Exclusive Interview with Qiu Dagen Advocate of the ‘Three Arrows Three Circles’ Initiative Interprets the Latest Policies in the Hong Kong Virtual Asset Industry

Qiu Dagen, advocate of 'Three Arrows Three Circles' initiative, interprets latest Hong Kong virtual asset industry policies

Foresight News reporters interviewed Hong Kong Legislative Council member Charles Mok at the “2023 9th Global Blockchain Summit” hosted by Wanchain, exploring the new developments and policies in Hong Kong’s encryption industry.

Interviewer: Zhou Zhou

Organizer: angelilu

• Lawyer interprets CSRC’s warning to JPEX Transition period does not mean no regulation, all exchanges must comply with new regulations.
• New cryptocurrency travel regulations take effect in the UK, comparing the similarities and differences in travel regulations among countries.
• Hong Kong proposes four innovative policies to promote economic development in the Web3 era.

Since the release of the “Policy Declaration on the Development of Virtual Assets in Hong Kong” in October last year, Hong Kong has taken a series of measures to promote the stable development of the virtual asset industry. Recently, Hong Kong has made new important progress in areas such as Cyberport Dollars, digital stablecoins, and asset tokenization. This is inseparable from the support of academia, the business community, and politicians. Wu Jiezhuang, Charles Mok, and Wong Kam-hing are three important legislators driving new crypto policies in Hong Kong.

For this reason, Foresight News interviewed Charles Mok during the Wanchain Blockchain Week in Shanghai. It is reported that Charles Mok is a member of the Hong Kong Legislative Council (Technology and Innovation sector). He flew from the TOKEN2049 Summit in Singapore to Shanghai to participate in the event and accepted interviews from Foresight News and LianGuaiNews. The following is the full text of the interview.

Foresight News: Why are you personally interested in Web3 and its integration with Hong Kong?

Charles Mok: I am an investor myself and have been involved in venture capital. As early as 2012 and 2013, I was also interested in virtual currencies. If it’s just virtual currencies, it feels like a relatively single market. But from the recent development trend, the development of Web3 is not just about virtual currencies. It can be based on blockchain to promote all financial products, personal data, and new directions on the future Internet. I think this breadth is sufficient to attract different investors.

The current development of Web3 is somewhat similar to the early days of the Internet in 2002 and 2003, just coming out of the bubble period. The Internet went through a bubble in 2000 and slowly improved its infrastructure during the severe winter. Many large and high-quality companies emerged after the bubble burst, such as Amazon and Alibaba. Web3 is the same. We want to do many things but find that the infrastructure is not ready yet. Many people are quietly building the underlying infrastructure, and generally, technology does not take one or two years or even two or three years to complete. It may take 10 or 20 years, just like AI. In Web3, the real winners may not be visible for 5 or 10 years.

Foresight News: You proposed the “Three Arrows, Three Circles” policy recommendations to the Hong Kong government. How was this proposal made, and why is it called “Three Arrows, Three Circles”?

Charles Mok: The “Three Circles” is about Web3. The first circle is the government’s attempt to issue its own currency, such as tokenizing some land; the second circle is to accelerate the introduction of retail-level Cyberport Dollars; the third circle is to promote the development of Hong Kong dollar stablecoins, suggesting that they should be issued by the commercial market.

The Three Arrows project is actually a support for the overall economic development of Hong Kong, and it is not completely related to Web3. The “Three Arrows” refers to stimulating the investment environment in Hong Kong from three levels. The first arrow is to establish a parent fund to attract venture capital institutions that invest in early-stage projects to Hong Kong and invest in more early-stage projects. The second arrow is to attract enterprises with development potential to Hong Kong through investment. The third arrow is to propose reforms in the stock market, including lowering stamp duty and establishing secondary market matching funds.

Foresight News: The Xintian Technology City is becoming the sub-center of Hong Kong. You proposed to support the Xintian Technology City by issuing tokens. How do tokens solve the problems of the Xintian Technology City?

