Continuous losses to profitability: Is the path of OSL difficult to replicate in Hong Kong's new Web3 phase?

Jessy, Golden Finance

On June 27, OSL Group (0863.HK) announced its plan to acquire all shares of payment company Banxa, with an investment of approximately HKD 486.7 million. On June 26, Hong Kong released the "Hong Kong Digital Asset Development Policy Declaration 2.0," which proposes four strategic directions centered around the "LEAP" framework, where P represents partnerships, emphasizing regional and international cooperation. The essence of OSL's acquisition of Banxa is also focused on the 45 licenses held by Banxa that enable it to conduct business in these locations around the world, and it aligns with OSL's upcoming plans to vigorously develop PayFi.

According to the financial report information of 2024, OSL Group achieved its first-year profit since its establishment. The exchange under OSL Group, OSL, is the first licensed exchange in Hong Kong. Earlier, OSL Group was affiliated with Hong Kong shell king Gao Zhenshun and seemed more like a shell company relying on speculation. At the beginning of 2023, the company intended to sell itself, and by 2024, it successfully secured an investment of HKD 710 million from BGX and finally achieved profitability in 2024.

A careful review of the financial report of OSL Group reveals that in 2024, the revenue from OSL Group's digital asset market business was 283 million HKD, a year-on-year increase of 73%, with the main revenue coming from over-the-counter trading, request for quote (RFQ), exchange business, and custody services; the revenue from the digital asset technology infrastructure business was 92 million HKD, a significant year-on-year increase of 415%, primarily sourced from SaaS services. The turnaround of OSL from losses to profits also reflects the current state of Web3 development in Hong Kong. With the orderly advancement of businesses such as retail-oriented cryptocurrency exchanges, Bitcoin and Ethereum spot ETFs, stablecoins, etc., the overall crypto ecosystem in Hong Kong is becoming increasingly complete.

Where are the key points for profit for OSL? Does the transition from loss to profit also indicate that the development of Web3 in Hong Kong has entered a new stage?

From a "shell" company to being acquired by BGX

According to Tencent's "Observation", OSL began searching for potential buyers for acquisition in the market during the 2023 Spring Festival.

OSL's predecessor was a Hong Kong Stock Exchange main board listed company in 2015 - Brand China, which is primarily engaged in advertising and marketing services, providing customized advertising and marketing services for clients in the automotive and other industries.

In early 2018, the famous shell king, through its subsidiary East Harvest, acquired 74.48% of the publicly issued stock of Brand China, becoming the actual controller of Brand China. It was also after this that the OSL exchange was established within Brand China. In 2019, Brand China was renamed BC Technology.

Gao Zhenshun is known as the "King of Shells" and is famous in the Hong Kong capital market for his expertise in acquiring poorly performing listed company shell resources at low prices and profiting through asset restructuring. Previously, he has successfully operated several similar transactions, such as selling Culture China (later renamed Alibaba Pictures) to Alibaba, helping the latter to lay out its cultural industry strategy, while also earning considerable profits himself.

The acquisition of the brand in China, followed by the establishment of an exchange internally, renaming, and a series of measures, are actually aimed at enhancing the company's value and market influence through business integration and strategic adjustments. When the timing is right, capital exit will be realized through equity transfer or other means to reap substantial profits.

Subsequently, OSL obtained a virtual asset license issued by the Hong Kong Securities and Futures Commission on December 15, 2020, specifically a Type 1 (Securities Trading) and Type 7 (Providing Automated Trading Services) regulated activity license, becoming the first licensed institution in Hong Kong.

Combining the financial reports of 2021 and 2022, BC Technology Group sought to sell the OSL exchange at the beginning of 2023 due to a sharp decline in revenue from digital asset businesses from HKD 278 million to HKD 71 million, weak trading profits, and high compliance and technology expenditures (administrative expenses increased to HKD 574 million). At the same time, the company's strategy is focused on high-growth SaaS services (revenue increased by 197.3% to HKD 30 million). Additionally, the sluggish cryptocurrency market has put pressure on the valuation of the exchange, and selling OSL could recoup funds to alleviate the debt-to-asset ratio (73.8%) and optimize resource allocation.

Until November 14, 2023, BGX announced a strategic investment in OSL's parent company, BC Technology Group, subscribing to approximately HKD 710 million in new shares, with BGX's shareholding reaching 29.97%, making it the largest shareholder of OSL. The nearly year-long search has finally come to an end. After this, OSL Exchange's parent company, BC Technology Group, was also renamed OSL Group.

Key Turning Point from Loss to Profit - HKD 710 million Investment in BGX

After receiving the investment from BGX, OSL has indeed experienced significant changes in its development.

BGX completed a strategic investment of HKD 710 million in January 2024, after which the company's performance and business structure saw significant improvement. The financial report shows that total revenue in 2024 increased by 78.6% year-on-year to HKD 375 million, turning a net loss into a profit of HKD 47 million, with operating cash flow shifting from a net outflow of HKD 686 million to a net inflow of HKD 379 million. The debt-to-asset ratio decreased from 72.6% to 31.1%, and thanks to the capital injection, the company's cash reserves increased to HKD 635 million.

