Bankless - Crypto in Hong Kong with Sandy Peng

Episode Date: October 18, 2023

Joining us today from Hong Kong is Sandy Peng. Sandy is here to tell us what crypto is like on the other side of the world, walking us through regulations, adoptions and bringing us fully up to speed on the landscape in Hong Kong.  For many of us this episode is a 0 to 1 moment in understanding around crypto in Hong Kong and more broadly China. ----- 🏹 Airdrop Hunter is HERE, join your first HUNT today https://bankless.cc/JoinYourFirstHUNT  ------ 📣 Bankless Podcast Survey:  https://forms.gle/Ai5qpCJjQPhAErPr8  ------ BANKLESS SPONSOR TOOLS: 🐙KRAKEN | MOST-TRUSTED CRYPTO EXCHANGE ⁠https://k.xyz/bankless-pod-q4  🦊METAMASK PORTFOLIO | MANAGE YOUR WEB3 EVERYTHING ⁠https://bankless.cc/MetaMask  ⚖️ ARBITRUM | SCALING ETHEREUM ⁠https://bankless.cc/Arbitrum  ⁠  🔗 CELO | CEL2 COMING SOON https://bankless.cc/Celo  ----- RESOURCES Sandy https://twitter.com/SandyPeng1  ----- CHAPTERS 0:00 Intro 5:53 Hong Kong History 10:08 What is Hong Kong Like 12:27 Why Hong Kong is Successful 15:28 Innovators and Regulators 19:11 HK & China Relationship 26:35 Why is HK opening its Doors to Crypto 28:52 Crypto in HK 37:21 Has HK Put Its Foot on The Gas? 40:42 The Silicon Valley Of China 43:08 Stablecoin Legislation 45:08 How Crypto Friendly is HK? 46:54 Why Move To HK? 50:50 DeFi 54:46 Crypto Projects in HK 56:33 Watch The Debrief ----- Not financial or tax advice. See our investment disclosures here: https://www.bankless.com/disclosures⁠ 

I think really what we're trying to get at is understanding that Hong Kong has meaningfully opened its doors to crypto. The question I have is that is Hong Kong opening its doors to crypto in spite of China or because of it? Bankless Nation, the question for today is Hong Kong warming up to crypto? What would that mean for China, for the rest of Asia, for the world? And how about for crypto? We've gone deep into crypto protocols and movements in the past. You've heard episodes like the crypto renaissance, but now it is time. to go back down the nation state rabbit hole and explore what is going on in Hong Kong.

A few things we discuss on today's episode. Number one, what's the deal with Hong Kong? How about it's history? How about it's a relationship with China? Number two, is Hong Kong turning crypto-friendly? What's the evidence of this? What do things look like on the ground? Number three, is Hong Kong trying to position itself as the epicenter of crypto in Asia? Do other city-states like Singapore have something to say about this? And number four, if Hong Kong goes crypto, will China follow? These are the big questions in today's episode. Why was this significant to you, David? There's a growing movement out there of just focus on city states as bastions of innovation and entrepreneurship. And this is, I would say, definitely the story of Hong Kong and also

Singapore and other examples as well. People have certainly learned that just good regulation and good rulemaking can produce and generate wealth. We've seen that in Singapore. We've seen that in Hong Kong because of good relations between entrepreneurs, innovators, and regulators, massive amounts of opportunity and wealth has been created. And Hong Kong is one of those few city states out in the world that is really leaning into this. And crypto, of course, is one of the few frontiers of the world that is producing a ton of wealth. And Hong Kong, like Singapore, like others, are really leaning into this. So what lessons can we learn from Hong Kong? I'm really jealous about the way that Hong Kong is treating crypto. What can the United States learn from Hong Kong?

And really how will this kind of position the physical world as crypto in the metaverse world grows, how does this impact the atoms that are floating around in the physical world? I think understanding that dynamic is always something worth paying attention to. And really the case being made here is that Hong Kong, from the crypto perspective, is also worth paying attention to. So we dive into trying to get a grip and understanding around what's going on in Hong Kong here today on this episode. Good time to escape your Western bubble if you live in Europe or the U.S. and see what's going on in Asia. So we do that in today's episode. Guys, we're going to get right

to the conversation with Sandy. But before we do, we want to thank the sponsors that made this episode possible, including our number one recommended crypto exchange. That's Cracken. Go create an account. Cracken Pro has easily become the best crypto trading platform in the industry. The place I use to check the charts and the crypto prices, even when I'm not looking to place a trade. On Crack and Pro, you'll have access to advanced charting tools, real-time market data, and lightning fast trade execution, all inside their spiffy new modular interface. Crackin's new customizable modular layout lets you tailor your trading experience to suit your needs. Pick and choose your favorite modules and place them anywhere you want in your screen. With Cracken Pro, you have that power. Whether you are

