On August 4th, Bitcoin fell below $60,000, and on August 5th, it fell below $50,000. Ethereum also fell below $2,100.
Virtual currencies have once again demonstrated their volatile nature.
Because of this, stablecoins have emerged in the virtual currency market. The Bank for International Settlements (BIS) defines stablecoins as cryptocurrencies that are pegged to the value of fiat currencies or other assets. Stablecoins, which aim to maintain a relatively stable exchange rate against fiat currencies, make storing and trading virtual currencies more convenient and serve as a bridge between fiat and virtual currencies.
Stablecoins have a market size of over $100 billion, with the USDT stablecoin issued by Tether dominating the market with a share of over 70%.
Stablecoins are essential for the development of the virtual asset market in Hong Kong. The regulatory authorities in Hong Kong have long been planning for the development of the stablecoin market.
On July 18th, the Hong Kong Monetary Authority announced the first batch of participants in the "Stablecoin Issuer Sandbox." The first batch includes three issuers: JD Coinchain Technology (Hong Kong), Circle Coin Innovation Technology, and a joint application by Standard Chartered Bank (Hong Kong), Animoca Brands Limited, and Hong Kong Telecommunications (HKT).
According to the definition of the Hong Kong Monetary Authority, stablecoins are virtual assets designed to maintain a relatively stable value against certain assets, usually currencies.
Airstar Bank, a licensed virtual bank in Hong Kong, announced on its official website that it has partnered with JD Coinchain Technology (Hong Kong) in the Monetary Authority's stablecoin issuer sandbox. Airstar Bank will assist JD Coinchain Technology (Hong Kong) in testing a new cross-border payment solution based on stablecoins.
Airstar Bank became a licensed bank of the Hong Kong Monetary Authority on May 9, 2019, and officially started operations on June 11, 2020. Its largest shareholder is Xiaomi Group. This means that JD Group, founded by Liu Qiangdong, and Xiaomi Group, founded by Lei Jun, have joined forces in the stablecoin market.
The second largest shareholder of Airstar Bank is Futu Securities. Futu Securities recently announced that it has officially opened Bitcoin and Ethereum trading services for its clients, becoming the first online brokerage platform in Hong Kong to directly provide cryptocurrency trading services to retail investors.
Stablecoins can be divided into fiat-backed stablecoins, such as USDT and USDC, crypto-backed stablecoins, such as DAI and USDe, and algorithmic stablecoins, such as FRAX. Fiat-backed stablecoins are currently the mainstream stablecoins.
In terms of anchoring targets, 99% of stablecoins are anchored to the US dollar at a 1:1 ratio. There are also stablecoins anchored to other fiat currencies, such as EURT anchored to the euro with a market value of $38 million, GYEN anchored to the Japanese yen with a current market value of only $14 million, and IDRT anchored to the Indonesian rupiah with a market value of $11 million. In terms of market value, the total market value of all stablecoins is over $160 billion, with USDT leading the way with a current market value of over $110 billion, and USDC steadily rising with a market value of over $33 billion. Other stablecoins have remained relatively stable. (Data from Aiying Payment Compliance's report "Stablecoin Track: Models, Operating Principles, Trends, and Thoughts on Hong Kong Stablecoins" in early July 2024)
In the "Policy Statement on the Development of Virtual Assets in Hong Kong" officially released by the Hong Kong Treasury Bureau (Financial Services and the Treasury Bureau) on October 31, 2022, it clearly stated: "Stablecoins are another focus of ours. Given that stablecoins are said to be able to maintain value stability and their use is increasing, such as as a medium of exchange between cryptocurrencies and fiat currencies, they also have the potential to establish links with traditional financial markets (such as payment systems)."
The Hong Kong Treasury Bureau and the Hong Kong Monetary Authority jointly issued a consultation paper on the proposed regulatory regime for stablecoin issuers in December 2023. In March 2024, the Hong Kong Monetary Authority announced the "Stablecoin Issuer Sandbox" policy, allowing testing of stablecoin issuance within the regulatory sandbox.
