Author: He Liuying, Interface News

Stablecoins are stirring up another wave of market excitement.

Recently, it was reported that Ant International is planning to apply for stablecoin licenses in Hong Kong and Singapore. On June 12, Ant International responded that it is accelerating investments and expanding collaborations in global financial asset management, aiming to apply its innovations in AI, blockchain, and stablecoins to real and reliable large-scale applications.

"We welcome the Hong Kong Legislative Council's passage of the 'Stablecoin Regulation Draft,' which will take effect on August 1 after the bill is enacted and relevant channels are opened. We hope to contribute more to building Hong Kong as a future international financial center," said Ant International.

Additionally, it was reported that Ant Group's Vice President and President of Ant Digital Technology's Blockchain Business, Bian Zhuoqun, revealed in an interview that Ant Digital Technology has already initiated the application for a stablecoin license in Hong Kong and has had multiple rounds of communication with regulators.

On June 12, shares of Ant Group-related stocks surged in Hong Kong, with Yunfeng Financial experiencing a sharp rise, increasing by 54.24% in a single day.

What are stablecoins? How much liquidity is there for Hong Kong dollar stablecoins? Why are financial institutions and tech companies entering this space? What are the industry's pain points?

1:1 Asset Backing

For a long time, the significant price volatility of virtual assets has been criticized by the market, while stablecoins, due to their peg to specific assets, have relatively stable prices and are easier to accumulate value trust.

According to the "Stablecoin Regulation" published in the Hong Kong Special Administrative Region Government Gazette on May 30 (hereinafter referred to as the "Regulation"), the definition of stablecoins must conform to "referencing one of the following to maintain stable value—single asset; a group or basket of assets."

Hong Kong has also specifically defined the concept of "designated stablecoins," which refers to stablecoins that reference one or more official currencies; one or more calculation units designated by the Hong Kong Monetary Authority (hereinafter referred to as "HKMA"); one or more forms of economic value storage designated by the HKMA; or a combination of the above, to maintain stable value.

The most familiar stablecoin to the public is Tether (USDT), which is pegged to the US dollar. Tether claims that all USDT is pegged 1:1 to the corresponding fiat currency (for example, 1 USDT = 1 USD) and is 100% backed by Tether's reserves.

To ensure the true stability of stablecoins, strict requirements have been set for reserve assets in the US, UK, EU, Hong Kong, Singapore, and other regions.

The Hong Kong Regulation specifies that the market value of the reserve asset portfolio must at all times be at least equal to the face value of the designated stablecoins that have not been redeemed and are still in circulation, and the reserves of the licensee must consist of high-quality, highly liquid assets with minimal investment risk.

The "Guidance and Establishment of the National Innovation Act for US Stablecoins" (hereinafter referred to as the "Genius Act") being advanced in the US requires that to issue payment-type stablecoins, they must be supported by a reserve asset ratio of at least 1:1 for the issuer's outstanding stablecoins, which include US dollar cash, US Treasury bills maturing within 93 days, etc.

According to the 2020 Digital Finance Strategy, the EU introduced the "Regulation on Markets in Crypto-Assets" (MiCA), with rules regarding asset-referenced tokens and electronic money tokens (both types of stablecoins) taking effect on June 30, 2024.

On August 15, 2023, the Monetary Authority of Singapore released regulations for stablecoin supervision, which apply to any single currency stablecoin issued in Singapore that is pegged to the Singapore dollar or any G10 currency, with reserve assets including cash, cash equivalents, and bonds maturing within three months, all denominated in the pegged currency.

On May 28, 2025, the UK's Financial Conduct Authority (FCA) published a consultation document suggesting that issuers must ensure that all circulating stablecoins are backed 1:1 by a pool of low-risk, liquid assets.

Jeffrey Ding, Chief Analyst at HashKey Group, told Interface News that the purpose of setting a 1:1 peg is essentially to ensure that the stablecoins held by users are backed by real assets, avoiding "circular finance" or bank run risks.

"A 1:1 peg means that each unit of stablecoin corresponds to an equivalent unit of real asset, giving investors and users confidence to hold, use, or even transact large amounts of such assets, thus avoiding a crisis of trust. If the reserves are not fully covered, the 'face value redemption' promise of the stablecoin will fail, which is detrimental to financial institutions or users needing to quickly convert to fiat currency, affecting circulation and settlement functions," emphasized Jeffrey Ding.

Some market views suggest that the US linking stablecoins to US Treasury bonds aims to build a "digital Bretton Woods system."

