickly catching up. On one hand, Hong Kong is a pioneer in compliant regulation of virtual assets in the Asia-Pacific region, playing a significant and positive leadership role in the development of Asia's virtual asset market. On the other hand, Hong Kong serves as a financial hub between Mainland China and the international community, boasting a unique geographical location and close ties with the mainland financial market. Mainland China is also actively promoting blockchain technology and the digital economy, forming a complementary relationship with Hong Kong in the Web3.0 industry ecosystem. In the future, Hong Kong can leverage its geographical advantages to strengthen connections with mainland capital markets, facilitate capital flows, enable two-way movement of funds and projects, and promote the deep integration of blockchain technology in practical application scenarios.
It is worth noting that behind the "competition for Web3.0," both major Asian financial centers face their own distinct challenges.
"In the Web3领域, Singapore has a first-mover advantage, but last year the Singapore government's investment fund suffered significant losses in the cryptocurrency sphere, leading to some policy contraction," said Hu Jie, a professor at the Shanghai Advanced Institute of Finance at Shanghai Jiao Tong University. "Hong Kong has experienced economic downturn in recent years, and its financial advantages have been diminishing, particularly with noticeable outflows of talent and capital. Therefore, the Hong Kong SAR government seeks to revitalize its prowess by embracing the new financial opportunities presented by Web3."
"Both recognize the financial transformation opportunities brought by Web3 characterized by blockchain technology. Since the world is still exploring Web3 models, becoming one of the few special testing zones first could win future advantages," Professor Hu added.
Competing to Be an International Virtual Asset Center Amid Regulatory Challenges
In the Web3 era, virtual assets, as a rapidly emerging sector, have become a key focus of competition between Hong Kong and Singapore.
In late October to early November 2022, Hong Kong and Singapore held their respective fintech weeks almost simultaneously.
During the 2022 Hong Kong FinTech Week, the Hong Kong SAR government released the "Policy Declaration on Development of Virtual Assets in Hong Kong" (hereinafter referred to as the Policy Declaration). The declaration stated that virtual assets have become indispensable in the market due to their attractiveness to global investors and growing recognition in financial innovation, coupled with the future opportunities brought by virtual assets entering the Web3.0 and metaverse domains. "Hong Kong is an international financial center that maintains an open and inclusive attitude towards global innovators engaged in virtual asset businesses," stated Mr. Chan. The Policy Declaration would illustrate the government's vision to develop Hong Kong into an international virtual asset center.
During the 2022 Singapore FinTech Week, Ravi Menon, Managing Director of the Monetary Authority of Singapore (MAS), stated that Singapore hopes to become a hub for digital assets. During the fintech week, Singapore's first industry pilot for digital assets and decentralized finance went live.
However, in recent years, numerous virtual currency projects have collapsed or related trading platforms have filed for bankruptcy protection, raising serious questions about how to regulate the development of Web3.0.
In response, Hong Kong's Financial Secretary Paul Chan emphasized the need to steadily and prudently advance the development of the virtual asset industry in Hong Kong. "Promoting the development of Web3 must not come at the expense of financial stability and investor protection. Appropriate regulation is necessary to create a 'sustainable development' environment, allowing for more ideal development space for everyone. Under this premise, Hong Kong actively embraces the development of Web3."
Regarding Web3 development, Hong Kong will establish a task force dedicated to virtual asset development and introduce a licensing regime for virtual asset service providers in June. Simultaneously, the Hong Kong Monetary Authority (HKMA) is also researching regulations for stablecoins and other areas to ensure the sustainable and responsible development of the virtual asset industry.
MAS Managing Director Menon stressed, "in favor of digital asset innovation, rejecting cryptocurrency speculation." Singapore introduced a regulatory sandbox for fintech innovation as early as 2016 and incorporated the regulation of crypto assets under the Payment Services Act. For service providers wanting to offer crypto-related services, MAS has a stringent and lengthy licensing procedure. MAS has also issued strong warnings regarding retail investment in cryptocurrencies and has been taking increasingly robust measures to limit retail access to cryptocurrencies.
"Regarding the regulation of virtual assets, both Hong Kong and Singapore recognize the importance of protecting financial system stability and investor interests, and on this basis, they actively embrace the development of Web3.0. However, there are differences in their regulatory approaches," stated Mr. Yu. He explained that Hong Kong emphasizes steady and prudent advancement in promoting the virtual asset industry, incorporating virtual asset regulation into its framework. Such orderly regulatory measures help ensure market transparency and compliance, enhancing investor confidence. Singapore's advantage in virtual asset regulation lies in its early adoption of a series of proactive regulatory initiatives. Measures like the regulatory sandbox and strict licensing procedures help filter out participants with good compliance and risk control capabilities.