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excited to introduce you to sandy pang she's one of the co-founders of scroll which is a zk scaling solution that's working on scaling ethereum some very noble work there and sandy's also a long time hong kong resident she's been in hong for over 10 years she's seen the rise of hong kong and its influence in the crypto sphere as an economic center as well and more recently crypto seems to be back on the menu in Hong Kong. Sandy, welcome to Bankless. How are you? Thanks for having me, Ryan, David. Very happy to be here. Yeah, this is a really interesting subject that, of course, David and myself are not equipped to help answer. So we're hoping you can help us today. And we've seen a lot of headlines here recently over the past few months. Headlines such as the US cracks down

on crypto, Hong Kong extends a warm welcome. So bullish Hong Kong for crypto, you know, another one. Hong Kong government pressures banking giants to accept crypto clients. It seems very much the story of 2023 has been U.S. regulatory hostility to crypto and Hong Kong may be opening up. So that is really the question, have you helped us answer today? Is Hong Kong warming up to crypto? What would that mean for China? What would that mean for the rest of Asia? What would that mean for the world? So we thought we'd go through a three-part, maybe agenda in this episode, because I think we need, firstly to get some grounding on the history of Hong Kong. Educate us Western listeners on how Hong Kong came to be,

how it's grown in prominence and economic power. Then give us some sense of the relationship between China and Hong Kong, if we could spend a few minutes there. And then lastly, I think, we'll be equipped to talk about Hong Kong and China. Does that sound good, Sandy? Yeah, sounds great. Looking forward to it. Okay.

Give us a little history lesson here, Sandy. Hong Kong is a very unique place. It's kind of maybe a quirky place. It's at the margins of some very dominant societies and empires maybe. It has US dollars as the pegged local currency, has the highest concentration of ultra-networth individuals. It's the fourth largest financial center in the world. Give us a sense of how Hong Kong has come to dominate in these ways. Why is it doing so well? Give us some of the history here, Sandy. I think in a nutshell, Hong Kong originally was a few. fishing village of no particular significance. It was ceded to the British during the first opium war, so the opium wars where the Brits tried to sell opium in exchange for goods and services, while mostly goods. And then during the second opium war, Kowloon was also ceded to the British. So after about 100 years or so of British colonization, in 1997, Hong Kong was returned to China

officially under the one country to system mechanism and where Hong Kong, Hong Kong gained an independent kind of judiciary and independent kind of legislative process. Part of the government is set up in a sense that's still very similar to the way that's typical to a British colony. So Hong Kong has been a major financial center over the last couple of decades now. And the reason it's been so popular, it's kind of historically a popular place for Chinese companies to be listed overseas. and it has, you know, huge liquidity pool.

And when large companies think about listing, they typically think about U.S. or Hong Kong. So it's very interesting when an important jurisdiction, such as Hong Kong, starts to become more crypto-friendly. So how did we get here from Fishing Village to bustling economic center for the world? So the Opium Wars was back in the 1800s, of course. And then it must be the case that Hong Kong had a, a booming 20th century, a booming 1900s, in order to transform it from fishing village to

economic hub and economic zone. How did that happen? I think the economic miracle of Hong Kong is relatively similar to that of Singapore and South Korea and to some extent Japan. So after the Second World War, Hong Kong very quickly became the bridge between China and the rest of the world. There was a period of time while there still is capital control in China, and Hong Kong is the place where Chinese companies get listed, and it's where US capital and international capital, for that matter, use Hong Kong as a jumping board before investing into China. and being part of the kind of the major kind of economic miracles over the last couple of decade about, you know, where hundreds of millions of people were lifted out of poverty, part of that economic miracle also brought with it and kind of emergence of Hong Kong as a financial center that enabled it. Getting the ingredients as to what contributed to that economic miracle, I think, is definitely one of the big conversations that we want to pull out here.

But just to really put an image in listeners' minds about what it's like, what Hong Kong is. Kong is like, what the city is like. Sandy, the last I saw you was in Austin at Permissionless. I've met you in New York. We've hung out in Paris at ECC. You've been over the world. You've trotted your number of cities. Can you kind of compare and contrast the cities of the world to Hong Kong, just so people can kind of get an image of what Hong Kong is like, like literally the geography, topology, kind of culture of it all. In terms of vibe, I think it probably maps both closely to New York. Everything is very closely packed together. except there's fantastic public transport.

Yeah, our public transport had a flood last weekend. And people are very friendly, it's very cosmopolitan, and there's a huge international community. So I think of it as the New York of Asia. I think that comparison really makes sense to me, right? And even as I was looking up Hong Kong's population, it's about 8 million people. That's about the population of New York City. and this portrait of Hong Kong as kind of a financial center for Asia. I mean, that starts to be very much what kind of New York is for the U.S. and the West.

