Since 2024, after continuous good news from Hong Kong's virtual asset market, more and more traditional financial users have turned their attention to this emerging market.
From direct trading of virtual assets to indirect purchases of virtual asset-related products, and then to investments in high-quality crypto projects, the Web3 world always has countless opportunities waiting for players. But what kind of Web3 investments can you actually participate in? And can you participate legally and compliantly?
In this article, Portal Labs has organized the current mainstream Web3 investment methods and the types of suitable people.
Directly purchase virtual assets
In the Web3 world, the most basic and straightforward investment method is to purchase virtual assets, such as cryptocurrencies and NFTs. By buying these virtual assets on virtual asset trading platforms and earning returns based on short-term/long-term market price fluctuations. However, generally speaking, cryptocurrencies are a more common participation method, while NFTs are usually invested in as game items or images with social attributes.
However, this investment method also comes with higher risks. On the one hand, the cryptocurrency market is highly volatile, and the quality of NFT projects is uneven, often leading to losses for investors; on the other hand, different countries and regions have different regulatory policies for virtual assets. For example, in mainland China, individual players can hold assets but trades are not legally protected, and any issues are at their own risk. In contrast, in Hong Kong, retail users can participate in spot trading of certain assets on licensed trading platforms.
Thus, whether individual players or high-net-worth players, this type of investment can be explored. The premise is to pay attention to market risks, conduct market research, and remember not to overestimate one's ability to bear risks. Additionally, for high-net-worth investors, virtual assets can be part of an investment portfolio, but it is necessary to control the position ratio.
Participate in virtual token issuance
In addition to directly purchasing virtual assets, participating in token issuance is also one of the important ways to obtain virtual assets. Token issuance is a key means for Web3 projects to raise funds, mainly including:
ICO (Initial Coin Offering) is the earliest form of token issuance, but due to a lack of regulation, it carries higher risks, and currently no project parties are using it.
IDO (Initial DEX Offering) is issued through decentralized exchanges, with a lower threshold, but project quality is uneven, and regulation is relatively vague. In some countries, it may be considered an illegal securities issuance.
IEO (Initial Exchange Offering) is issued through centralized exchanges, with relatively higher security, but usually has certain requirements for investor qualifications, such as KYC.
STO (Security Token Offering) is a compliant issuance of securitized tokens, but currently has a clear legal framework only in certain regions (such as the United States, Switzerland, Singapore, etc.). In Asia (including Hong Kong), it remains in a gray area and is more suitable for institutional investors.
In addition, in token issuance, the term is often seen. It actually refers to the token issuance platform, usually provided by exchanges or project parties, facilitating investors' participation in early projects. However, the token issuance market is mixed, and investors need to carefully evaluate project teams, technical strength, economic models, and development prospects, while also paying attention to changes in regulatory policies. Therefore, this type of play is usually more suitable for high-net-worth investors or players with in-depth knowledge of Web3.
Likewise, the activities of token issuance are subject to different regulations in different countries and regions. However, this type of regulation is more focused on the project party; for investors, what they need to research is whether the token issuance complies with local or target regulations to avoid losses caused by the project's non-compliance.
Engage in DAO governance
DAO (Decentralized Autonomous Organization) is a new form of organization in the Web3 world and is also one of the important ways for investors to quickly participate in Web3 projects. Typically, DAOs allow users holding governance tokens to directly participate in the decision-making and management of the project.
For investors, participating in DAO governance not only allows deep integration into the Web3 ecosystem but also enables them to earn profits through various means, such as the appreciation of governance tokens, governance rewards, and some DAOs specifically invest in other Web3 projects, allowing users to receive investment dividend income.
However, participating in DAO governance requires players to have a deep understanding of Web3 and be able to patiently and carefully evaluate project backgrounds, governance rules, and community cultures. Therefore, this type of play is more suitable for seasoned players (digital nomads) who are willing to invest in Web3 for the long term.
Currently, the regulatory environment for DAOs is still developing, and very few countries and regions have formed legal definitions and regulatory requirements for DAOs. Therefore, participants in DAOs need to pay more attention to this aspect to prevent complex legal and financial issues in the future due to changes in regulatory models. Additionally, DAOs are typically governed by smart contracts, lacking traditional legal entity identities, but in the event of a dispute, DAO members may also be considered legal liability subjects and face legal accountability issues.
Invest in crypto funds
For players who wish to participate in Web3 investment in a more traditional way, crypto funds are the most common choice. They provide investors with opportunities to indirectly access cryptocurrencies and blockchain projects while reducing the risks of directly holding virtual assets.
Participating in crypto funds is usually divided into two categories:
One type is to invest in already mature crypto funds, where investors can indirectly participate in the Web3 market by subscribing to fund shares, suitable for traditional financial players or institutional investors interested in Web3 but unwilling to directly hold virtual assets.
Another type is to establish crypto funds to manage and invest in virtual assets. This method has high requirements for fund size, compliance, and operational capabilities. For example, in Hong Kong, managing a crypto fund requires obtaining a Type 9 license, and if it involves retail investors, additional regulatory requirements may also be needed. Therefore, it is more suitable for experienced Web3 players or institutions.
Whether purchasing crypto funds or establishing crypto funds, it is necessary to comply with local regulatory requirements. Especially for establishing a crypto fund, in regions like Hong Kong, not only is a certain fund size required, but also the application for corresponding licenses and hiring professional managers, etc. In short, compliance is the hard truth.
How to choose a Web3 investment model suitable for oneself?
When choosing a Web3 investment model, investors need to clarify their investment goals and risk preferences. Is it pursuing short-term returns or long-term value? How much financial loss can be tolerated? In addition, investors also need to evaluate their knowledge and experience, whether they understand blockchain technology and the Web3 ecosystem, and whether they have relevant investment experience.
Compliance issues cannot be ignored. Different countries and regions have different regulatory policies for Web3 investments, and investors need to continuously understand the laws and regulations of their country or region, choose compliant investment channels and projects, and pay attention to tax reporting and fund safety.
Web3 is not just an investment opportunity; it is a paradigm revolution in technology and finance. It is reshaping our understanding of value, ownership, and trust. For investors, participating in Web3 is not only a way to increase wealth but also a means to embrace the future. However, this revolution is also full of uncertainties and challenges. Only by remaining rational, continuously learning, and always prioritizing compliance and safety can one grasp the opportunities in the wave of Web3 and move forward steadily.
*This article is for educational purposes only and does not constitute any investment advice. Investment involves risks and one should be cautious when entering the market.