"Both Hong Kong and Singapore have sound legal systems and are international financial centers with mature experience in financial regulation," said Professor Hu. The development of Web3 can fully draw on the logic of traditional financial regulation, combining the characteristics of new Web3-related technologies to creatively implement reasonable regulatory measures. "Some believe that the financial logic of Web3 is completely different from traditional finance; I disagree. On the contrary, the problems encountered in Web3 financial practice have all been encountered in financial history. It's just that the physical technology of Web3 is different, so the logic of regulation is the same, while the techniques of regulation can be adjusted."
Mr. Yu believes that the development of Web3.0 requires adhering to the key principle of responsible innovative regulation, finding an appropriate regulatory model that balances encouraging financial innovation, flexibility, transparency, and consumer protection. Regulators need to closely monitor technological developments and market changes, formulating flexible and specific regulatory policies to protect investor rights, prevent financial risks, and maintain market order. Regulation should emphasize compliance, transparency, and risk management, and encourage cooperation and information sharing to build a healthy and vibrant Web3.0 ecosystem.
Exploring the Digital Hong Kong Dollar and Digital Singapore Dollar
Central Bank Digital Currency (CBDC) is likely another important battleground in the Web3.0 competition.
Regarding CBDC, on May 18, the HKMA announced the launch of the "e-HKD" Pilot Programme. Sixteen selected companies from the financial, payment, and technology sectors, including Bank of China (Hong Kong), Hang Seng Bank, and Alipay Financial Services (HK) Limited, will conduct the first round of trials within the year. These will深入研究 (deeply research) the potential use cases of the "e-HKD" in six categories: comprehensive payments, programmable payments, offline payments, tokenized deposits, Web3 transaction settlement, and tokenized asset settlement. However, a decision on whether to officially launch the "e-HKD" has not yet been made.
Earlier, on September 20 last year, the HKMA had published a policy stance paper titled "e-HKD: A policy and design perspective," outlining its stance and future direction regarding retail-level CBDC (i.e., "e-HKD").
Even earlier, the HKMA began researching CBDC in 2017 and launched the Inthanon-LionRock project jointly with the Bank of Thailand in 2019. This project focused on developing a blockchain-based cross-border corridor network, connecting the respective CBDC blockchains of Hong Kong (LionRock) and Thailand (Inthanon), to facilitate the process of cross-border foreign exchange transactions with payment-versus-payment (PvP) settlement on a wholesale (non-retail) level for the Hong Kong dollar and Thai baht.
The Monetary Authority of Singapore (MAS) initiated Project Ubin in 2016, aimed at exploring blockchain technology and CBDC, and has continued to collaborate with the industry on potential applications of wholesale CBDC. On the other hand, MAS is also carefully studying the costs and benefits of a retail CBDC (digital Singapore dollar) and has launched experiments to test potential applications, but has not yet made a decision on its issuance.
"Both the HKMA's LionRock project and MAS's Project Ubin fall under the category of wholesale CBDC, and their progress and achievements are comparable. However, the HKMA's LionRock project has had a greater international impact," analyzed Zou Chuanwei, Chief Economist at Wanxiang Blockchain. In 2019, during the cross-border PvP试验 (experiment/trial) for wholesale CBDC conducted by the HKMA and the Bank of Thailand, the concept of a 'corridor network' was proposed. This concept was adopted by the Bank for International Settlements (BIS) and became the foundation for a series of global experiments on multilateral CBDC bridges (mCBDC Bridges) conducted by the BIS, which includes the MAS project collaborated on by the MAS and the Banque de France. This fully demonstrates the innovative strength of the HKMA.
"In terms of retail CBDC, the progress of the HKMA is faster than that of the MAS," stated Mr. Zou. The MAS published a report on retail CBDC in November 2021 but concluded that the urgency for issuing a retail CBDC in Singapore was not high at that time. The HKMA published a technical white paper on the e-HKD in October 2021, a discussion paper on the e-HKD from policy and design perspectives in April 2022, and launched the e-HKD Pilot Programme in 2023. The linked exchange rate system of the Hong Kong dollar provides significant space for e-HKD innovation. For example, the HKMA has considered three possible issuance mechanisms for the e-HKD: the coin-based model, the paper-based model, and the aggregate balance model. The research, development, and experimentation of the Digital Renminbi (e-CNY) by the People's Bank of China can also provide reference for the e-HKD.
Furthermore, Professor Hu noted that the central bank's introduction of a digital currency has symbolic significance, demonstrating the central bank's recognition and embrace of blockchain technology, which has a positive driving effect on encouraging other Web3 applications. "The monetary size of Singapore and Hong Kong is too small. Each issuing its own CBDC or stablecoin would have too little impact on the market; it is more of symbolic significance."
