Author: Jason Jiang, Senior Researcher, OKLink Research Institute
Hong Kong has once again taken an important step in promoting the compliance of virtual asset financial products. On April 7, the Hong Kong Securities and Futures Commission officially issued a circular, clearly allowing virtual asset spot ETFs to participate in on-chain pledge activities under the prudent regulatory framework. At the same time, it also relaxed relevant restrictions on virtual asset trading platforms, allowing licensed trading platforms to provide pledge services to customers. This is another substantive and key step taken by Hong Kong in exploring a compliant Web3 financial system after approving the listing and trading of virtual asset ETFs in 2024. It will not only help enhance the attractiveness of Hong Kong's virtual asset ecosystem, but also be the first time that traditional financial products are combined with the native mechanism of the on-chain economy, providing a highly demonstrative model for global virtual asset supervision and financial innovation.
1. Introduce pledge into the traditional financial system and create a compliant on-chain profit path
The staking mechanism has become one of the most important on-chain economic activities in the virtual asset ecosystem, especially for public chains that adopt the Proof of Stake (PoS) consensus mechanism. It not only maintains network security and normal operation, but also becomes the main channel for institutions and users to obtain on-chain income. According to incomplete statistics from OKG Research, as of early April 2025, more than 34 million ETH have been staked in the Ethereum network, accounting for 28.03% of its total supply; the staking rate of projects such as Cardano and Solana has also been maintained at more than 70% for a long time. This shows that staking, as a widely accepted on-chain income mechanism, has a strong market consensus foundation.
According to the latest circular, Hong Kong virtual asset spot ETFs can participate in on-chain staking of their virtual assets under a prudent protection framework to obtain native returns related to blockchain networks such as Ethereum. This move sends at least two signals: first, Hong Kong recognizes staking as a core mechanism for obtaining network incentives in the public chain ecosystem, which has reasonable economic logic; second, regulators' technical understanding and risk control capabilities of virtual assets and Web3 ecosystems are becoming increasingly mature.
To ensure that risks are controllable, the circular stipulates that spot ETFs participating in pledges must operate and custody pledged assets through licensed trading platforms and authorized institutions, and set a pledge ratio cap to manage liquidity risks and ensure asset independence and security. In addition, ETF managers must fully disclose key information such as pledge operation mechanisms, income calculation models, potential risks, and pledge ratio caps to protect investors' right to know and asset rights.
It is worth noting that the “Guidelines on Virtual Asset Trading Platforms” issued in June 2023 stipulate that licensed trading platforms “should not make any arrangements with their clients to use client virtual assets held by the platform or other related entities to generate returns for clients or any other parties”. Therefore, the Hong Kong Securities Regulatory Commission also issued the “Circular on the Provision of Pledge Services by Virtual Asset Trading Platforms” on the same day, revising the previous restrictions on trading platforms and explicitly allowing trading platforms to provide pledge services to customers. The circular does not limit the types of virtual assets involved in staking, which also means that in addition to ETH, the platform is also expected to comply with regulations and launch pledge services for public chain projects such as Cardano and Solana. These changes will not only expand the service boundaries of trading platforms, so that licensed platforms are no longer limited to providing matching transactions, but also provide value-added services to increase user stickiness and trading volume. More importantly, it provides a reliable and compliant execution environment for spot ETFs to participate in staking.
For virtual asset spot ETFs, the essence of staking is to "reuse" the underlying assets, which can create additional income without affecting the ETF share structure, and provide more users and institutions with a compliant "on-chain income channel". The introduction of the staking mechanism will greatly enhance the attractiveness and scale of virtual asset spot ETF products. The income of traditional ETFs depends on asset price fluctuations or dividends, and the introduction of the staking mechanism will make virtual asset spot ETFs no longer just passive trackers of price trends, but "on-chain equity certificates" with active income functions. The additional 3%-6% annualized income brought by staking will become an important factor in attracting medium and long-term funds such as institutional investors and family offices. It is expected that in the next 6 to 12 months, as the staking mechanism is gradually implemented, the management scale of Hong Kong virtual asset spot ETFs is expected to achieve structural growth.
At the same time, the sharing mechanism of pledge income will broaden the income structure of fund managers and custodians, encourage more market participants to design innovative product structures under the compliance framework, and further enhance the differentiation and competitiveness of Hong Kong's virtual asset-related products. In addition, since pledge operations have high requirements for asset security and technical stability, the potential demand for compliant pledges will force Hong Kong to accelerate the construction of virtual asset infrastructure and promote the formation of a more mature and complete Web3 ecosystem.
2. Build a bridge between traditional finance and on-chain economy
The approval of pledge services by Hong Kong is not simply a relaxation of regulation, but also reflects deeper considerations in system design: on the basis of ensuring investors' rights and interests and controllable risks, it will push Hong Kong's virtual asset market towards a more mature and international stage of development.
The primary motivation is to strengthen and optimize the operating mechanism of the local ETF market. Since Hong Kong approved the listing and trading of the first batch of virtual asset spot ETFs in 2024, although the market response has been rational and the product mechanism has been stable, the overall trading activity and asset management scale have not yet met market expectations. The lack of an endogenous income mechanism makes this type of product still relatively simple compared to traditional income funds. The introduction of a pledge mechanism can not only bring additional sources of income, but also provide ETFs with a closer linkage with the blockchain ecosystem, which is expected to attract a wider range of investors, especially institutional investors who focus on the balance of "income + asset allocation".
On a deeper level, opening up ETF pledge is also an important step for Hong Kong to build a closed loop of Web3 financial ecology. Since the establishment of VASP licensing mechanism and the permission for retail investors to participate in transactions, the compliance framework of Hong Kong's virtual asset market has gradually taken shape. However, if we want to move towards a truly deep and resilient Web3 ecology, asset issuance and trading alone are far from enough. We still need to make simultaneous progress in on-chain operating capabilities, revenue models and compliance assurance systems. The introduction of the on-chain pledge mechanism is the first attempt to incorporate DeFi's native functions into traditional finance, and to establish an institutionalized and sustainable income linkage bridge between on-chain finance and traditional capital markets.
In addition, in the context of global regulatory competition, the implementation of Hong Kong's policies has a forward-looking demonstration effect. The United States has not yet approved any pledged ETFs, and the main disputes focus on issues such as asset ownership, potential securities attributes and risk control. Hong Kong has explored a feasible prudent regulatory model through measures such as custody isolation, ratio caps, and risk disclosure, providing a strong reference for other jurisdictions.
In the future, whether the United States approves the pledge function of the Ethereum ETF may once again have an important impact on the design of global virtual asset products. As institutions such as Coinbase and Grayscale continue to promote policy communication, the SEC's attitude towards the pledge mechanism may be marginally loosened. According to the latest disclosure by foreign media, pilot applications for some pledge functions have entered the final evaluation stage. If the United States finally approves it, it will trigger the global market's renewed attention to products related to "pledged ETFs" and will also create competitive pressure on Hong Kong's existing product structure. But before that, Hong Kong is expected to attract more international capital that focuses on "on-chain returns" to the Asia-Pacific market with the speed of policy implementation and institutional clarity, thereby further consolidating its leading edge in the global virtual asset and digital financial innovation landscape.
It is foreseeable that as more ETF managers submit pledge plans and more trading platforms launch compliant pledge services in the future, Hong Kong will build a virtual asset financial product system with richer returns, more reasonable structure and more complete systems, and promote virtual assets from "tradable" to a new stage of "configurable" and "value-added", so as to meet the diverse needs of investors and support the sustainable development of Hong Kong's virtual asset ecosystem.
