Dialogue with OSL Hu Zhenbang: RWA is the frontier field of Web3, and the probability of stable Hong Kong dollar is not high

Source: Interface News

In 2019, the Hong Kong-listed company “Brand China” chose to change its name to “BC Technology” and fully entered the field of digital assets and blockchain. On December 15, 2020, OSL, a digital asset trading platform under BC Technology Group, obtained Type 1 and Type 7 licenses under the regulatory framework of the Hong Kong Securities Regulatory Commission. A digital asset trading platform audited by the Big Four accounting firms. After the Hong Kong Virtual Assets New Deal officially implemented on June 1, 2022, OSL has also become one of the first encryption platforms to apply for virtual asset retail trading business. For a long time, OSL was the only licensed and listed digital asset trading platform in Hong Kong. Benefiting from the advantages of compliance, they have successively cooperated with traditional financial giants such as DBS Bank and Standard Chartered Bank in the field of digital assets, and have received HK$543 million investment from Singapore sovereign fund GIC. However, like most blockchain concept stocks that have landed in the secondary market, BC Technology (HK: 863) has not performed satisfactorily in the recent market. Trapped in the cold winter of cryptocurrency in 2022, its latest financial report shows that BC Technology’s revenue in 2022 will drop by 64.3%, and its net loss will expand to HK$550 million. Since the beginning of this year, BC Technology’s share price has reached an all-time low. Recently, Jiemian News interviewed Hu Zhenbang, CFO of BC Technology, on Hong Kong’s virtual asset regulatory rules and OSL’s business development. Hu Zhenbang has more than 16 years of experience in the financial field, and has worked in many companies such as Hong Kong listed technology companies, investment banks and the Big Four accounting firms.

**Interface News: The Hong Kong government has recently put pressure on banks in Hong Kong to open accounts for encrypted platforms. Why do banks in Hong Kong have doubts when introducing encrypted currency institutions? Is it related to the recent US small and medium-sized bank crisis? **

Hu Zhenbang: This question is not difficult to understand. First of all, it is not difficult for a licensed and compliant encryption institution to open a bank account. Having trouble opening a bank account.

Some time ago, there were several cryptocurrency-friendly banks in the United States, including Silcon Valley Bank (SVB), Silvergate Bank, Signature Bank, etc. These banks also have innovative products specifically for cryptocurrency institutions.

But after they closed down one after another recently, many of the original customers of these banks, in fact, most of them can be said to be non-regulated exchanges and institutions, have to go to traditional banks to open accounts. However, traditional banks have always had concerns about these encryption institutions, because they have not met the standards of general brokerages and some banks in terms of KYC, anti-money laundering, market monitoring, and whether they have misappropriated customer assets. From the bank’s point of view, it may not be able to obtain a lot of profits from these encrypted institutional clients, but it has to face great risks, which also involves the compliance and monitoring costs required to carry out this business, so when accepting cryptocurrency related Customers are more conservative.

**Interface News: BC Technology participated in the Hong Kong stablecoin policy advice, how do you expect the Hong Kong government to regulate encrypted stablecoins? Is it possible for Hong Kong to launch a Hong Kong dollar stablecoin? **

Hu Zhenbang: Except for the previous white paper, the details of the policy have not been further disclosed yet. As for how stablecoins should be regulated, from the perspective of our practitioners, some of the most popular stablecoins on the market, including USDC, USDT, etc., have been used as an encrypted payment tool, but the market is not sure about their issuance. Businessmen also have a lot of doubts.

As a funding platform, whether their finances are transparent and subject to compliance supervision, whether they have sufficient solvency, and if the holders of the stable currency want to convert it into legal currency, can they be easily satisfied from the issuer? ? I believe that regulators and investors are more concerned about these issues.

Therefore, if there is a stable currency issuer in Hong Kong, it must first have the qualifications and licenses to carry out asset management business. Like ordinary asset management companies, it must have high asset protection capabilities, and then customers will subscribe and redeem these There must also be a normal procedure for funds. It is also subject to annual audits by regulators and third parties to ensure that the assets reported by the agency are consistent with actual assets.

Of course, in terms of the function of the stable currency, we can’t restrict it too much, otherwise it will be difficult to become popular. So we also expect that if there is a stable currency in Hong Kong, it should also have payment and financial management functions. If these stablecoins can be used as a tool that can manage money and have certain payment functions like Yu’ebao, there will definitely be demand in the market.

As for whether the Hong Kong government will issue the Hong Kong dollar stable currency, first of all, the central bank digital currency such as the stable currency and the digital Hong Kong dollar are still two different categories. I estimate that the possibility of Hong Kong dollar stable currency is not too great, because the Hong Kong government has clearly stated in the white paper that it will consider developing a digital Hong Kong dollar. The digital Hong Kong dollar is competitive.

However, the international demand for US dollar stablecoins is very large. If an issuer chooses Hong Kong as the place of issuance and accepts the supervision of the Hong Kong Securities Regulatory Commission, it will be more secure than these US dollar stablecoins on the market today, and it is expected to become the mainstream. The current transaction volume of global stablecoins may actually be higher than the sovereign currencies of many African countries, but the US dollar stablecoins currently in circulation have not done enough in terms of supervision.

**Interface News: What are the requirements and measures for an encrypted trading platform that intends to operate in Hong Kong on the separation and custody of client assets? **

**Hu Zhenbang:**Under the regulatory environment in Hong Kong, asset custody and exchange business cannot be separated. The requirements of the China Securities Regulatory Commission have made it very clear that if you want to operate the No. 1 and No. 7 exchanges, you must also do custody, which cannot be handed over to a third party, and the client assets in custody cannot leave Hong Kong.

