Blockchain Killer Apps - Solutions to Real-World Problems
Blockchain Killer Apps - Solutions to Real-World Problems
As we celebrate a decade of leadership in blockchain investment strategies at Blockchain Coinvestors, we find ourselves at a pivotal moment in the evolution of digital assets. In our previous communications, we emphasized the rapid advancement of blockchain technology, which has not only kept pace with the early development of the internet but has also achieved significant commercialization in a remarkably short period.
Just over 15 years since the publication of the Bitcoin whitepaper, blockchain now underpins trillions of dollars in value, supported by a flourishing ecosystem of products that are gaining widespread market acceptance around the world.
Fintech Week Hong Kong, Asia's premier financial technology conference uniting FinTech founders, banking executives, VCs, regulators, and industry professionals, took place in Hong Kong from October 28 to November 1. The conference highlighted a notable shift as traditional finance investors increasingly focus on blockchain applications that address real-world challenges. Stablecoins exemplify this trend, emerging as a focal point of discussions due to their growing role in digital payments and cross-border transactions. Hong Kong's regulatory authorities announced more flexible stablecoin frameworks, including reduced capital requirements and streamlined licensing processes. The city also launched limited trials with three major industry players to test stablecoin implementations in controlled environments. Sitting in Hong Kong, the bridge between East and West while balancing regulatory oversight with technological advancement, our Head of Asia, Joy Cai, is available to share insights and provide regular updates on blockchain and crypto developments in the region.
The Macro Landscape of Crypto Adoption in 2024
As we enter 2024, the crypto landscape has reached new heights, with crypto activity and usage hitting all-time highs. According to a16z’s State of Crypto Report 2024, the number of monthly active crypto addresses has surged to 220 million, more than tripling since the end of 2023.
Exhibit 1: Monthly active addresses reached a record high of 220 million, showing growth similar to the early days of internet adoption.
Source: state of crypto report 2024 by A16Z
This remarkable growth reflects the increasing global adoption of blockchain technology, driven by improvements in infrastructure, such as Layer 2 (L2) scaling solutions and the rise of high-throughput blockchains like Solana and Base. Transaction costs drastically reduced due to these scalable solutions. For example, on Ethereum, sending USDC, a U.S. dollar-pegged stablecoin, now costs $1 in gas fees on average, down from $12 in 2021. On Base, Coinbase’s Layer 2 network, it costs less than a cent. By comparison, an international wire transfer averages around $44.
Exhibit 2: Blockchain processes 50x as many transactions per second as they did four years ago.
Source: state of crypto report 2024 by A16Z
Future Digital Money Landscape in the Tokenisation Era
Crypto is no longer just a speculative asset class — it’s becoming a core component of the global digital economy. At the same time, several products in blockchain have carved out clear product-market fit, especially those enabling fast, low-cost global payments, have emerged as crypto’s most successful applications to date.
Growing Role of Stablecoins: Key Pillar for Global Payments
Stablecoins, particularly those pegged to the U.S. dollar, now account for a substantial portion of daily crypto usage, rivaling traditional payment networks like Visa. Their utility in fast, low-cost transactions has made them indispensable, especially in regions where local currencies are unstable, such as Nigeria, Argentina, or Turkey. In Turkey, for instance, chronic inflation and instability have pushed retail users toward stablecoins as a safeguard against volatility and a reliable store of value.
On the other hand, in the UAE, where the Emirati dirham is pegged to the U.S. dollar, the rise in stablecoin adoption likely reflects their role as a seamless entry point into the broader crypto ecosystem, facilitating access to various services and trading opportunities.
Hong Kong is positioning itself to play a greater role in the advancement of stablecoins and digital currencies. The Hong Kong Monetary Authority is set to introduce new regulations for stablecoins by the end of 2024, indicating the government's intent to provide a supportive regulatory framework for these emerging digital assets.
Amid this policy development, Circle, the issuer of USDC, the second-largest stablecoin, is eyeing expansion in Hong Kong. During a speech during Hong Kong Fintech Week, Circle CEO Jeremy Allaire sees Hong Kong as an increasingly important market for trade settlements, as stablecoins can provide "better, faster, cheaper" transactions for importers and exporters in emerging and developing markets trading through the city. To capitalize on this trend, Circle has announced two new partnerships in Hong Kong: a memorandum of understanding with Hong Kong Telecom to explore blockchain-based loyalty solutions; and a collaboration with Thunes to help settle cross-border transactions in USDC.