After the investment in BGX, several talents with rich experience in the cryptocurrency and internet finance industry were gradually introduced, and Gao Zhenshun officially stepped down as executive director in August 2024.

The major reshuffle at the top has injected vitality into OSL, and turning losses into profits is closely related to the company's significant strategic transformation. It focuses on core businesses and divests non-core assets, such as the sale of Shanghai Jingwei, completely exiting the commercial park management business. It accelerates its focus on digital asset trading and SaaS services, with revenue from the former reaching HKD 263 million (+81.6%) and revenue from the latter reaching HKD 92 million (+415%). The pace of globalization is also accelerating in 2024, as it uses investment funds to acquire the licensed platform OSL Japan and obtain an Australian license. At the same time, it expands institutional clients and the retail market through BGX resources, promoting the transformation of its business towards technological output and global licensed trading.

Another point of interest is that on April 15, 2024, OSL will launch a digital asset spot ETF in collaboration with Huaxia Fund (Hong Kong) and Harvest Global Investments. In this partnership, OSL Digital Securities Limited serves as the virtual asset trading and sub-custody partner for Huaxia Fund (Hong Kong) and Harvest Global Investments, providing blockchain infrastructure to support investors in participating directly in investments with virtual assets, playing a key role in the trading and custody processes.

By 2025, OSL will continue its global expansion and vigorously develop PayFi. The acquisition of Banxa is a testament to this, as Banxa focuses on payment technology research and development, possessing technical accumulations such as payment gateways and API interfaces. Its B2B payment solutions can complement OSL's cryptocurrency trading platform, helping OSL enhance its one-stop service capabilities. This also accelerates OSL's globalization strategy, as OSL has previously acquired Japan's CoinBest and a European digital asset platform, and this acquisition of Banxa fills the gap in the North American market. Banxa operates in Europe, North America, Australia, and other regions, with a wide market coverage. Through this acquisition, OSL has formed a triangular layout in the Asia-Pacific, Europe, and North America. Banxa holds 45 international licenses, covering key markets such as Canada and Lithuania.

From the early reliance on trading fees, to the 2024 financial report showing that 81.6% of its revenue comes from digital asset trading (mainly institutional services), the 415% growth in SaaS revenue comes from technology output. This transformation from a "trading platform" to an "infrastructure service provider" precisely corresponds to the characteristic of prioritizing B-end services under the Hong Kong regulatory framework.

Hong Kong enters a new phase of Web3, but the OSL path is difficult to replicate

OSL's transformation from being deeply mired in losses and seeking a sale to achieving profitability within just one year after receiving investment from BGX, while demonstrating strong growth momentum and a clear expansion blueprint, is certainly not a coincidence and is difficult to replicate.

Its transformative journey profoundly reflects the key turning point of Hong Kong's Web3 ecosystem from policy brewing and compliance exploration to substantial implementation and initial prosperity. OSL's digital asset trading revenue surged by 81.6% in 2024, and SaaS service revenue skyrocketed by 415%, which is a direct manifestation of the gradual release of policy dividends.

The early OSL had strong characteristics of a "shell company," with its value largely tied to the "first licensed exchange in Hong Kong" license. The explosive performance after BGX took over proves that its value has shifted from being a "license holder" to an "effective operator of license value and a builder of business capabilities." Profitability comes from real growth in trading volume, SaaS service income, and technology output, as the crypto industry begins to move from a purely "compliance concept" to actual "business implementation" and "revenue generation."

Looking at OSL's journey over the past few years, especially its tilt towards institutional business, it is clear that OSL's development strategy is no longer limited to being just an exchange. Its business layout clearly outlines the profile of a comprehensive Web3 infrastructure service provider with "trading + custody + technology solutions ( SaaS ) + payment ( Banxa ) + global compliance network." This reflects the increasing maturity of Hong Kong's Web3 ecosystem, where participants are beginning to build more complex and synergistic business matrices to meet the increasingly diverse needs of institutional and high-net-worth clients.

OSL, through a series of acquisitions and globalization expansions, may confirm that Hong Kong's policy advantages can encourage more institutions to participate in the global Web3 market competition. The transition of OSL from loss to profit also illustrates that, under a clear regulatory framework, through strategic capital empowerment, focusing on core businesses, divesting redundant burdens, and actively pursuing global compliance expansion and ecological cooperation, licensed Web3 institutions in Hong Kong are fully capable of achieving sustainable profit growth.

The development of Web3 in Hong Kong has entered a new stage characterized by the landing of actual businesses, institutional capital-driven growth, and global resource integration. In this stage, competition will become more intense, with OSL's phased profitability beginning with an investment of HKD 710 million and a significant turnover of senior management serving as the touchpoint for development. High costs make it a game for large capital.

In Hong Kong, there are currently nearly fifty institutions licensed to provide virtual asset trading services, not all of which are as financially robust as BGX. OSL took the lead and served a large number of institutional clients, making it increasingly difficult for later entrants to carve out their share of the market.