Author: He Liuying, Interface News
Stablecoins are sparking another market wave.
Recently, reports suggest that Ant International is planning to apply for stablecoin licenses in Hong Kong and Singapore. On June 12, Ant International responded that they are accelerating investment and expanding cooperation in global treasury management, and will invest their AI, blockchain, and stablecoin innovations into real and reliable large-scale applications.
"We welcome the Hong Kong Legislative Council's passage of the 'Stablecoin Ordinance Draft', which will take effect on August 1st. We hope to submit our application as soon as the relevant channels open and contribute more to building Hong Kong's future international financial center," Ant International stated.
According to reports, Ant Group Vice President and Ant Digital Blockchain Business President Bian Zhuoqun revealed in an interview that Ant Digital has initiated the application for a Hong Kong stablecoin license and has already conducted multiple rounds of communication with regulators.
On June 12, Ant Financial concept stocks in the Hong Kong stock market collectively surged, with Cloud Peak Finance rising sharply, up 54.24% in a single day.
What are stablecoins? How large is the liquidity space for Hong Kong dollar stablecoins? Why are financial institutions and tech companies entering the market? What are the industry pain points?
1:1 Asset Backing
For a long time, the significant price volatility of virtual assets has been criticized by the market. Stablecoins, due to their anchoring to specific assets, have relatively stable prices and are easier to accumulate value trust.
According to the 'Stablecoin Ordinance' published in the Hong Kong Special Administrative Region Government Gazette on May 30, stablecoins must maintain stable value by referencing "a single asset; or a group or basket of assets".
Hong Kong has specifically defined the concept of "specified stablecoins", referring to those maintaining stable value by referencing one or more official currencies; one or more calculation units specified by the Hong Kong Monetary Authority (HKMA); one or more economic value storage forms specified by the HKMA; or a combination of the above.
The most familiar stablecoin is Tether (USDT), which is pegged to the US dollar. Tether states that all Tether coins are pegged 1:1 to their corresponding fiat currency (e.g., 1 USDT = 1 USD) and are 100% backed by Tether's reserves.
To ensure the true stability of stablecoins, the United States, United Kingdom, European Union, Hong Kong, and Singapore have all set strict requirements for stablecoin reserve assets.
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OSL's Chief Business Officer Eugene Zhang recently stated in a media interview, "OSL supports enterprises in cross-border payments through stablecoins, with advantages in shortening payment time. If transferring money from South America to Hong Kong today through a bank, it would take at least 3-5 working days due to multiple intermediary banks, whereas stablecoins can achieve T+0 settlement. In terms of cost, stablecoin cross-border remittance is also lower than traditional financial institutions."
For stablecoins issued in Hong Kong, choosing cross-border scenarios is necessary.
"I believe stablecoins must be cross-border and cannot be limited to Hong Kong, otherwise their value might not be as significant," Zhang emphasized.
Of course, bridging on-chain and off-chain cross-border transactions is a long-term project. "This involves not only regulatory permissions across countries and regions but also future financial infrastructure. As a cryptocurrency trading platform, we will also strive to facilitate communication between all parties," Zhang stressed.
Crowded Field
The stablecoin landscape is approaching, and related institutions are accelerating their actions.
In February this year, Standard Chartered Hong Kong, ANZ Group, and Hong Kong Telecom reached an agreement to establish a joint venture, hoping to apply for a license from the Hong Kong Monetary Authority under the new regulatory framework to issue a stablecoin pegged to the Hong Kong dollar.
"We are intensifying our preparatory work and will announce more details at the appropriate time," said Dominic Maffei, Head of Digital Assets and Financial Technology at Standard Chartered Hong Kong.
Notably, stablecoins have already generated a financial incremental space. On June 5, digital currency giant Circle went public on the New York Stock Exchange, becoming the "first stablecoin stock" with an opening price of $69 per share. As of the close on June 12, Circle's stock price had risen to $106.54, with a total market value of $23.7 billion.
"I believe the development prospects of stablecoins are very promising. Besides Circle, which just went public in the US, and stablecoin giant Tether, I believe companies from China, Europe, South America, and other regions will also enter the market, with very bright prospects," said Deng Jianpeng.