Qiu Dagen: “Southern Finance and Northern Creative Technology” – In terms of development, Hong Kong is mainly focused on creative technology in the northern region. The Xintian Technology City is the main hub for technology in the northern region. However, the development of the Xintian Technology City will be later than the Hetao District near Shenzhen. Xintian still has a lot of land to be reclaimed.

In terms of land reclamation, my proposal to the government is to use asset-backed tokens (ABT) as compensation for land acquisition. In fact, many villages in private land have the entire collective as the landowner. The village council represents the villagers in deciding how to use the land after reclamation. Each villager can vote according to the amount of land they own. In fact, this decision-making process is very similar to a DAO, and using tokens for reclamation is very consistent with the original decision-making structure of these villages.

The first benefit of tokenization is better management. For example, many of these villages are aging, and most people are not in Hong Kong. Their second and third generations may not be able to manage the land well in the UK, Europe, and Australia. After tokenization, the government can use tokens to guarantee your land ownership, which is equivalent to operating with a DAO method, which is a better management method.

Secondly, for example, if the government’s own land is to be used for technology purposes in the future, using the existing method would require public auction, and only local property developers in Hong Kong can participate. But if a portion of the land is tokenized, it can allow more people from around the world to participate, reduce transaction costs, and no longer need to hold auctions.

If the government is willing to use a small piece of land as asset-backed tokens (ABTs), it will be an experiment in financial innovation after exchanges. It also opens up a source of funds for land development for the government.

Foresight News: As an investor, on which platforms can I hold such tokens? Can they be traded on existing virtual asset exchanges?

Qiu Dagen: In fact, which platform they can be traded on, whether professional investors or retail investors can trade them freely, all these questions need to be discussed. The key is whether the government is willing to take the lead and tokenize a piece of land. If the government does so, it can bring confidence to the world. Many people holding assets in Hong Kong can also come up with different tokenization solutions, thereby developing more diverse and stable financial products derived from tokens in Hong Kong. If the exchange only trades virtual assets, it cannot fully leverage the characteristics of the Hong Kong exchange. If the tokenization of land in Hong Kong is successful, land assets from mainland China or even overseas may be able to raise funds on the Hong Kong exchange in the future. Land, after verifying ownership, will not have as much volatility as virtual assets after tokenization, and it will be a new global fundraising method.

Of course, tokenized assets of land are likely to be traded on existing virtual asset exchanges, but there will also be different channels, such as traditional securities firms, online stock trading platforms, etc., of course, they also need to apply for licenses.

Foresight News: What benefits do you think the Hong Kong dollar stablecoin will bring to Hong Kong, Hong Kong companies and institutions, and the Hong Kong people?

Qiu Dagen: I think stablecoins are very important. Firstly, stablecoins are an intermediate currency that connects us with digital assets. Stablecoins are constantly breaking into our real life. For example, stablecoins are now doing some targeted international trade, such as combining with internet products like Grab.

Secondly, for some commercial institutions in Hong Kong, such as banks, if they participate in stablecoins, they can also profit from these products. The specifics depend on how stablecoins are implemented.

Thirdly, the public and investors do not like to keep their money in one basket. USD-pegged stablecoins such as USDC and USDT are tied to the US dollar. If the US dollar itself is unstable, it will cause significant losses to investors. Hong Kong dollar stablecoins can be an option for risk diversification.

Foresight News: I saw that you also went to TOKEN2049 in Singapore this time. How do you view the efficiency of Singapore’s promotion of the integration of large institutions and cryptocurrencies, and what aspects do you think Hong Kong should learn from?

Qiu Dagen: Indeed, Singapore has been ahead of us in this area in recent years, whether it is in terms of regulations or supervision. Singapore has also proposed stablecoin solutions earlier than us recently. However, at the just-concluded TOKEN2049, it seems that the government’s participation was not high. Events with the word “crypto” were completely prohibited from promoting in Singapore, and the government did not participate in any way.

