Regulatory Changes in DeFi and Stablecoin will be Significant

Ishan Pandey: Hi Deng Chao, welcome to our series “Behind the Startup.” Please tell us about your journey and the motivation behind HashKey Capital?

Deng Chao: Hello, Ishan. Thanks for the interview invitation. This is DC, CEO of Hash Key Capital and we are an asset manager investing exclusively in blockchain technology and digital assets, managing over US$1 billion in client assets since inception. Our goal as one of Asia's largest crypto funds and an early corporate investor in Ethereum is to help bring cryptocurrency into the mainstream while also bridging the gap between the Web2 and Web3 economies. Since its inception in 2015, Hong Kong- and Singapore-based venture capital firm Hash Key Capital has invested in over 500 projects across a wide range of sectors, from Layer1 protocols and crypto finance to Web3 infrastructure, NFTs and the Metaverse.

Besides Ethereum, our portfolio also includes Cosmos, FTX, Coinlist, Aztec, Blockdaemon, dYdX, imToken, Animoca Brands, Falcon X, Space and time, Mask Network, Polkadot, Moonbeam and Galxe (Originally Project Galaxy).

Ishan Pandey: Tell us about the License that you obtained from the Securities and Futures Commission (‘SFC’) of Hong Kong. Why is this license important and how will it help the company?

Deng Chao: Since 9th Sep 2022, HashKey Capital Limited has secured SFC’s Type 9 license uplift to manage 100% virtual asset portfolio. HashKey Capital Limited will be among the first group of licenced virtual asset managers in Hong Kong, and will be able to manage funds that invest solely in virtual assets in accordance with SFC regulations. Obtaining a Type 9 licence demonstrates our continued dedication to developing Hong Kong's and Asia's blockchain ecosystems.

Ishan Pandey: What are the current business lines of Hash Key Capital and how does it help the crypto industry as a whole?

Deng Chao: Hash Key Capital is an asset manager with three dedicated funds investing exclusively in blockchain technology and digital assets. We see ourselves as a Web3 ecosystem builder, not just following a thematic-driven investment strategy.

Besides that, we focus on post-investment management, including empowerment that helps projects expand their markets, design products, find target audiences and provide strategic support through active management. Meanwhile, we have been actively engaged in ecosystem contribution. The HashKey ecosystem is the official partner with Polkadot and Dfinity while helping them host high-quality Bootcamp and hackathons.

Ishan Pandey: What are your views on upcoming DeFi and Stablecoin regulations by US regulators?

Deng Chao: Devcon 6 has shown that regulatory changes in DeFi and stablecoin will be significant in the future. The industry’s DeFi players have already begun to embrace compliance, especially those large companies. Our opinion is that stablecoins such as USDC will go further in the future. Overcollateralization will be the new norm for most stablecoins. For many projects, compliance will also become a critical factor that needs to be concerned about. Although DeFi is globally distributed, most of the teams behind DeFi will not go against regulators. The upside of more regulation is that scrutiny will make it easier for institutions to come in.

Ishan Pandey: Do you think the declining Bitcoin and the insolvency of big cryptocurrency players like Celsius will adversely affect investments in the blockchain industry?

Deng Chao: By the nature of competition, it is quite normal that players that start to lag behind will be washed out in the early stages of the market. When the market condition is good, it is hard to tell which projects are doing better. Once it goes down, it actually helps us automatically screen projects.

Ishan Pandey: Do you think regulations and compliance are necessary to increase trust and sustain growth of the blockchain industry?

Deng Chao: Regulation and compliance are indeed essential for traditional investors to secure their trust in the industry. In our opinion, it depends on the institutions and what they are looking for. Meanwhile, adding many traditional users to the market, that is to say, mass adoption, will certainly require compliance and regulation. Hash Key Capital has insisted on being fully compliant since the beginning of our business, and we are also in constant contact with the regulators to comprehend the visionaries from the authorities' perspective. Despite our Type 9 license uplift in Hong Kong, we are also in the process of applying for a CMS license in Singapore.

Ishan Pandey: According to you, what is the next big thing in Blockchain technology?

Deng Chao: There are two things to consider here. First, Ethereum will become more and more user-friendly from a technical standpoint. With roll-up and sharding running at total capacity, Ethereum will become an all-around better platform. Second, blockchain needs to bring in more traditional users, and it is vital to offer products and services that appeal to them. In this regard, the recent discussion of abstract accounts can be considered a phenomenon.

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