Also an island. Both are islands. Well, Manhattan's island-y kind of. Sure. It's got bridges. Yeah. So there's that too. And is that really where Hong Kong specializes? So in addition to being called kind of the New York of Asia, could we also call it the Wall

Street of Asia? I mean, how much kind of trading activity? and economic activity is sort of Wall Street-like. Is that where many of Asia's banks are situated and hang out and stock markets are represented there? Tell us about that. Yeah, I think a very large proportion of the population here works in financial services sector, and a lot of the major banks have a huge presence here, and there's a constant inflow of, you know, trainees in law firms and investment banks and consulting firms that passes through

Hong Kong. In that sense, it's very similar to New York. It was also, you know, traded to the Brits once upon a time. That's also a similar tie in history. So the topic of the network state people, for example, use both Hong Kong and Singapore and a few other example cities as just like exemplar cities of growth, wealth generation, cool new rules that allows for entrepreneurship. So starting to get into the topic of like why Hong Kong has been so successful. over the decades. Can you get into that story? I think partially it's a location where there's a large number of talent who are financial savvy and who are relatively tech savvy and this understanding of the financial system that enables a lot of the first generation of crypto trading shops, entrepreneurs,

centralized exchanges to emerge from Hong Kong. As a part of that narrative, there's also a lot of kind of family offices here and also the clearer the regulatory regime in a particular place, the more enables and empowers entrepreneurs to step into the arena, which is what makes Hong Kong and Singapore and probably a few other crypto-friendly jurisdictions very interesting at this particular point in time. Sandy, is there like a rivalry between these jurisdictions like Hong Kong? So is there like a Hong Kong versus Singapore type of rivalry almost? Like, you know, maybe fun competition. I'm sure they're trading partners and such. But who does Hong Kong see as a rival?

I think you're definitely right there, Ryan. There's a bit of a Hong Kong-Singapore rivalry. And I think that's very healthy, and it's good for the ecosystem as a whole. So I think the fact that Singapore became a very crypto-friendly jurisdiction was a major catalyst for Hong Kong speeding up its crypto lawmaking process. And so in 2022, that was the first time I think the Hong Kong government, announced this ambition to become a Web3 hub of the world. And since then, there's been a huge kind of coordinated effort amongst the various government agencies to work together to support

crypto businesses in Hong Kong. And fast forward to today, there is, you know, direct engagement with Invest Hong Kong, CyberPort Hong Kong, Hong Kong, Hong Kong Science Park, Hong Kong, MCC. All of these kind of government agencies are very easily accessible to relevant builders in the space. And there's a number of public consultation and crypto laws which are in place or very quickly becoming or, you know, reaching a stage of public consultation that is proposed by the community. And that's very encouraging. That is something that we are not familiar with. Having accessible regulators is definitely something I would say that's foreign to us, at least in the United States. To what degree would you say that that's been an important part of Hong Kong's history, just like the relationship between entrepreneurs, innovators and regulators. I think with financial innovation in particular, this has been a thing that Hong Kong government as a whole have been trying to spearhead for a very long time. And there's been a kind of consistent push towards fintech in general. And the push for crypto in particular started

really in the last two years. But I think the business community in Hong Kong in particular is very adaptable and very resilient. I think the first time I came to Hong Kong and 1998, I don't think anybody spoke Mandarin, and now almost everybody speaks Mandarin in Hong Kong. I would say two or three years ago, hardly anyone spoke crypto, and now the level of crypto knowledge amongst the various agencies and, you know, senior government officials is very, very quickly ramped up over the last two to three years. One advantage of smaller, almost like city states, call them like a Singapore or a Hong Kong, is that they can move so much faster, with respect to regulation and governance,

than a big aircraft carrier-sized nation like the United States or even China. And so I think that's what maybe we're seeing a little bit, is when there is the desire and when there is the economic impetus to move forward, then a place like Singapore, a place like Hong Kong, can really get it done and put sensible laws on the books

that promote a certain industry or sector or advantage in some way. And so that seems to be a superpower of countries like or places, jurisdictions like Hong Kong and Singapore. There's also a difference, though, between Hong Kong and Singapore. And this is where maybe the conversation of China gets into it, which is how is Hong Kong related to China versus, say, you know, Singapore. Right. So Singapore does not have any sort of special designation with China, I believe, but Hong Kong does. So compare and contrast that.

What is Hong Kong's current relationship with China? Well, I think, first of all, geographically, there's a very big difference, even though the two are both city-states of very highly affluent population. Hong Kong is much closer to mainland China than Singapore. Singapore is a four or five-hour flight away, and Hong Kong is literally 30 minutes away from the city center of St. And second of all, Hong Kong operates under a one-country two-system mechanism, where it is officially a part of mainland China, but it has its own laws, which makes it very

interesting. So it's a common law system jurisdiction, just like many of the kind of the ex-British colonies. And in that sense, it's also similar to Singapore. And that oversees most, all of the financial regulation and rules. And so the major financial regulators, the SFC and the MA, they both fall under a common law system. And so this produces some degree of autonomy, the Hong Kong system from mainland China. But what is the actual, like, technical levels of alignment between Hong Kong and China? Like, does Hong Kong pay taxes to China? Like, what degree of control and influence does China actually have over Hong Kong?

