Author: Meng Yan, reprinted from the official account: Meng Yan's Blockchain Thoughts
When I visited Hong Kong in early August of this year, the popularity of stablecoins and RWAs in Hong Kong was at its peak. I described the situation in a previous article like this:
"With the passage of stablecoin legislation in both the US and Hong Kong, and the resulting surge in stock and cryptocurrency markets, everyone in Hong Kong is buzzing about stablecoins and RWAs. Every dinner table is filled with discussions about the latest market trends and rumors. Traditional financial giants are actively engaging with crypto opportunities, and a large number of traditional internet and AI entrepreneurs are flocking to Hong Kong seeking ways to integrate with Web3. Many forward-thinking entrepreneurs from traditional industries are also starting to pay attention to crypto. Even our discussions about stablecoins and RWAs in the hotel lobby would draw curious inquiries and conversations. I don't think I've experienced this kind of excitement since 2018. Before coming to Hong Kong, I assumed the global center of crypto was New York. But a Wall Street banker I know, who had just arrived from New York, told me that Hong Kong's crypto enthusiasm far surpasses New York's. So, if we were to rank cryptocurrencies by popularity, Hong Kong is definitely number one right now."
Less than two months have passed, and mixed signals are coming from Hong Kong. On the one hand, the Hong Kong government recently stated in a major comprehensive report that it will promote the development of stablecoins and tokenized assets, suggesting no substantive changes to Hong Kong's crypto policy. On the other hand, media reports and rumors have confirmed that mainland regulators have made a significant shift in their policy regarding mainland Chinese financial institutions participating in RWA business in Hong Kong, impacting Hong Kong and raising concerns about the future of the Hong Kong crypto industry. It's said that crypto enthusiasm in Hong Kong has plummeted, so much so that the above paragraph now reads with a sense of vicissitudes, reminiscent of the "remembering the prosperous Kaiyuan era, when even small towns housed thousands of households." I'm grateful that my trip to the United States delayed a planned analysis; otherwise, reading it now would have been somewhat awkward.
This isn't the first time. Speculating when Hong Kong's crypto policy will "make a big move" is a perennial hot topic of discussion within the Chinese crypto community. And the repeated sighs and lamentations over regulatory hesitation, like Li Guyi's "Unforgettable Tonight" during the CCTV Spring Festival Gala, are the closing theme of every round of discussion.
There's no doubt that conflicting signals indicate the inherent complexity of the situation, and that policy reversals indicate the complexities facing decision-makers. Therefore, at this moment, we must first assess what regulators will do and then decide what we will do ourselves.
Regarding the first question, my judgment is this: regulators will allow Hong Kong to fully participate in the US-led blockchain digital economy within the limits of local resources, but will strictly limit mainland individuals and companies from deeply participating in it.
Present the facts and reason with the world. The current situation is this: the application prospects of blockchain technology are clear, but its political and economic consequences are still uncertain.
With the US showing its hand, blockchain's application scenarios have become clear. If someone continues to ask you dismissively, "What else is blockchain good for besides cryptocurrency trading?" Then throw this answer in their face: The blockchain will build the largest and most efficient resource allocation network ever. Within twenty years, people will be able to buy and sell any asset at any time and anywhere using digital currency. Capital, future cash flows, control rights, data rights, AI computing power, robot command rights, energy, and all digitizable items will flow globally in seconds. Any regulatory rules, capital controls, and market barriers not yet integrated into smart contracts will become as ineffective and precarious as the isolationist and maritime prohibition policies of the 19th century. In short, blockchain is the WTO of the digital economy.
Such an efficient resource allocation network can push market efficiency to its limits. However, market efficiency means "everyone gets what they deserve." In an ideal world, this is good news for most people. However, in the real world, allocating resources to whom, for what purpose, is far more than a simple economic issue. In particular, this digital economy's grand voyage is not taking place during the "Great Reconciliation" of Thomas Friedman's "The World Is Flat," but rather during a period that the American political commentary magazine The New Republic has described as reminiscent of the eve of World War I. Therefore, it is destined to be more than a simple, inclusive financial technology advancement; it will inevitably be repeatedly weighed on the scales of success or failure by everyone.