In July 2024, the Hong Kong Treasury Bureau and the Hong Kong Monetary Authority released a consultation summary, summarizing public opinions and feedback, and proposed legislative recommendations for the implementation of a regulatory regime for stablecoin issuers in Hong Kong. The next stage is to submit it to the Legislative Council for deliberation and issue relevant guidelines.
According to the information on the official websites of JD Coinchain Technology and Circle Coin Technology, the Hong Kong dollar stablecoins to be issued by the two institutions are pegged to the Hong Kong dollar at a 1:1 ratio. The reserves are composed of highly liquid assets and are held in independent accounts at licensed financial institutions, which can be queried through regular disclosure reports.
According to a statement provided by JD Group to 21st Century Business Herald, JD Group is positioned as a "technology and service enterprise based on the supply chain" and JD Coinchain Technology aims to provide global enterprises and individuals with payment solutions to solve cross-border payment issues.
According to information on the official website of Circle Coin Technology, the Hong Kong dollar stablecoin they are about to test is designed to connect the Web2 and Web3 worlds and market participants. Rita Liu, the CEO of Circle Coin Technology, stated that the Hong Kong dollar stablecoin will not compete with USD stablecoins like USDT for market share in the future, but will expand the application scenarios of stablecoins together with various stablecoins.
Although JD Coinchain Technology and Airstar Bank have their roots in mainland China, the stablecoins they plan to issue are based on the Hong Kong dollar collateral.
As the second-largest economy in the world, the Chinese yuan (renminbi) has an extremely important position in the international economic system. Renminbi-backed stablecoins have always been a hot topic in the industry, and there have been attempts in this regard.
TRON launched the RMB stablecoin TCHN; Tether, which issues the USDT stablecoin, launched the RMB stablecoin CNHT; CNHC Group has issued the RMB stablecoin CNHC. However, the CNHC Group team was arrested in May 2023, and there are reports that the reason for the arrest was not related to the issuance of stablecoins.
Given China's current foreign exchange policy and virtual currency policy, issuing renminbi-backed stablecoins based on offshore renminbi (or renminbi assets) is more feasible. Offshore renminbi stablecoins are not only beneficial to the ecological prosperity of the cryptocurrency market in Hong Kong and internationally but also contribute to the internationalization of the renminbi.
Stablecoins connect the entire virtual asset market, and renminbi stablecoins expand the broad usage space and innovative business models for offshore renminbi, which is conducive to the circulation of offshore renminbi. As the integration between the virtual asset market and traditional markets increases, offshore renminbi, through stablecoins, may form increasingly diverse usage scenarios and trading ecosystems.
As a cryptocurrency, stablecoins use blockchain addresses for user transactions instead of their real identities. These addresses are randomly generated strings that are not directly associated with users' personal information by default. Although transactions on the blockchain are publicly transparent, the lack of direct identity association makes user identities somewhat anonymous. This effectively avoids potential issues of data jurisdiction that may arise when using central bank digital currencies overseas. The characteristics of blockchain make some people more willing to use stablecoins, thereby increasing the acceptance of the renminbi overseas.
Hong Kong is the world's largest offshore renminbi trading market and has unique conditions for developing renminbi stablecoins.
As of the end of September 2023, the scale of renminbi financial assets held by overseas institutions, including stocks, bonds, and deposits, totaled 9.3 trillion yuan. In April 2024, the scale of offshore renminbi deposits in Hong Kong and Taiwan was 1,088.184 billion yuan and 125.596 billion yuan, respectively.
Xiao Geng, Chairman of the Hong Kong Institute of International Finance, stated at a forum in May 2024 that Hong Kong has always been a testing ground for cutting-edge financial innovations, with a good tradition of innovation, a sound institutional and market foundation for conducting experiments, less resistance from relevant interest groups, significant achievements in the development of digital finance, and a leading position globally. It can provide solid support for the construction of the most advanced digital financial infrastructure and has the conditions to explore the most advanced digital financial infrastructure. Creating a Greater Bay Area stablecoin pegged to the renminbi based on stablecoins, limited blockchain, and digital smart contracts can consolidate and enhance Hong Kong's status as an international financial center.
How long will it take to see the birth of renminbi stablecoins in Hong Kong?