In terms of finances and taxes is completely independent. So taxation and Hong Kong has its own lawmaking powers when it comes to taxation and how the money is used and how resources are allocated. There is an elected kind of legislative council and the chief executive and the bureau. And so there's an completely independent system where resource allocation within Hong Kong is decided. So the one country, two systems that you mentioned. mentioned, that was put in place in 1997. Is that correct? Correct. Yes. Okay. And then so Singapore, in contrast, does not have that sort of similar type of relationship with China. Maybe you could contrast that a bit. So Singapore would be a completely independent city state, unlike Hong Kong,

correct? Yes. So Singapore is a city state for sure, and it is not related to China. So that would be correct. There is something interesting here in that it seems like China has the potential to use, Hong Kong or leverage Hong Kong as kind of a alpha site or like a beta site where it can sort of test innovative ideas and then if they work kind of bring them back to mainland China. I mean, one famous Supreme Court justice in the U.S. once said that the U.S. is essentially 50 different experiments, you know, talking about all of the different states around the U.S. with kind of separate from the federal governance apparatus and the best experiments can kind of win and maybe reflect in the federal law. I'm wondering if that perception is accurate, that Hong Kong is

kind of a bleeding edge area for innovation where China can kind of leverage that, see what works in Hong Kong, and if mainland China likes it, kind of bring it back, export it from Hong Kong back to mainland China. Is that a relationship and perception that is correct? That's definitely a plausible thesis. And in terms of financial innovation, it's happened a few times when it comes to banking regulation and also insurance laws. The success of which is variable and very sector and initiative dependent, but historically this has happened a few times when successful initiatives in Hong Kong have been implemented elsewhere, but it doesn't happen all the time. I think trying to really drill down and measure the degree of freedom that Hong Kong

has from China is probably a very academic thing where lots of experts go back and forth and really try and define it, and it's not really something I feel very equipped to do. But, Sandy, I want to kind of throw my just perception at you and see what sticks. Because the Hong Kong-China relationships is, like, contentious. Like, we don't know how much control there is. And the way that I kind of think about these things is that China wants the world to think of Hong Kong as, like, a state of China. Like Hong Kong is Chinas.

That is the rule. That's the law. And Hong Kong, the citizens of Hong Kong, are like, okay with China having that perception. And the reality of how much Hong Kong is actually China is something less than what China wants the world to perceive. It's some gray area, some ambiguous gray area. And like Hong Kong as a city state just like is happy to live in that ambiguity. And there's no really clear answer here. That's kind of my gist. That's a very long question. There's no question actually. I'm wondering if that's just like

resonates with you. I think my role first and foremost is a row-up builder and then also just kind of like someone who enjoys living in Hong Kong because it's a great place to live. Probably not the best position to comment on kind of political issues. I think in terms of perception, that is something that neither the Hong Kong government or anybody can particularly control. And in terms of alignment, I think every city has its vibe. I think Paul Graham has an essay called Cities and Ambition. and if I had to kind of summarize Hong Kong's ambition as a city, it is to be a successful financial center, it is to be a facilitator and a broker, and increasingly kind of like a fintech and technical innovator, kind of house of innovation. So with that ambition in mind, it makes a lot of sense to instill kind of regulatory stability, regulatory clarity, particularly comes when it comes to opportunities such as crypto, where there is opportunity for

like regulatory arbitrage. But in terms of the political perception, I don't think that's something that anyone can control. I think what's interesting here is I'll just try to figure out to move this into kind of crypto roll up metaphors, right? Well, so is Hong Kong kind of a layer two of China, or is it a side chain? Or is it something in between? Is it like a volidium? Or maybe it's a volition. So sometimes it's like a layer two and sometimes. it's not, right? And as crypto people, that's interesting for us to sort of consider and understand. But as David said, maybe it's so fine to live in kind of the ambiguity of it's somewhere between a side chain and a layer two. Does that resonate with you crypto geeks here? I'm not sure.

Yeah, I'm not sure if that analogy applies on such a grand scale. But I think in a more of a microcosm, whatever crypto rules are proposed by the ecosystem and enshrined in the common law infrastructure in Hong Kong will stick for a very, very long time. And it's kind of, I wouldn't want to say semi-permanent, but it takes an equal amount of effort to overturn. And there's no retroactive enforcement, which is super important. There's only retroactive public good. I think really what we're trying to get at is understanding that Hong Kong has meaningfully opened its doors to crypto. The question I have is that is Hong Kong, is Hong Kong, opening his doors to crypto in spite of China or because of it?