I think Singapore is still promoting digital assets, including cryptocurrencies, but in a more conservative manner, completely moving towards compliance. Hong Kong will definitely have more cooperation or learning in this field with Singapore. Both are international financial centers, and neither can slow down in promoting the next round of financial innovation.

The signal Hong Kong is sending to everyone is an absolute promotion of normalized development, normalized financial innovation. With the regulations in Hong Kong, there are already some licensed exchanges, and there will be different financial products launched in the future, allowing everyone to see that Hong Kong has licensed exchanges and compliant products.

LianGuaiNews Reporter: Some people have questioned Hong Kong’s policies, and Vitalik believes that the sustainability of Hong Kong’s policies is not as good as Singapore’s. What challenges do you think Hong Kong still faces in promoting Web3?

Qiu Dagen: Just returned from Singapore, I think Singapore is more focused on payments. The PSA license in Singapore is mainly used for payments, but the buying and selling of virtual assets by citizens is strictly regulated. For institutions, the buying and selling of virtual assets are relatively more relaxed, as long as KYC is done. In terms of individuals, Singapore’s policies are not more open than ours.

In terms of overall planning, Hong Kong may be a bit slower than Singapore, but the policy direction is different. Recently, Hong Kong has caught up with some aspects of banking account opening. We are catching up in terms of legislation, etc., so there is a difference of one or two years. Moreover, Singapore is slowing down while we are advancing. In my understanding, Hong Kong and Singapore have similar ideas, which is to provide a compliant and reliable market in financial innovation.

LianGuaiNews Reporter: Regarding the recent JPEX incident, were there any regulations on the operation of cryptocurrency exchanges in Hong Kong before obtaining a license?

Qiu Dagen: Before the relevant laws were implemented on June 1, we did not say that you could not operate a cryptocurrency exchange. But after June 1, if you have not applied for a license, you cannot operate a cryptocurrency exchange. However, if you have applied for a license, you can theoretically operate until the government announces whether to grant the license in March next year. There is a gray area in this regard.

For about three months from June 1 until now, I have been communicating with some government departments, suggesting that they publicly disclose who has applied and who has not. But currently, they can only disclose those who have obtained the license, because the final result is uncertain. So I suggest speeding up the approval process. If there are exchanges that have submitted applications but obviously cannot obtain the license, the government should notify them as soon as possible to reduce the time in the gray area of the market.

During the sales process of JPEX, we have received many complaints, so it is highly likely that it is a pyramid scheme or an illegally operated company. But the problem is, without victims reporting to the police, even if the government suspects it, they cannot actively prohibit its operation. Therefore, when victims appear and it is determined from the evidence in the report that it is highly likely a pyramid scheme or fraud, the government can then prohibit it.

This situation does exist now, so the government needs to shorten the licensing process as soon as possible. Originally, these few months were meant to give operators time to prove the feasibility of their business, but now some people are taking advantage of this time to do bad things. The JPEX incident has also provided investor education to the public, that they should only trust exchanges with licenses. The government should support licensed or legitimate operators to develop in Hong Kong and cooperate with Hong Kong regulatory agencies to develop new financial products.

Foresight News: Comparatively, are the strictness requirements for licenses different among countries?

Qiu Dagen: Every newly issued license starts with strict requirements and then becomes more relaxed. When new licenses are introduced, there will definitely be more regulations. In the past, Hong Kong’s different licenses also gradually relaxed as the safety level improved. The same goes for exchanges. For example, Hashkey took a long time at the beginning, but later exchanges will learn from its experience and become faster. Stablecoins are also the same, the first one will take relatively longer.

LianGuaiNews Reporter: Do you suggest setting up a sandbox environment for stablecoins? Do you think there may be some risks in the development of stablecoins?