This is one of the reasons why the threshold for trading licenses is so high. For example, when client assets enter the encryption platform, they are actually handled completely separately from platform assets. A client account is specially set up in the account opening of banks and securities firms, and the custody of client assets will be carried out by a separate subsidiary. This subsidiary is a trust company, which is protected by Hong Kong trust laws, and we will also help it purchase insurance to cover it separately. Hot wallets are 100% insured, cold wallets also need to be 50% insured, and not only that, you also need to maintain a cyber security team to prevent cyber attacks. Therefore, asset custody in Hong Kong is very safe. 98% of assets are required to be hosted in separate cold wallets, and only 2% of assets are allowed to be placed in hot wallets. Even if there are financial problems on this platform, the worst case is Return the trust subsidiary’s money to the client.

Therefore, the protection of customer assets is very high. Of course, to achieve this kind of operation, sufficient personnel, hardware, software, insurance, and audits are required. Moreover, the more customer assets, the higher the cost, and the annual expenditure is actually very high. , this figure is not disclosed. Including the government and auditing companies, they will also verify on the blockchain network to ensure that these assets are real.

**Interface News: All of OSL’s previous clients were institutions and high-net-worth clients. After the implementation of the Hong Kong New Deal on June 1, they also applied for retail transaction business. What are the considerations behind this? **

Hu Zhenbang: From the perspective of the cryptocurrency market, although looking to the future, we think that institutional customers will account for a larger proportion, but today, retail investors are still a relatively important component of the entire market. The trader’s part limit is also an important prerequisite.

We have built a lot on the trading system before, such as the trading process for professional investors. Therefore, it is equivalent to making a little change on the original basis to open up a new market, and it can be done well without a lot of investment. However, retail investors and institutional customers are very different in terms of marketing, because the market is completely different. Moreover, compared with institutional investors, the proportion of income for retail investors will be higher, so because of the need to serve these small-amount transactions, the cost is actually there. In this regard, we will mainly cooperate with some local securities companies in Hong Kong to promote retail business, and we will also adopt some automated methods to provide services.

For retail investors, we will also launch an AI-based service model. By linking to the base of OpenAI, we have developed an AI robot prototype, which can do customer service, data analysis, and execute buying and selling instructions, which can reduce our sales force. need.

**Interface News: OSL is the only institution in Hong Kong that can publicly conduct STO (Security Token Offering, securities tokenization). Compared with traditional securities issuance, what are the differences between STO? **

Hu Zhenbang: As a brand-new digital asset, STO is mainly different from stock trading and bond issuance in that it eliminates many intermediate links. Because the issuance of bonds and bonds often has to go through intermediaries such as banks and securities companies, which are relatively cumbersome and costly, and the products issued are subject to the trading time of the exchange. If it is a private placement, it can only be bought and sold in OTC. But if the STO is issued through the blockchain, its issuance process saves a lot of intermediate links. For example, a licensed institution such as OSL, from project design, issuance, service, and custody, etc. can be carried out here. After issuance, products can be traded directly on the blockchain network 24 hours a day, and the efficiency is relatively high. The issuance cost is also relatively low compared to IPO, and more importantly, issuers can use STO to reach out to some investor groups that they had no way to reach before.

Because of digital asset investors, his digital assets account for a large proportion of his wealth, but he does not necessarily have a brokerage account, nor does he necessarily have traditional assets such as real estate, but products such as STO are also a must for them. A new diversified investment opportunity.

**Interface News: Whether it is STO or RWA (Real World Assets, real world assets), they are both very cutting-edge areas of Web3, but the development is very early. What pain points do you think? **

Hu Zhenbang: In fact, STO has not become very popular since it has been around for so long, mainly because the infrastructure in the market has not yet been completed, including the regulatory framework. Because it takes a long time for regulators to understand it, there are not many STO products currently on the market. The United States should be the first country in the world to have STO, but because it is not very friendly to cryptocurrencies in the near future, the development of STO will naturally slow down. For some countries that have supported and studied for a long time, such as Japan and Thailand, there have actually been some STO cases, and they have entered the application stage.

Japanese mainstream brokerages like Nomura Securities, in addition to doing IPOs, are now also doing STO business. They can help some real estate developers and Disney park hotels to carry out STO, turn them into tokens and sell them to their customers. In addition to enjoying investment rights, holders can also stay in these hotels for a few nights, get some souvenirs, and have economic benefits and use rights. In this field, Japan has passed the verification stage and moved towards the application stage. The main breakthrough now is compliance, that is, how regulators can approve various innovative products in a more efficient way.

**Interface News: As encrypted assets move towards the mainstream, more and more encrypted institutions have landed in the secondary market, but many companies, including BC Technology, have not performed well in terms of stock prices. What do you think are the reasons? **

Hu Zhenbang: Since last year we saw a concentrated outbreak of risk events in the encryption industry itself, including the FTX thunderstorm, many investors may have concerns about this industry and left. In addition, the stock market itself is not in a very good cycle. Therefore, it is necessary to give the industry more time to make adjustments, wait for some speculative participants to leave the market, and the whole industry will develop healthily, which will definitely help all types of blockchain stocks.

In the past few months, there have been some news, especially in the United States. American regulators have vigorously suppressed both compliant and non-compliant trading platforms, so some investors feel that this industry will take some time to integrate. But after I got in touch, there are still a small number of investors who are willing to enter the market slowly, so I hope to give more time to the investment market.