That is a great question. So it's very difficult to say how this change came about. But I believe there's a relative amount of bottom-up kind of proposal to say crypto is a place where Hong Kong can have a differentiation and can be competitive internationally. And then there's also kind of a semi, I believe, to be kind of a top-down initiative to say Hong Kong needs to expand beyond its core. financial services offering of equities trading and bond trading. And there's been historically a lot of efforts to expand beyond its core traded kind of arenas. There was an attempt to kind of acquire the London

metal exchange. And there's a lot of experimentation when it comes to green bonds and carbon credit trading. And it's been a lot of new initiatives when it comes to biotech start trading. And I see the set of crypto rules as another set of these kind of expansion of the current remand, midst of the financial ecosystem. SELO is the mobile first EVM-compatible, carbon-negative blockchain built for the real world. And now something big is happening. Introducing the SELO Layer 2. It's a game-changing proposal that's going to bring SELO's rapidly growing ecosystem home to Ethereum.

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Okay, so let's get into it some more. So now we've got our foundation under us. We've talked about the history of Hong Kong and how it came to be, and we've talked about its relationship, with China. And now we want to turn the conversation squarely to crypto and the opportunity here. And it is interesting to get that historical perspective because Hong Kong has long played a role, a very important vital role, as a kind of an economic gateway or an economic interoperability hub between the West and the rest of Asia and notably China.

It's a game to squeeze as many crypto-women. Yeah, it's a bridge. It's a bridge protocol. So, yeah, really, this episode is really appealing to the crypto geeks here right now, which we appreciate you, Bankless Nation. So let's talk about Hong Kong and its relationship with crypto. And I don't have a lot of context for how things have been previously. So let's say, you know, the decade of the 2010s, right? The birth of crypto, the birth of Bitcoin. And then we had Ethereum in 2015. And now here we are in 2023 with these positive headlines about crypto and adoption in Hong Kong, right? And how was it before? So how was it back and say the period of time between 2015 and 2020?

And then how is it now? Give us kind of the before and after, if you will, Sandy. I think personally I discovered Bitcoin around 2013, 2014, when I was working as a researcher at the financial regulator, the SFC here, and then started kind of attending Bitcoin meetups. Sorry, Sandy. What's the SFC? Securities and Futures Commission. Okay. Oh, so it's like the SEC in the U.S.

plus the CFTC combined. Something like that, yes. Okay, got it. So the community was very small, but very vibrant and very active back then. There were miners, there were investors, and there were people kind of building centralized exchanges and brokerages, and it grew and grew from there. And a lot of the companies that are very well known today came out of Hong Kong, predominantly because there is a high density of financial talent pool.

and it's a very international community. Because the market is so small here, it doesn't actually make sense for anyone to focus singularly on the Hong Kong market. And this place is where a lot of people have kind of found their start through trading the Kimtri premium. And then for a while, there was a Chinese Yuan and USD crypto premium. And all of these opportunities gave a lot of the OGs a jump start to quit their jobs and start full time in crypto. Because most people here had some kind of a prior work experience in finance, it was relatively easy for them to come up with innovative ways to structure certain things or build certain type of products for a increasingly kind of savvy user and user base in the greater crypto sense. As we covered before, Hong Kong is a common law system. Even though some of those projects became absolutely massive internationally, there isn't a framework to engage with them or to regulate them. So the financial regulators had a very clear remit, and that didn't include anything that is not deemed as a security. So in order to engage meaningfully with these players that are

continuously emerging out of Hong Kong, Hong Kong had to turn on the lawmaking machine, which takes a very long time. So before scroll, I was working in kind of a blockchain ventures, and one of our portfolio investments back then was one of the first kind of crypto exchanges in Hong Kong. And we use that as a platform to start the conversation for building the first initial virtual asset, like exchange licensing regime. And that culminated to the first set of rules called the VASP licensing regimes that enabled now, I think, three crypto exchanges that are fully licensed and operating. And the interesting thing about the exchange license, you know, a little bit different from the US, where it's still unclear whether something is deemed as a security or not, even within the regulated exchange regime. Hong Kong has designed a catch-all process where whether you're a security or not, it's all regulated under the same regime. So as long as you're a license holder of the vast regime, you can trade, like, you know, it's very clear what you can and cannot trade.

And then the next big opportunity that is coming up is the stable coin. licensing regime that is proposed by the Hong Kong MA, that's the monetary authorities that's been in consultation for a while now. And I think it's reasonable to expect that the consultation will end. And that will be enshrined into law. And then we'll see a number of kind of stable coin projects, issuers coming out of Hong Kong, which will be very exciting. When did Hong Kong first start putting kind of the laws together and the legislation together? What point in the timeline was that? What year? I think the centralized exchange from which we started making these proposals, OSL started making these kind of law proposals back in 2018.

Back in 2018. So it's been a few years in the making. Okay. So I'm getting this picture of Hong Kong basically like many large cities with innovators and entrepreneurs and financially astute individuals. You know, back in the early 2010s, there would be small communities forming, right? around this blockchain, this crypto technology. So you had kind of like Bitcoin communities, of course. And that grew into 2016, 2017, 2018, into sort of like trading shops and financial innovators, right?