The Rise of Crypto Credit Cards: A Game-Changer in the Financial Landscape
The emergence of crypto credit cards has profoundly reshaped the financial landscape, redefining the user experience and streamlining cryptocurrency usage in real-world scenarios. By enabling users to spend their digital holdings at any location accepting traditional credit cards, crypto credit cards have addressed the limited usability of cryptocurrencies for day-to-day transactions, driving mainstream adoption and expanding the utility of digital assets. As crypto credit card adoption grows, providers must uphold regulatory compliance to establish trust and solidify the legitimacy of this transformative financial innovation.
At Fintech Week Hong Kong, I engaged with two standout companies: RedotPay and Reap, both specializing in crypto payment solutions.
RedotPay is focused on making cryptocurrencies accessible for everyday transactions and has swiftly partnered with Visa to issue globally accepted crypto-enabled debit cards. These physical cards uniquely allow users to withdraw fiat currency from ATMs, bridging the gap between digital and traditional finance. RedotPay initially launched a virtual card and mobile app, integrating with popular payment platforms. This enables users to spend cryptocurrency directly without pre-funding in fiat. The company operates within Hong Kong's regulatory framework and collaborates with KYC/AML providers to ensure security and compliance.
Despite being a newer entrant compared to industry leaders like Crypto.com, RedotPay has gained 300,000 users by prioritizing a simple, user-centric crypto payment experience with global reach. This positions RedotPay as a key driver in the mainstream adoption of cryptocurrency in financial services.
On the other hand, Reap offers a crypto corporate card solution that allows businesses to easily create and manage their own credit card programs. It’s designed to give companies a seamless, secure way to handle their financial operations. Paired with their expense management software, which integrates global payouts and the Reap Visa Corporate Credit Card, Reap empowers businesses to take full control of their finances—all while making things simpler and more efficient for their teams.
Mass adoption of Blockchain in Asia is also reflected by leading position in Central Bank Digital Currency (CBDC) initiatives in multiple countries such as Japan, China, and South Korea. For example in China, despite the strict crackdown on privately developed cryptocurrency, blockchain technology (or distributed ledger technology) is gaining rapid acceptance and adoption by the government, featured by China's digital yuan, or e-CNY. e-CNY has now processed transactions worth more than 1.8 trillion yuan, which puts China ahead in the global CBDC race.
The digital yuan is China’s central bank digital currency (CBDC), where the central bank directly issues accounts to individuals. As a retail CBDC, it is designed for public use, unlike wholesale CBDCs that interact with banks or other central institutions. It aims to replace cash, bears no interest, and is pegged 1:1 with the yuan.
In May this year, The Hong Kong Monetary Authority (HKMA) has expanded its involvement in the pilot for China's CBDC, the e-CNY. Hong Kong residents can now top up their e-CNY wallets via the Faster Payment System (FPS), with support from 17 local banks. This makes Hong Kong the first place outside mainland China where residents can set up e-CNY wallets locally. The HKMA plans to work with the People's Bank of China (PBoC) to further expand e-CNY's applications and promote its use among retailers. However, restrictions are in place to limit wallet balances and transactions, likely to prevent the widespread use of e-CNY for local payments, which could lead to concerns about RMB dollarization in Hong Kong. The HKMA is also involved in other digital currency initiatives, including its retail eHKD trials and a wholesale CBDC pilot, along with a stablecoin sandbox.
Exhibit 3: Staff members of Bank of Communications involved in the cross-boundary e-CNY pilot program display the e-CNY wallets in Hong Kong.
The Duality of China’s Blockchain Strategy: Control, Innovation, and Global Influence
Mainland China: Blockchain, not Crypto
China’s approach to blockchain technology and cryptocurrency presents a compelling blend of innovation and control. While the government has banned most cryptocurrencies on the mainland, citing concerns over financial stability and capital outflow, it has simultaneously embraced blockchain technology in its policies. In March 2021, the Chinese government officially integrated blockchain development into its national agenda with the approval of the "14th Five-Year Plan" (2021-2025). This plan outlines blockchain development initiatives across 29 provinces and cities, aiming to bolster China's global competitiveness in key economic sectors.
Notably, this effort focuses on what officials describe as a "Chinese-style blockchain"—blockchain technology without the inclusion of cryptocurrencies, as highlighted in a research article published in the Big Data & Society journal. Through initiatives like the Blockchain-Based Service Network (BSN) and the Digital Yuan (e-CNY), China is positioned as a global leader in blockchain innovation, but with a distinctly centralized twist.