Large companies are reacting quickly, such as Ant International and Ant Digital, which have already made moves in stablecoin licensing.
"In fact, Ant Digital participated in the Hong Kong Monetary Authority's Ensemble regulatory sandbox as early as last August, mainly promoting RWA (Real World Asset tokenization) projects for new energy charging piles. As the parent company of Alipay, Ant Group's application for a Hong Kong stablecoin license aims to strengthen its blockchain technology layout and further serve its cross-border payment and fund management business," said Jeffrey Ding.
From a global competition perspective, "Ant International positions itself as benchmarking against international payment giants like Stripe, PayPal, Visa, and Mastercard, all of which have been involved in stablecoin issuance. As one of the first companies to publicly announce plans to apply for a Hong Kong stablecoin issuance license, Ant International has significant first-mover advantages with its strong fund management capabilities and global fintech background," Jeffrey Ding stated.
For comparison, in August 2023, global payment giant PayPal announced the launch of PayPal USD (PYUSD), a stablecoin pegged to the US dollar, 100% backed by US dollar deposits, short-term US Treasury bonds, and similar cash equivalents, issued by US fintech company Paxos Trust Company.
According to PayPal, customers can convert PYUSD between PayPal and compatible external wallets; send peer-to-peer payments using PYUSD; choose PYUSD for payment at checkout; and exchange any PayPal-supported cryptocurrency with PYUSD.
In fact, while competing for first-mover advantages, there are also asset allocation considerations. "After participating in stablecoin issuance, institutions can obtain near-zero-cost legal currency from stablecoin holders and simultaneously purchase low-risk investment products like US Treasury bonds, which will generate returns. Especially as the issuance volume and base of stablecoins increase, investment returns could be very significant," said Deng Jianpeng.
Many Pain Points Remain
"Currently, there are few legal and regulatory rules for stablecoins, and popular stablecoins actually have compliance and financial risks," Deng Jianpeng emphasized.
This includes asset stability issues. As mentioned earlier, stablecoins will need 100% pegged reserve assets, but to what extent can asset safety be guaranteed?
Jeffrey Ding believes that 1:1 real-world asset pegging enhances asset safety but cannot completely eliminate risks. High-safety assets (like short-term US bonds, cash, bank deposits) can be quickly liquidated, significantly reducing liquidity risks. However, if reserves are volatile or low-liquidity assets (like commercial papers or tokenized securities), risks will significantly increase. This is why Hong Kong and the US mandate that reserve assets must be high-liquidity assets, including cash and short-term US Treasury bonds.
Jeffrey Ding mentioned that both Hong Kong and the US require reserve assets to be held by independent, regulated custodians, completely isolated from the issuer's own funds. This prevents user asset losses due to issuer bankruptcy or fund misappropriation and allows third-party accounting audits or on-chain verifiable mechanisms to enhance transparency and public confidence, preventing false endorsements or information asymmetry.
One risk is that if the pegged reserve assets have problems, the stablecoin will also have problems. In March 2023, Silicon Valley Bank collapsed due to a liquidity crisis, and Circle had $3.3 billion of its $40 billion USDC reserves in Silicon Valley Bank. This caused USDC's price to plummet to around $0.87, severely deviating from its anchored price.
At the application level, compliance issues are even more prominent. "In cross-border payments, stablecoins have clear advantages in both payment costs and efficiency compared to traditional financial institutions. However, the challenge lies in compliance issues. The issued stablecoin and its corresponding reserve cash or equivalent must be strictly pegged. If not, it's equivalent to over-issuing currency or fraud, which could be a major challenge for future regulation," Deng Jianpeng said.
"Another challenge is anti-money laundering. Stablecoins might be exploited by hackers or used for other illegal purposes, which is also a significant challenge," Deng Jianpeng stated.
It's worth noting that an industry consensus is that high compliance costs are a major problem that virtual asset participants must overcome.
"Lastly, for countries using non-US or non-mainstream legal currencies, or countries where their national currency credit has collapsed or experiencing severe inflation, the easy accessibility of stablecoins—requiring only internet access without bank account opening—might lead these countries to sell their national currencies and switch to US dollar stablecoins. This would pose a significant challenge to these countries' financial sovereignty, monetary sovereignty, and financial security," Deng Jianpeng emphasized.