And man, I haven't heard the phrase the kimchi premium in a long time, but that takes me back to 2017 for sure when there was this massive premium arbitrage opportunity between crypto assets and Korean currency, South Korea's currency. And a lot of traders probably, a fast, those opportunities in Hong Kong's businesses on them got very experienced with what was going on, saw the potential of this new global financial system that we're building and being international in terms of aperture and outlook. They naturally gravitated towards that. And so that started to begin getting imbued in the Hong Kong's legal code in 2018 or so, right? And so that has continued. So has it been from 2018 until about now? Has it been basically a series of

of regulatory wins for crypto in Hong Kong or have there been some setbacks? Because it seems like lately over the past 12 months or 18 months or so, Hong Kong has seemed to have stepped up and maybe hit their foot on the gas pedal and really accelerated the welcoming atmosphere and adoption and pro-regulatory stance of crypto. And I'm wondering if that's a new thing over the past 12 to 18 months or whether that's always has been present since 2018. From my perspective, there's been a slow crescendo of more and more crypto awareness, and that led to more and more kind of noise when it comes to pro-cryptial policies. The announcement, the formal announcement came late 2022,

where the chief executive, which is kind of like the equivalent of the president in Hong Kong, made an announcement that, you know, Hong Kong's going fully Web 3. And that led to a series of kind of coordinated efforts from multiple entities to jumpstart the ecosystem. I think that comes at stark contrast to, I think, what Brian Armstrong called operational choke point in the U.S. where multiple organizations came together to kind of block various crypto activities, even though Coinbase has been a good actor and trying to seek permission throughout this whole process. But the interesting thing, I think, is that when Hong Kong makes up its mind about a certain direction, it usually makes a very, very concerted and consistent push. And so this is one of those occasions. What do you think the incentives are here, Sandy? It's been interesting, you know, the U.S. kind of zigs this way, and then Hong Kong is kind of zagged the other way, right? The U.S. is choking off its crypto exchanges. Meanwhile, Hong Kong is, like, you know, supporting them and bringing some clear regulation. in Hong Kong. Imagine this. Imagine the U.S. knew the difference between a commodity and a security

with respect to crypto assets. We haven't even reached that level yet, Sandy, level one. And, you know, Hong Kong is there and kind of well beyond it. And I'm wondering if this embrace of crypto, like what do you think is incenting it? Is it because Hong Kong sees the gaping opportunity that maybe jurisdictions like the U.S. are leaving wide open? Are they seeing just in general the potential to be a crypto economic hub, sort of a maybe a Silicon Valley for crypto? Is that the potential here? Is maybe China exerting some influence here in just saying, hey, you know, innovation is great. We will test it out as our beta site in Hong Kong. Or is it local entrepreneurs just saying, look, we want to build businesses here. We want to generate revenue. This is a massive

opportunity. And by the way, let's try to get ahead of Singapore. What do you think the incentives underlying this move actually are, Sandy? I'm guessing. it's a little bit of everything. Partially the opportunity to attract businesses and the affluent crypto nomads community is a very attractive proposition. Hong Kong has made many efforts to become a tech hub, just like, you know, it's not unique. Lots of places have tried to become the Silicon Valley and with not much success. But Hong Kong genuinely believes there's a right to win in crypto because it's more finance-related than just like a pure tech play. And also, part of the backdrop is also that trading volume in Hong Kong Stock Exchange has been slowly in decline. So there's more of a

kind of a push, and that's kind of a catalyst to find new growth areas. I'd like to actually explore some of the more specific legislation that is either passed or being discussed in Hong Kong. I mean, if I'm just going to shoot from the hip, I'm guessing there's some. relationship with stable coins, the banking of crypto companies. What's some of the big examples of legislation that is being discussed or has perhaps already passed in Hong Kong? So the vast license regime has already passed in Hong Kong. That's an initiative owned by the SFC under which virtual asset exchanges can trade a number of digital assets, including obviously Bitcoin, Ethereum, so on and so forth. The second one that's been in consultation

for a while, it will come out officially, I believe, very soon is the stable coin regime. And then the next one that's coming up is the digital asset or STO regime that will come out of the SFC. And there's probably a few more that are less than consultation ready, but in the pipelines. STO, what's the STO? That is security token offering. Oh, okay, wow. Throwback to 2018. Okay, so we're doing tokenized securities in Hong Kong.

It doesn't just include tokenized securities. I think it's more of a catch-all for any real-world assets. and any kind of none like crypto-native assets would fall into this wider bracket. Okay. And then the stablecoin legislation, can you just kind of dive into the details and nuances around that? Like, is there anything significant to parse out there? The interesting backdrop is that, you know, the Hong Kong dollar is pegged to the US dollars. So it's a de facto kind of USD stable coin and it will most likely come in the form of Hong Kong dollars, probably US dollars and a few other type of dollars. So it's clear.

