The era of Web3 Compliance has arrived, and exchanges are facing new opportunities and challenges.

Recently, a series of actions in the Web3 field by Hong Kong have greatly encouraged the industry. It is reported that the Hong Kong Securities and Futures Commission has received more than 80 substantial operation reports, and it is expected that ultimately over 130 virtual asset exchanges will apply for licenses. Although Hong Kong's Compliance policies are relatively lagging, many still have high hopes for Hong Kong's potential as an international financial center in the Web3 field. Exchanges that choose to establish themselves in Hong Kong are not only focused on the Web3 track but also on a broader financial landscape.

Limitations of Cryptocurrency Trading Models

Currently, there are mainly two modes of cryptocurrency exchange:

1. Exchange order book trading: Users must deposit assets into the exchange and trade at the order book price. The advantages are quick transactions and the ability to trade large quantities of standardized products; the disadvantage is that users lack bargaining power.

2. Social group inquiry trading: Users can transfer assets after deciding to trade, but there are risks of fraud and default.

Industry insiders point out that the cryptocurrency trading field lacks a "over-the-counter trading platform" similar to that in traditional finance. Considering the rapid development of the Web3 world, it is clearly insufficient to rely solely on the exchange order book model; it is also necessary to introduce an All To All inquiry trading model or replace insecure social group trading with a trustless method.

Challenges Facing Web3 Financial Layout

Under the promotion of compliance policies in Hong Kong, many traditional financial institutions and practitioners are preparing to lay out Web3 finance, but this is not an easy task. The main challenges include:

1. Traditional finance has insufficient understanding of virtual assets and needs time to learn and adapt.
2. The return on investment in Web3 finance is still unclear and there is uncertainty.

In the face of these challenges, some Web3 exchanges are applying for VASP licenses and other related licenses in Hong Kong, hoping to achieve synergy with traditional financial clients.

CeFi may become a bridge for Web2 users to enter Web3

For traditional financial investors in Hong Kong, the threshold for DeFi is relatively high. In contrast, CeFi (centralized finance) is more in line with the usage habits of these clients, has a lower threshold, and is easier to get started.

However, it is not easy to operate a compliant CeFi in Hong Kong. Regulatory requirements mandate that exchanges self-custody customer assets and not use third-party custody services. This places high demands on the exchange's technical capabilities, understanding of financial products, compliance awareness, and asset security management skills.

Nevertheless, some exchanges aspiring to this are considering leveraging Hong Kong's compliance policies to create a Web3 entry path that "first attracts users through CeFi, and then helps them understand DeFi through comprehensive user education." Regardless of the method used to attract users into Web3, user education is an indispensable part.

The Dilemmas and Prospects of Web3 Builders

The Web3 industry is currently facing a contradiction: projects that can make money in the short term often do not align with the goals of long-term builders. Those who are truly working hard for the development of the industry may find it difficult to gain returns in the short term, while some speculative projects can instead profit quickly. Resolving this contradiction requires the support of long-term capital, rather than short-term profit-seeking speculative funds.

Although the overall atmosphere of the current Web3 industry is relatively pessimistic, some infrastructure projects still demonstrate the potential to change the industry and impact the world. However, without the support of large capital, these projects may struggle to succeed on their own. In this situation, the phenomenon of bad money driving out good money may occur.

Against the backdrop of global interest rate hikes, traditional capital's interest in the Web3 industry has weakened, and the industry is facing the challenge of insufficient liquidity. Solving this problem requires the introduction of new liquidity, which tests the selection ability of projects and teams in the next round of narratives.

Despite facing numerous challenges, Hong Kong, as an important window for China to enter the global financial system, still has broad development prospects in the Web3 field. Digital currency may become a breakthrough point, and if the Hong Kong government can adhere to its original plans, it will create favorable conditions for the industry's development. The professionalism, diligence, and enterprising spirit of Hong Kong market participants, coupled with government policy support, are expected to drive Hong Kong to achieve significant breakthroughs in the Web3 field and contribute to financial innovation.