The Role of CBDC in the Web3.0 Era
Judging from the "Policy Declaration on Development of Virtual Assets in Hong Kong" issued by the Hong Kong SAR government on October 31, 2022, Hong Kong's understanding of Web3.0 primarily focuses on the application of distributed ledger technology (DLT) in asset registration, trading, and clearing and settlement, including virtual assets, stablecoins, and green bond tokens, among others. CBDC, represented by the e-HKD, can serve as the "backbone" and pillar connecting fiat currency and virtual assets.
In this context, Mr. Zou believes that CBDC plays two main roles in the Web3.0 era.
The first is innovation guidance. CBDC enjoys government credit endorsement, possesses the highest level of security, and is suitable for the broadest range of application scenarios. Innovative成果 (achievements/outcomes) surrounding CBDC can spill over into other application directions of DLT, thereby guiding market innovation at the application level through government-led foundational innovation. Use cases of the e-HKD in comprehensive payments, programmable payments, and offline payments are representative of this aspect.
The second role is acting as a bridge between fiat currency and digital assets. CBDC is a form of fiat currency but uses the same or similar technology as digital assets, thus它可以作为 (it can serve as) a bridge between the two. Use cases of the e-HKD in Web3 transaction settlement and tokenized asset settlement are representative of this aspect. However, it requires research into whether the e-HKD can improve the on-ramp/off-ramp issues in the digital asset market, whether it can be compatible with existing Know Your Customer (KYC), Anti-Money Laundering (AML), and Counter-Financing of Terrorism (CFT) requirements, and whether it can support Delivery versus Payment (DvP). Additionally, the use case of the e-HKD in tokenized deposits reflects an emerging consensus—that tokenized deposits from commercial banks are safer than stablecoins issued by tech companies.
"Hong Kong is also considering the feasibility of issuing stablecoins backed by CBDC reserves, which is safer than having the reserve assets of stablecoins custodied at commercial banks," Mr. Zou added.
Mr. Yu believes that the important roles CBDC can play in the Web3.0 era also include enhancing payment efficiency, promoting financial inclusion, and supporting financial innovation. Simultaneously, CBDC is less difficult to manage, can effectively reduce the costs and risks associated with corporate online business financial management and account verification, and is easier to deeply integrate with internet businesses compared to traditional payment methods.
"Both Singapore and Hong Kong are international financial centers with mature financial markets and innovation ecosystems. Cross-border payments and settlements have always been important needs," stated Mr. Yu. By promoting the research, development, and application of CBDC, both regions can not only consolidate their leading positions in the fintech field and attract more innovators and investors but also enhance the efficiency and convenience of cross-border payments, accelerate capital flows, and promote the development of international trade.
At the same time, the introduction of CBDC involves complex technical architecture and security safeguards. Mr. Yu emphasized that ensuring the stability of the CBDC system and preventing data breaches and cyber attacks are significant challenges that require comprehensive consideration of technical and security risks. The success of CBDC also relies on public and market acceptance and understanding. Promoting and popularizing CBDC requires educating users and investors, addressing认知 (cognition/awareness) and trust issues regarding new technologies.
Frequently Asked Questions
What is Web3.0?
Web3.0 represents a proposed next stage of the internet, often characterized by decentralization, blockchain technology, token-based economics, and user ownership of data. It aims to create a more open, trustless, and permissionless internet compared to the current centralized Web2.0 model dominated by large tech platforms.
Why are Hong Kong and Singapore competing in Web3.0?
As major international financial centers in Asia, both cities see Web3.0 as a strategic new frontier in finance and technology. They aim to attract innovation, investment, and talent in this emerging field to maintain their competitive edge, foster economic growth, and establish themselves as leading hubs for the future digital economy.
How do their regulatory approaches to virtual assets differ?
Hong Kong is emphasizing a "steady and prudent" advancement, incorporating virtual asset services into a formal licensing framework to ensure market stability and investor protection. Singapore adopted regulatory measures earlier, utilizing tools like a regulatory sandbox and strict licensing, but has recently taken a more cautious stance, particularly in limiting retail cryptocurrency speculation, following some market incidents.
What is a Central Bank Digital Currency (CBDC)?
A CBDC is a digital form of a country's or region's fiat currency, issued and regulated by its central bank. It represents a direct liability of the central bank, unlike traditional commercial bank money or cryptocurrencies. It aims to combine the convenience and security of digital forms with the settled trust of central bank money.
What are the potential benefits of CBDC in Web3.0?
CBDC can act as a secure and trusted bridge between the traditional financial system and the emerging digital asset ecosystem within Web3.0. It can enable programmable payments, improve settlement efficiency for tokenized assets, enhance financial inclusion, and provide a stable foundation for innovation while maintaining regulatory compliance like KYC/AML.
What challenges does Web3.0 development face?
Key challenges include establishing clear and effective regulations that protect users without stifling innovation, ensuring financial stability amid high volatility, achieving scalability and interoperability of blockchain networks, addressing energy consumption concerns related to some consensus mechanisms, and building public understanding and trust in these new technologies. 👉 Explore more strategies for understanding digital assets