The importance of victory or defeat cannot be overstated. Unless this resource allocation network fails to materialize, the rise and fall of an individual, a company, or a country over the next few decades will be largely determined by their position within it. Just as an individual's power and wealth depend primarily on their position within social networks, rather than their individual intelligence or physical strength, an economy's power and wealth in the digital economy will depend primarily on its position within the blockchain economic network, rather than its own productivity. As a technology, blockchain aims to create a new digital economic order. Order is also a product, and the most important of all products. Therefore, my view differs from that of most people: an economy's position in the future digital economic order is more important than its AI computing power.
However, it's difficult to predict one's place in the blockchain order. The market offers no promises to anyone other than the rule-makers. Joining the network can make you a winner or a loser.
This uncertainty can be particularly daunting for an economy’s decision-makers. I try to program this daunting dilemma into a set of nested “if-else” logic:
If I can lead the blockchain economy as a rule maker,
Join in and lead.
Otherwise, if I can get acceptable results then
Join and participate.
Otherwise, if I can be a winner without joining, or at least not become a loser, then
If we don’t join, we will be closed off to the outside world and our seas will be closed, leading to glorious isolation.
Otherwise, if I could start anew as a rule maker,
Don't join and start anew.
Otherwise, it means that if you don't join, you will definitely lose, and there will be no chance to start a new business.
Join and deal with it for a long time.
Using this logic, it's easy to understand the Trump administration's aggressive blockchain policy. The US simply answered "yes" to the first branch of judgment. Its primary strategy isn't simply to participate, but to lead and set the rules.
Most other economies around the world are probably still calculating the pros and cons, or perhaps just waiting and watching. Perhaps this won't happen? Perhaps the next US administration will turn the tables? Perhaps we can wait and see for a few more years.
This idea is very dangerous because the United States is running at full speed.
Following the passage of the US stablecoin bill in July, the baton has now passed to the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC). These two agencies are moving even faster than even the most optimistic expectations. They plan to rapidly move all US-listed stocks and bonds onto blockchains and to introduce a new regulatory framework that significantly relaxes digital asset trading by the end of the year. This means that by next year, hundreds of millions of "digital nomads" around the world will be able to use stablecoins to purchase equity and debt in US companies, protected by the US regulatory system. Once the US becomes the sole "regular force" in this network, it will be like a bear entering a apiary, pushing its maw through every digital barrier to slurp up the world's digital honey. Blockchain will pump money, data, computing power, and power into the US government and businesses around the clock. Having tasted the sweetness, the US will never look back.
There is little time left for hesitation.
Of all the "other" economies, China is the most unique. In terms of strength, China is the only economy with a chance to compete with the United States for dominance in the blockchain digital economy. While the optimal timing has passed, that doesn't mean it can't catch up. China has successful experience in this area. The problem now is that understanding of this emerging new economic network is still very limited, and it's difficult to come up with an effective strategy like it did when it joined the WTO.
Hong Kong plays the role of a testing ground. It must participate in the game, explore new paths, and cultivate talent, while also preventing the expansion of experiments and prematurely introducing risks and uncertainties into the mainland.
This logic is consistent with the current attitude of Hong Kong regulators. If my guess is correct, this regulatory approach will remain stable for some time to come.
For overseas Chinese blockchain practitioners, this means there's room for participation, but operational boundaries. While participating in the US-led blockchain economy from Hong Kong is unproblematic, purely on-chain DeFi businesses are particularly poised to become a highly contested market. However, mainland China-sourced funds and assets must be repeatedly scrutinized to ensure compliance. This is especially true for the recent surge in the RWA (Real-Warehouse) model of mainland assets, which represents a high-risk operation and warrants extreme caution.
From an individual perspective, now is a window of opportunity for the entire industry to restructure, restructure, and revitalize. We must not let ambiguity in local regulations hold us back and miss this opportunity. I believe that despite the policy fluctuations in Hong Kong, there is ample room for improvement. This is especially true for DeFi, which can achieve significant success by fully leveraging the tolerant window of the US regulatory framework.
