What they want to say about the upcoming Hong Kong dollar stablecoin

Compiled by: Babyewhale, Techub News

Following the spot ETFs of Bitcoin and Ethereum, stablecoins based on the Hong Kong dollar have also been put on the agenda. A month ago, JD.com's JD CoinChain Technology (Hong Kong) announced that it would issue a Hong Kong dollar stablecoin anchored 1:1 with the Hong Kong dollar based on the public chain, igniting the market's enthusiasm for Hong Kong dollar stablecoins. Under the brilliant performance of "predecessors" such as USDT issuer Tether and USDC issuer Circle, participants in the Hong Kong dollar stablecoin, including CoinChain Technology and Circle Coin Technology, have also given Hong Kong another story worth looking forward to.

But not everyone is optimistic about the development of Hong Kong dollar stablecoins. Although the application scenarios can be seen in payment, RWA and other scenarios, whether it can really achieve scale and whether it can be widely used in other applications on the chain has become a problem that many people are worried about.

In this regard, we have invited some influential people in the industry to talk about their true thoughts on the Hong Kong dollar stablecoin. In the end, there are both optimists and skeptics. The author will present the two views separately, hoping to bring some thoughts:

Supporters

We first asked this question to Wu Jiezhuang, a member of the Hong Kong Legislative Council and a staunch supporter of the development of Web3 in Hong Kong. Councillor Wu said that the Hong Kong Legislative Council will legislate on stablecoins next year. Hong Kong is very confident in the development of stablecoins and is very optimistic about this field.

In addition, Councillor Wu also said that the issuance of stablecoins in Hong Kong should be combined with actual application scenarios, and is not limited to the issuance of Hong Kong dollar stablecoins, but can also issue offshore RMB or even Euro stablecoins.

Cobe Zhang, CEO of ZAN, a Web3 brand under Ant Digital, said that on-chain investment has long faced the risk of "financial idleness", and RWA will be the hope to break through this bottleneck. We hope that Hong Kong can become the RWA asset issuance and trading center in the Asia-Pacific region in the future, which will also bring more application scenarios for stablecoins.

Eva, head of Matrixdock, said that stablecoins play a key role in RWA tokenization and have become the most classic application case, with a market value far exceeding other RWA assets. As the global demand for stablecoins continues to grow, its trading volume has dominated the cryptocurrency market. Governments in Hong Kong and other regions have actively promoted stablecoin regulation and launched the highly anticipated sandbox program, which is expected to become the first region in the world to allow banks to issue stablecoins. These developments have not only accelerated the application of stablecoins, but also promoted the process of RWA tokenization, encouraging more governments and institutions around the world to actively participate. Hong Kong's exploration of stablecoin regulation is expected to enhance the transparency of the global market and the resilience of the financial system, and further promote the legalization and development of the crypto industry.

In addition to stablecoins, more real assets such as gold and real estate are also gradually being tokenized and gaining wide recognition. This trend is not only an important part of financial innovation, but also one of the development directions of industrial blockchain. As large-scale industrial assets are tokenized through blockchain technology, more institutional investors have entered the crypto market, significantly improving the liquidity and transparency of global assets and promoting the development of asset management and trading. As a diversified RWA tokenization platform in Asia, Matrixdock is also constantly innovating to promote the deep integration of traditional finance and the digital economy.

Lily Z. King, COO of Cobo, a digital asset custody and wallet technology provider, said that Cobo conducted in-depth discussions and research with participating institutions and regulators at the beginning of the first batch of Hong Kong stablecoin sandbox applications, and became the preferred digital wallet partner of Yuanbi Technology, one of the first sandbox participants. Based on our insights, stablecoins are not only a tool to bridge traditional finance and digital assets, but also a key node in the global financial system. By being pegged to fiat currencies or other stable assets, stablecoins provide a bridge that connects the world of traditional finance and DeFi. This bridge is critical to driving mainstream adoption because it allows investors to gain a familiar sense of security and stability when exploring emerging digital assets.

At present, stablecoins not only show unique advantages in payment and settlement, but may also become the cornerstone of the digital economy in the future. Hong Kong's innovation and breakthroughs in this field may determine its position in the global digital economy. From a macro perspective, Hong Kong has a deep financial market foundation, a strong regulatory framework, and a determination to make digital currency its next economic driver, which makes it an ideal place to promote the development of stablecoins; from a micro perspective, the diversity of Hong Kong market participants (including traditional financial institutions, Internet head companies, and blockchain native teams from the East and West) will be conducive to the exploration of users and business scenarios of Hong Kong stablecoins, providing a strong infrastructure for the arrival of the Summer of PayFi.

Meng Dinglin, partner of Minimalist Currency, expressed his views from the perspective of supervision. He said that from the perspective of the legislative suggestions issued, the main reflection is the management measures in the license, operation and exit of stablecoins. The application of stablecoins is less involved. And the application of stablecoins is the key to success.

As a digital currency, stablecoins are completely different from traditional legal currency electronic currencies. If stablecoins are used in the current traditional industries, it is of little significance. It cannot compete with electronic currencies. The basis for the application of stablecoins is the rich ecology of digital assets and digital applications. Without these foundations, it is difficult for the issuers of stablecoins to make profits and it is not easy to continue to operate.

Therefore, we believe that compared with the regulatory policy of stablecoins, the regulatory policy of the transfer of traditional assets to digital assets, and the promotion policy of the digital asset application ecology should be established first, or launched at the same time. For example: relevant policies are issued to support the trial of stablecoins in certain specific businesses (cross-border payments, specific RWA, etc.) in the current financial system. Gain experience and then gradually expand the scope of application.