Qiu Dagen: No, the reason for the sandbox is to speed up the process. If we follow the legislative procedure, it may take until the second half of next year for the legislative council to discuss it. Even if it is launched after that, it still needs to go through a batch of audits, which may delay it until the following year. The only reason for the sandbox is to allow some products to be tested more quickly.

Foresight News: When will the government be able to truly launch a stablecoin? From academia to the business community and then to the political arena, how does everyone’s call affect the government?

Qiu Dagen: Launching a stablecoin requires the government to complete the legal framework and then go through the first legislative council. So we can’t control when it will be submitted to the legislative council, it is controlled by the government’s timetable. We estimate that it will be submitted to the legislative council in the first or second quarter of next year. Generally speaking, the legislative council also needs to discuss it. We hope to provide some useful suggestions to the legislative council without affecting its original intention. Therefore, we propose to launch a sandbox to make them understand it more clearly and promote it faster.

LianGuaiNews Reporter: You mentioned Hong Kong dollar stablecoins just now. Will Hong Kong also regulate companies that issue USD stablecoins?

Qiu Dagen: I think companies that are willing to issue USD stablecoins in Hong Kong must be regulated by Hong Kong, whether you issue Hong Kong dollars, US dollars, or RMB, as long as what you issue complies with Hong Kong’s regulatory requirements, it can be traded in Hong Kong.

LianGuaiNews Reporter: Will it have the same policy as Hong Kong dollar stablecoins?

Qiu Dagen: It depends on the final document. My understanding is that the same policy can be used, but the focus is on the collateral assets.

Foresight News: “Three arrows and three circles” are all about infrastructure, and there is no mention of policies regarding application layer technologies like NFTs?

Qiu Dagen: Basically, we don’t care about NFTs in Hong Kong unless they have the characteristics of currency. As long as they are not securities and do not have the characteristics of currency, we don’t care. We shouldn’t interfere too much with the development of technology. What we need to regulate is anything related to money, investment, and things that citizens can buy to ensure their safety.

In Hong Kong, we basically don’t care about NFTs unless they have the characteristics of currency. As long as they are not securities and do not have the characteristics of currency, we don’t care. We shouldn’t interfere too much with the development of technology. What we need to regulate is anything related to money, investment, and things that citizens can buy to ensure their safety.

Foresight News: So Hong Kong has classified the cryptocurrency industry as part of the financial industry, right?

Qiu Dagen: The encryption industry covers a lot, involving technical aspects such as zk and Layer2. How to analyze, improve, and enhance security in these areas does not necessarily require legal guidance. The law is just a security measure, and legislation must be related to people’s livelihoods and investments. If legislation is not enacted early, the industry will become chaotic.

Foresight News: Have you considered any interesting crypto cases in other regions that can be used for reference?

Qiu Dagen: The situation in the United States is actually changing every day. The attitude of the United States towards the entire industry varies between the two parties, making it difficult to speculate. Therefore, the current benchmark is still Singapore, where we have things to learn. However, the development paths of Singapore and Hong Kong are not exactly the same. Singapore focuses more on payments, while Hong Kong is currently more focused on exchanges and financial products, which is a slightly different perspective.

Foresight News: The four major banks in Singapore all have their own Web3 departments. What is the current situation with Hong Kong banks?

Qiu Dagen: The major banks in Hong Kong definitely have them, but it’s uncertain for smaller banks. Currently, many sectors, including the financial industry, legal profession, and even the political realm, have limited understanding of Crypto and Web3. Those who participate in Web3 activities are more knowledgeable in this field, but it’s not the same in traditional sectors.

Foresight News: It seems that Hong Kong is currently lacking talent in the field of Web3?

Qiu Dagen: Hong Kong lacks talent in general, and we are all competing for talent in the technology field. As for Web3, in a short period of time, many companies have settled in Cyberport, and they are all technology-oriented. Many of them are teams that work on underlying technologies. Although not all of them have moved here, at least some people are in Hong Kong.

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