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Financialization of Crypto

Updated: Sep 27, 2023

The JPEX HK$1.5 Billion Losses & Allegations of Fraud

In two separate stories in the South China Morning Post, The University of Hong Kong (HKU) Professor Douglas Arner, a leading authority in FinTech (Finance, Technology, and Regulation), and Brian Tang, founding executive director of LITE Lab@HKU, who also serves on the board of the Fintech Association of Hong Kong (FTAHK), discuss the cryptocurrency trading platform JPEX, which is embroiled in HK$1.5 billion in losses and allegations of fraud.


Douglas Arner: “I expect the focus will be on eliminating unlicensed activities. This would be very much in line with the direction we are seeing internationally.”


Arner stated that the JPEX saga would lead authorities to accelerate the licensing of cryptocurrency firms and intensify investigations into unlicensed platforms. Hong Kong is making efforts to transform the special administrative region into a digital asset hub.

In an earlier SCMP story, Tang mentioned that the debacle highlights growing risks in the Web3 space, where event organizers, such as Token2049, are facing criticism for accepting JPEX as a major sponsor.


Brian Tang: “The need to conduct additional due diligence on potential sponsors from the Web3 sector may well be on the minds of event organisers.”


Both SCMP stories were written by Xinmei Shen, Cannix Yau, and Kahon Chan.

However, the story behind the Hong Kong JPEX saga is not new. It falls into a phenomenon highlighted in a recent paper authored by Douglas Arner, Dirk Zetszche, Ross Buckley, and Jamieson Kirkwood, referred to as the 'financialization' of crypto.

The paper finds that cryptocurrencies, blockchain, and decentralized finance (DeFi), which aimed to address issues in traditional finance, have shown that they are not immune to the problems they sought to fix.

These problems include conflicts of interest, information gaps, centralization, and risks, involving many poorly informed enthusiasts.


The Financialization of Crypto: Lessons from FTX and the Crypto Winter of 2022-2023 - Download at SSRN

By Douglas Arner (The University of Hong Kong), Dirk Zetszche (University of Luxembourg), Ross Buckley (University of New South Wales), and Jamieson Kirkwood (HKU Faculty of Law)

To make crypto work, the paper suggests the need for regulations based on centuries of experience in traditional finance. The "Crypto Winter" of 2022-2023 prompted regulators to take action, but dealing with the complexity of crypto's decentralization remains a challenge. The authors believe that regulatory systems can be established to ensure that crypto operates smoothly alongside traditional finance.

Douglas Arner is one of the world's most downloaded law authors on finance, technology and regulation at the Social Science Research Network. Check his profile and body of work at SSRN.

Follow Brian Tang on LinkedIn.

Watch out for the forthcoming book FinTech: Finance, Technology, and Regulation. Read the introduction here: Introduction at SSRN


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