Kind of like a USD stable coin, but perhaps with a little bit more flexibility because the MA also owns and manages a basket of different currencies. Whether there's going to be anything more innovative, I think, you know, it's yet to be seen. But on the outset, we can expect to see something that's very similar to like a circle type of issuer emerging from Hong Kong. That's so fascinating, right? Because the Hong Kong dollar, right, is like an original trad-fi stable coin. It's just pegged one-to-one with the US dollar. Is that right? Yeah. Very interesting. So Hong Kong has already been... Not one to one. One to seven.

One to seven, excuse me. Yes, one to seven, but it's still kind of pegged and floats with the value of the US dollar then. So Hong Kong leagues ahead of maintaining a good peg to the dollar, it sounds like... Many years of practice. Yeah, many years of practice. I'm wondering, Sandy, if, because you are not just in Hong Kong, obviously, and scroll is all over the place. You see many different jurisdictions across the world. including Europe, and of course you've recently been to the U.S. and it was great to see you at Permissionless once again. How would you rate Hong Kong in terms of its degree of crypto-friendlyness compared to, say, Europe, which has, you know, some legislation moving forward like Mika and things like this, and also compared to the U.S. or Japan or any other jurisdictions? How does Hong Kong situate it?

Is it near the top, would you say, of crypto-friendly jurisdictions? Does it still have more work to do? What's your overall take on that? So the way I look at this is that there will be a number of crypto-friendly and crypto-forward jurisdictions. What matters is not just the level of crypto-forwardness, but also the sophistication of the financial system and the service around surrounding it, the talent pool, and also the robustness of financial regulation. So the clarity of which matters. a lot of jurisdictions will experiment with a policy level crypto initiative. So if it's at the policy level, then it's slightly less permanent and it's harder to interpret. So having something

that's easy to interpret, super clear and well set out is something that is encouraging for builders. For anyone that's building fundamental technology, core like blockchain technology, that is not regulated under any of the financial regulators remit in Hong Kong and is highly encouraged. But I imagine it's probably a similar situation in Japan, Dubai, Singapore, so on and so forth. And Mika actually offers quite a lot of clarity that it's just a very strict regime. Sandy, you're a long-time resident of Hong Kong. You chose to build scroll there as well. Maybe you can give the pitch for all the crypto nomads of the world who haven't found a home that they want to call home yet. Why Hong Kong? Why should they consider Hong Kong? Yeah, I mean,

I actually chose to live in Hong Kong. I moved here 10 years ago. And the reason I wanted to move here was because it's a cosmopolitan city. It's very liberal. It is easy to live in. Most people here are very polite, very sophisticated. And from my perspective, it also had the highest percentage of women in active office and professional life. So whatever the reason for that is, I wanted to be in somewhere where the odds are more in my favor. And just with residents to crypto culture, we had some adjectives in the beginning introducing Hong Kong. It's a very dense city, a lot of high net worth individuals, a lot of economic freedom, a city on the margins, kind of pushing the frontier a little bit. Just why do you think what aspects of Hong Kong does resonate so much with crypto people?

I think it's exciting. It's spicy. it's cosmopolitan. You know, it's a city that never sleeps, but also it's got great infrastructure and it's very safe. So, you know, high level of security, just like Ethereum, a very diverse community. The crypto analogs just keep coming. So, you know, bankless listeners, no, we're not going to stop. Sandy, I have another question for you. So so far when we've talked about Hong Kong's regulatory friendliness. We've talked about kind of like maybe what I'll call level one regulatory friendliness, which we actually don't have in the U.S. and it'd be great to have. But I consider kind of level one regulatory friendliness kind of the, I guess the legitimacy and the recognition

of crypto in kind of Tratify in the banking sector, right? So it's basically, it's stuff like securities, digital asset frameworks, it's stuff like in the U.S. getting an ETF approved, for instance. It's, you know, maybe in initial securities offering, it's that kind of level, right? But there is another level that is very important for crypto in our movement. And I know scroll believes this as well, because you guys are building a decentralized layer two. And that is defy. That is preservation of censorship resistance. That is preservation of permissionlessness, right? The ability to like a spin up an asset without asking any regulatory kind of authority. And I'm worried for the U.S. that I think we will get to level one. I think there

will be roadblocks. It'll take some time. But I think we will get to level one in that this will be fully entrenched into kind of the banking sector. And we'll get our ETFs and we'll understand the difference between a crypto security and a crypto commodity. And, you know, banks and others will be able to issue tokenize securities. That might take some time, but I think we'll get there. For the U.S., I'm a little bit worried about, you know, level two, which is, will they let us have our defy? All right? Will they let us preserve a censorship-resistant permissionless system? Or will they try to make it a banker-run type system with a whole bunch of centralized intermediaries and authorities in the middle and kind of like basically create a Wall Street 2.0?

