Government-backed studies in Hong Kong have identified decentralized finance (DeFi) and metaverse technologies as new opportunities to enhance the region's dominance in the global fintech landscape.

Explosive Growth in DeFi

The Hong Kong Institute for Monetary and Financial Research (HKIMR), the Hong Kong Academy of Finance (AoF) research arm, released two reports on June 25. Each report detailed the implications of DeFi and metaverse on the finance sector.

Hong Kong's report on DeFi highlighted the ecosystem's explosive growth from a modest $6 billion market capitalization in 2021 to over $80 billion in 2023. "These numbers demonstrate that DeFi's potential cannot be ignored," the report stated.

DeFi, which accounts for 4% of the overall crypto-asset market, still needs to be explored. Over 70% of crypto businesses participating in the study did not explore the technology.

"DeFi has the potential to provide new financial services, such as liquid staking, flash loans, and automated market makers, with reduced transaction speed and enhanced innovation, automation, and financial inclusion."

Tapping into DeFi Potential

The study pointed out existing issues in DeFi around governance, compliance, and vulnerabilities but remained optimistic about its unique characteristics.

DeFi promises new financial services, such as liquid staking, flash loans, and automated market makers. These services offer reduced transaction speeds and enhanced innovation, automation, and financial inclusion.

Metaverse Engagement

Regarding the metaverse, Hong Kong's study they were revealed that local financial institutions displayed a moderate level of engagement despite their high interest in it.

This finding aligns with the sentiment displayed by the Hong Kong respondents. More than 51% of respondents bet against the metaverse's future potential, of which 6% were metaverse service providers.

However, a sector of Hong Kong fintech businesses is actively pursuing metaverse-related developments. Enoch Fung, CEO of the AoF and executive director of the HKIMR, said, "The emerging technologies of DeFi and the metaverse, which are closely connected to the broader virtual asset and Web3 developments, will likely present various opportunities for the financial services industry in Hong Kong."