A prime example is the Digital Yuan, designed to replace physical cash and managed directly by the People’s Bank of China (PBoC). Unlike decentralized cryptocurrencies such as Bitcoin, which operate on public, open-source blockchains, the Digital Yuan runs on a centralized ledger. This gives the government full oversight and control, ensuring strict regulation of the currency’s use.
The Digital Yuan was rolled out to prevent monetary substitution from Libra and cryptocurrencies like Bitcoin. The other key objectives behind the e-CNY is to provide a state-backed alternative to private payment platforms like Alipay and WeChat Pay. China has long been a global pioneer in digital payment solutions, especially with the rise of superapps like WeChat and Alipay, which have revolutionized the country’s financial ecosystem. These platforms have become indispensable for daily transactions, from peer-to-peer payments to utility bills and online shopping.
However, the dominance of these private platforms has raised regulatory concerns, particularly around data control and financial transparency. The introduction of the Digital Yuan allows the government to regain control over the financial system, offering a secure, state-backed digital currency that integrates seamlessly with China’s existing payment infrastructure. In doing so, the e-CNY not only reinforces China’s leadership in payment innovation but also ensures that the government maintains oversight of the country’s financial landscape.
While crypto frustrates key policy aims, blockchain and digital ledgers help regulators. Overall, China has said no to crypto but yes to blockchain.
Hong Kong: China’s Gateway to Global Crypto Markets
While the mainland enforces strict control over cryptocurrencies, Hong Kong plays a crucial role in China’s engagement with global crypto markets. As highlighted by South China Morning Post (SCMP), Hong Kong has seen a significant increase in cryptocurrency activity, rising to 30th place in the Global Cryptocurrency Adoption Index rankings in 2024 , with an 85.6% year-over-year increase. This surge is largely due to the city’s strategic push to become a hub for virtual assets, supported by a regulatory framework that encourages institutional participation.
By May 31, 2024, Hong Kong’s transitional period for its new regulatory regime for virtual asset trading platforms (VATPs) ended. From this date, exchanges could only operate if they were licensed or deemed licensed. Several prominent exchanges, whose local affiliates withdrew their license applications before the deadline, had to stop serving Hong Kong residents. This shift could lead to a move towards licensed platforms or a decline in trading activity. The share of value received by these exchanges has already dropped, with recent activity stabilizing at around 10-15%.
Stablecoins made up over 40% of the total value received in Hong Kong each quarter, and this figure is expected to rise as the Hong Kong Monetary Authority's (HKMA) regulatory framework allows stablecoins to be offered to retail investors.
On April 30, 2024, the Securities and Futures Commission (SFC) approved spot Bitcoin ETFs and Ether-based ETFs, signaling growing institutional interest. This approval was followed by a significant increase in institutional Bitcoin transfers, particularly on exchanges catering to institutional clients.
Hong Kong’s role as a financial gateway allows China to maintain a presence in the global crypto ecosystem without compromising the CCP’s control over the mainland’s financial systems. Hong Kong’s regulatory clarity and proactive stance on fintech have made it an attractive destination for blockchain innovation. The city’s ability to act as a sandbox for financial experimentation, combined with its openness to global capital, allows it to serve as a testing ground for blockchain applications that may later be adopted more widely across China. This duality reflects China’s broader strategy of leveraging blockchain technology to benefit from global financial innovation while keeping its domestic economy tightly regulated. However, Hong Kong's regulatory flexibility and crypto-friendly stance may influence mainland China to reconsider its crypto policies.
Thank you for reading.
Joy Cai
Hong Kong
About Blockchain Coinvestors
Blockchain Coinvestors is the best way to invest in blockchain businesses. Our vision is that digital monies, commodities, and assets are inevitable and all of the world’s financial infrastructure must be upgraded. Our mission is to provide broad coverage of early stage blockchain investments and access to emerging blockchain unicorns. Blockchain Coinvestors’ investment strategies are now in their 10th year and are backed by 400+ investors globally. To date we have invested in 40+ pure play blockchain venture capital funds in the Americas, Asia, and Europe and in a combined portfolio of 1,250+ blockchain companies and projects including 95 blockchain unicorns. Blockchain Coinvestors’ first fund of funds ranks in the top decile amongst all funds in its category on both Pitchbook and Preqin. Headquartered in San Francisco with a presence in London, New York, Grand Cayman, Zug and Zurich, the alternative investment management firm was co-founded by Alison Davis and Matthew Le Merle.
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