Deng Jianpeng, a professor at the Law School of Central University of Finance and Economics and Director of the Financial Technology Legal Research Center, told Interface News, "For the US, since currently 90% of stablecoins are pegged to the US dollar, its regulatory legislation has its own interests in mind. For example, the reserve requirements for stablecoins are US dollar cash, US Treasury bonds, etc., which also means that issuers of US dollar stablecoins will buy a large amount of US Treasury bonds, becoming major buyers of US debt."

Standard Chartered's report believes that US legislation regarding stablecoins is expected to be introduced soon, and the Genius Act is likely to be passed in the summer, which will help increase the total supply of stablecoins from the current $230 billion to $2 trillion by the end of 2028. The need for reserve funds for stablecoins is expected to drive new demand for $1.6 trillion in US short-term Treasury bonds.

Finding Application Scenarios

Standard Chartered's report points out that the total scale of stablecoins is currently about $230 billion, with the largest and second-largest stablecoins being USDT issued by Tether and USDC issued by Circle, holding market shares of 63% and 25%, respectively.

To carve out a share in the stablecoin market, Hong Kong is accelerating related processes. In March 2024, the HKMA launched a sandbox for stablecoin issuers, providing a testing environment for institutions intending to issue fiat stablecoins in Hong Kong; on May 21, 2025, the Hong Kong Legislative Council passed the "Stablecoin Regulation Draft" to establish a licensing system for fiat stablecoin issuers in Hong Kong; on May 30, 2025, the Regulation was published in the Gazette and took effect; and on August 1, 2025, the Regulation will be implemented.

For Hong Kong, which aims to actively become an international virtual asset center, entering the stablecoin space is expected.

"Hong Kong strives to become an international financial center, including becoming an innovation center for WEB3. Issuing Hong Kong dollar stablecoins or regulated stablecoins pegged to other fiat currencies in Hong Kong is of great significance for enhancing Hong Kong's status as an international financial center," said Deng Jianpeng.

However, due to a significant disadvantage in market share, the development prospects for Hong Kong dollar stablecoins remain to be seen. "Currently, the stablecoin market is still an oligopoly, with US dollar-pegged stablecoins dominating, and Tether's stablecoins accounting for the majority. Therefore, for a stablecoin pegged to a non-US dollar, aside from regulatory approval, the most important factor is whether it can find application scenarios to expand the actual role and market share of non-US dollar stablecoins," Jeffrey Ding stated.

"The Hong Kong dollar stablecoin is pegged to the Hong Kong dollar, which itself has a relatively small market value. From the perspective of application scenarios, the main current use case for stablecoins is in the investment and trading of cryptocurrencies. Although Hong Kong already has regulated cryptocurrency exchanges and virtual asset ETFs, the overall trading volume is still relatively small. Therefore, in the short term, the Hong Kong dollar stablecoin may maintain a certain volume, but this volume will not be too large," Deng Jianpeng believes.

"Of course, application scenarios can break through from virtual currency trading to cross-border payments, as Hong Kong itself is an important financial center and service trade hub, and there should be significant demand for cross-border payments," Deng Jianpeng added.

Eugene Zhang, Chief Business Officer of OSL, recently stated in a media group interview, "OSL supports enterprises in conducting cross-border payments through stablecoins, as their advantage lies in shortening payment times. If today I want to wire money from South America to Hong Kong, it would take at least 3-5 working days through a bank due to many intermediary banks involved, while stablecoins can achieve T+0. In terms of cost, the cross-border remittance cost of stablecoins is also lower than that of traditional financial institutions."

For stablecoins issued in Hong Kong, choosing cross-border scenarios is also a necessary move.

"I believe stablecoins must be cross-border; they cannot be used only in Hong Kong, otherwise their value may not be as significant," Zhang stated.

However, enabling cross-border transactions on-chain and off-chain is a long-term project. "This involves not only the regulatory permissions of various countries and regions but also future financial infrastructure. As a cryptocurrency trading platform, we will also strive to promote communication among all parties," Zhang emphasized.

Many Seek to Compete

The stablecoin landscape is approaching, and related institutions are accelerating their actions.

In February of this year, Standard Chartered Hong Kong, Anxin Group, and Hong Kong Telecom reached an agreement to establish a joint venture, hoping to apply for a license from the HKMA to issue a stablecoin pegged to the Hong Kong dollar under the new regulatory framework.

"We are accelerating the relevant preparatory work and will announce more details in due course," said Dominic Maffei, Head of Digital Assets and Fintech at Standard Chartered Hong Kong.

It is noteworthy that stablecoins themselves have 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 of US stocks on June 12, Circle's stock price had risen to $106.54 per share, with a total market value of $23.7 billion.