So I'm worried about that second level here. And so far, we've talked about just the first level with respect to Hong Kong. right? That's great. Those are great steps. My question to you is, are you optimistic? Do you think that Hong Kong will allow that second level? Defi, you know, decentralization, people's ability to run their own validators, censorship resistance, anonymous transactions. What's your take on that? Yeah, that's a great question, Ryan. I think the jury is still out on that one. I think the attention is still very much on centralized exchanges and stable coins at that level. And I think I think research and attention will be diverted to Defi soon in the future.

But right now, there isn't a very clear stance on the level two stuff that you just talked about. Do you have hope that Hong Kong will get to level two? Or are you equally worried? Because I'm worried. I'm living in the U.S. I'm like, well, this is going to be a battle. This is going to be a fight. Do you feel the same way about defy in Hong Kong?

I think the jury is still out. So I want to ask, understanding that Hong Kong is kind of, like what Ryan was saying earlier, a little like zone of experimentation before mainland China adopts stuff that happens in Hong Kong. If the future of the world does involve a Chinese friendly relationship with the crypto world, would we see what we are seeing in Hong Kong today where Hong Kong is pushing forward crypto and being friendly to crypto? Like what I'm saying is like crypto must be adopted in Hong Kong first before being adopted in China. So with the universe that we are currently saying that's playing out is Hong Kong is like, yeah, crypto, come on in, let's do this. That's kind of a necessary prerequisite for China to

ultimately have that same kind of stance. Is that a fair take? Yeah, I think that's a fair assumption. I think it's a necessary first step, but whether it will lead to a second step, that's a slightly different matter, somewhat depends on the success of the industry, and whether bad actors can be believed to be sufficiently eliminated, and it also depends on the confidence level of the ability to regulate such sector. So, but you would say, Sandy, that crypto adoption and friendliness in Hong Kong bodes well. It's certainly not negative. It bodes well.

It's a good thing for the prospect of more widespread crypto adoption in mainland China. Would you say that's the case? I think it's definitely possible that I will lead to that. I think one thing that I generally tend to assume is that the mainland is generally very tech-savvy and very tech forward. It has a very sophisticated payment ecosystem, and it is leading in a lot of consumer-facing financial debt constructions. Where it is slightly conservative is where consumer, particularly retail consumer, is concerned, and where, you know, fraudulent behavior or scams cannot be sufficiently monitored or regulated. And crypto does innately pose some

of these challenges. You know, once we get to a level where rec tech or like on-chain kind of, you know, management of such things that protects retail investors, all of these kind of prerequisites can be somewhat satisfied to a level of confidence. And if it is believed that crypto can really kind of enable real-world use cases, then I think anything is possible. Sandy, this has been absolutely fantastic. I think you've taken us from something close to zero all the way to a nine or a 10 on our level of understanding of Hong Kong, everything that's going on there with respect to crypto. I'm wondering besides Scroll, which of course is located in Hong Kong, if you could shout out some crypto projects in Hong Kong.

More than happy to shout out crypto projects in Hong Kong. Let's do it. Scroll is technically decentralized. Ah, very good. Its location is on the internet, just like Ethereum. It's on the internet of Scroll team members span probably about 30 different cities around the world and covers all time zones and so that we can have this level of in-depth local knowledge everywhere in the world. So that is the goal. And I think being decentralized and spread out is also healthy for the robustness of the ecosystem. Oh yeah. I think we need to span all jurisdictions at this point in time. But yeah, shout out some Hong Kong crypto projects.

Yeah, there are lots of great crypto projects in Hong Kong. I'll give a shout out to Alamoka, Mimland, Kinnetic, VSFC, and CMCC, OSL, Hachkey, Newman Group, probably quite a lot of very good actors in this space. Is there like a theme of projects that are in Hong Kong? Does Hong Kong wait towards any part of the crypto world more than others? I think probably because of the contribution of Anamoka, there's quite a lot of NFT projects in Hong Kong. And I think a lot of crypto exchanges initially came out of Hong Kong,

so there's a lot of them. and trading shopping. Sandy, thank you so much. This has been an absolute pleasure. I really appreciate you coming on and telling us all about crypto in Hong Kong. Yeah, thanks for having me. Thank you. Bankless Nation, that's the end of this episode, but it's not the end of the conversation. David and I are about to record our debrief episode where we unpack the conversation we just had with Sandy about Hong Kong. So if you'd like the perspective of too dumb Americans, then stay tuned for that. If you're a bankless citizen, you already have access to that in your

premium podcast feed, and that includes bonus episodes. Of course, and no ads. If you haven't activated that, you can go to bankless.com and activate your premium RSS feed. And of course, if you're not a bankless citizen, there's always a link in the show notes. So you can upgrade and get all the perks that come with joining the bankless nation. Got to end with risk and disclaimers. Of course, crypto is risky. You could lose what you put in. But we are headed west. This is the frontier. It's not for everyone. But we're glad you're with us on the bankless journey. Thanks a lot.