In addition, the operation of digital assets can have its own regulatory functions as required, so the supervision can be different from the current financial supervision. The regulatory authorities can implement real-time supervision of specific applications by reviewing the specific smart contracts of the application party, which is more efficient, less costly, and more effective.

Sceptics

Where there are supporters, there are naturally voices from the other side. Among the people we interviewed, some people also believe that the issuance of Hong Kong dollar stablecoins may not produce the imagined effect, and some even question its necessity:

Joe Zhou, deputy editor-in-chief of Foresight News, said that he is worried about whether Hong Kong dollar stablecoin companies have enough market competition beliefs. Joe Zhou said that through equity, whether it is Yuanbi, JD.com, or Standard Chartered, the three institutions are controlled by institutions with traditional financial backgrounds. At the same time, these three teams currently do not have enough native Web3 talents, which may be a major obstacle for them to compete with global stablecoin companies. Another point is that the Hong Kong dollar stablecoin is an extension of the Hong Kong dollar. Will this greatly limit its scale? Just like the current gap between Hong Kong ETFs and US ETFs.

Fang Hongjin, co-chairman of the Hong Kong Blockchain Association, elaborated on his views from multiple perspectives, including the US dollar stablecoin, the stablecoin anchored to a "basket of currencies" and the Hong Kong dollar stablecoin. He said that if a stablecoin anchored to the US dollar is issued in Hong Kong, there is no problem from the perspective of the financial environment and legal norms, but the question is who will use it? How much market value can it have in circulation? Of the US$160 billion market value of stablecoins anchored to fiat currencies, USDT issued by Tether accounts for about 70%, and USDC issued by Circle, which is partially compliant in the United States, accounts for 20%, and other stablecoins account for a very small share. Therefore, although Hong Kong's issuance of stablecoins anchored to the US dollar is compliant and officially approved, it may be difficult for it to reach the level of existing US dollar stablecoins in terms of market value.

Fang Hongjin said, "Tether was always questioned in the early days whether the US dollars it held could guarantee a 1:1 peg with USDT. Despite the continued questioning, the main reason why USDT still maintains its top market share and continues to develop is its liquidity that others cannot match. Almost all centralized and decentralized exchanges must use USDT as the main trading pair asset. USDT is almost the only acceptable virtual currency for peer-to-peer payments between private individuals. So just because the issued US dollar stablecoin is compliant, whether it can compete with USDT, I personally am not optimistic."

In terms of stablecoins anchored to a "basket of currencies", Fang Hongjin said, "In 2019, Facebook once announced with great fanfare that it would issue Libra's top-level design is to issue stablecoins based on a basket of currencies such as the US dollar, the euro, the British pound, and the Japanese yen in different proportions. I publicly commented in the media at the time that it was not feasible. Regardless of how central banks of various countries regulate, how can the stablecoin maintain its value stability when the exchange rates between these hard currencies fluctuate? Who is stable? Of course, Zuckerberg was called to the US Congress to answer twice, and Libra After that, it died down. So is it feasible to issue stablecoins pegged to a basket of currencies in Hong Kong now? There should be institutions that have tried it. You can check the results yourself. As for issuing stablecoins pegged to other countries' legal currencies in Hong Kong, you might as well try them all. They may play a role in cross-border payments between Hong Kong and its host country, but the scale of issuance will not be large. "

Finally, in terms of Hong Kong dollar stablecoins, Fang Hongjin said that he learned that some institutions in Hong Kong with backgrounds in mainland large companies plan to issue Hong Kong dollar stablecoins. The purpose is to cooperate with domestic companies in cross-border trade and cross-border e-commerce to provide convenient point-to-point payment services.

Fang Hongjin believes that the Hong Kong dollar itself is a regional currency pegged to the US dollar and maintains a linked exchange rate with the US dollar. It is difficult to have an independent monetary policy (such as interest) and can be freely converted into US dollars in Hong Kong. In addition to having an exclusive legal currency status in Hong Kong, the Hong Kong dollar has no application scenarios in other countries and regions (perhaps with the exception of Macau). So since there is a mature and widely accepted US dollar stablecoin model, issuing Hong Kong dollar stablecoin is basically unnecessary.

Fang Hongjin said that first, when mainland enterprises or individuals apply to the State Administration of Foreign Exchange for foreign exchange inflow or outflow indicators, it is the same whether the foreign exchange is US dollars or Hong Kong dollars, and there is no preferential policy for applying for Hong Kong dollars; secondly, except for Hong Kong, it is estimated that no customers in any country or region will choose to accept Hong Kong dollar stablecoins when they can receive US dollar stablecoins; thirdly, the application of Hong Kong dollar stablecoins in the local retail market in Hong Kong is also difficult to expand, because the Hong Kong government is already actively promoting the use of CBDC-type digital Hong Kong dollars in Hong Kong. There is almost no difference in the experience of using the Hong Kong dollar stablecoin issued by enterprises and the digital Hong Kong dollar issued by the government, and Hong Kong residents may be more inclined to digital Hong Kong dollars.

Although not optimistic about the Hong Kong dollar stablecoin, it still believes that stablecoins still have opportunities, but they must break through the shackles of being currently limited to anchoring to fiat currencies, and issue on-chain commercial bills for enterprises, stablecoins with returns, and stablecoins anchored to value-added physical assets.

Finally, a senior industry insider who requested anonymity summed up the thoughts of most people who are not optimistic in one sentence: USDT's success cannot be replicated, and the success rate of insisting on making stablecoins is not high.