"I believe the development prospects for 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, making the future very promising," Deng Jianpeng stated.

Large companies are also responding quickly. As mentioned earlier, Ant International and Ant Digital Technology have already taken steps regarding stablecoin licenses.

"In fact, Ant Digital Technology participated in the HKMA's Ensemble regulatory sandbox as early as last August, mainly promoting RWA (Real Asset Tokenization) projects for physical assets like new energy charging piles. As the parent company of Alipay, Ant Group's application for a stablecoin license in Hong Kong aims to strengthen its blockchain technology layout and further serve its cross-border payment and fund management business," Jeffrey Ding stated.

From a global competition perspective, "Ant International positions itself to benchmark against international payment giants like Stripe, PayPal, and Visa, all of which have ventured into stablecoin issuance. As one of the first publicly announced companies planning to apply for a stablecoin issuance license in Hong Kong, Ant International has a significant first-mover advantage due to its strong asset management capabilities and global fintech background," Jeffrey Ding stated.

In comparison, in August 2023, global payment giant PayPal announced the launch of a stablecoin pegged to the US dollar, PayPal USD (PYUSD), which is 100% backed by US dollar deposits, short-term US Treasury bills, and similar cash equivalents, issued by the US fintech company Paxos Trust Company.

According to PayPal, customers can convert PYUSD between PayPal and compatible external wallets; use PYUSD for person-to-person payments; choose PYUSD to pay fees at checkout; and exchange any cryptocurrency supported by PayPal for PYUSD.

In fact, while competing for first-mover advantage, there are also considerations for asset allocation. "After participating in stablecoin issuance, institutions can obtain fiat currency paid by stablecoin holders at nearly zero cost, and they can also use this to purchase some low-risk investment products, such as US Treasury bonds, which will generate returns. Especially as the issuance volume of stablecoins increases, the larger the base, the more significant the potential investment returns," Deng Jianpeng stated.

Many Pain Points Remain

"Currently, there are relatively few legal and regulatory rules regarding stablecoins, and the popular stablecoins in the market actually face compliance and financial risks," emphasized Deng Jianpeng.

Including the issue of asset stability, the aforementioned stablecoins will require 100% backing with reserve assets. To what extent can the asset security of stablecoins be guaranteed under this measure?

Jeffrey Ding believes that a 1:1 peg to real assets enhances asset security but cannot completely eliminate risks. High-security assets (such as short-term U.S. Treasury bills, cash, and bank deposits) can be quickly liquidated in a short time, significantly reducing liquidity risk. However, if the reserves consist of volatile or low-liquidity assets (such as commercial paper or tokenized securities), the risks will increase significantly. This is why both Hong Kong and the U.S. stipulate that reserve assets must be high-liquidity assets, including cash and short-term U.S. Treasury bonds.

Jeffrey Ding mentioned that both Hong Kong and the U.S. require that reserve assets be held by independent, regulated custodians, completely isolated from the issuer's own funds. This can prevent user assets from being harmed due to the issuer's bankruptcy or misappropriation of funds, and they must undergo 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 there are issues with the pegged reserve assets, the stablecoin will also face problems. In March 2023, Silicon Valley Bank in the U.S. announced its closure due to a liquidity crisis, and at that time, $3.3 billion of Circle's $40 billion USDC reserves were held at Silicon Valley Bank. This caused the price of USDC to plummet to around $0.87, significantly deviating from its pegged price.

On the application level, there are also compliance issues. "In the field of cross-border payments, stablecoins have clear advantages, whether in terms of payment costs or payment efficiency, they outperform traditional financial institutions. However, their challenge lies in compliance issues. The issued stablecoins must be strictly pegged to the corresponding reserve cash or other equivalents. If this cannot be achieved, it is equivalent to over-issuing currency or committing fraud, which could be a significant challenge for future regulation," said Deng Jianpeng.

"Another challenge is anti-money laundering. Stablecoins may be exploited by hackers or used for other illegal purposes, which is also a significant challenge," Deng Jianpeng stated.

It is worth noting that there is a consensus in the industry that high compliance costs are also a major issue that virtual asset participants must overcome.

"Finally, for other countries using non-U.S. or non-mainstream fiat currencies, or for those whose national fiat currency has already lost credibility or is experiencing severe inflation, the convenience of accessing stablecoins—without needing a bank account, just internet access—will lead these countries to sell off their national currencies in exchange for U.S. dollar stablecoins. This will pose significant challenges to the financial sovereignty, currency sovereignty, and financial security of these countries," Deng Jianpeng emphasized.

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