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 currency or other assets. Stablecoins, due to their "stability" and pursuit of a relatively stable exchange rate with fiat currency, make storing and trading virtual currencies more convenient, serving as a bridge between fiat and virtual currencies.
Stablecoins have a market size of over a hundred billion dollars. The US dollar stablecoin USDT issued by Tether dominates the market, accounting for over 70%.
Stablecoins are indispensable 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 Issuers 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 with 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 Issuers 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 launched its services 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, are joining forces in the stablecoin market.
Airstar Bank's second-largest shareholder 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.
In terms of maintaining "stability," stablecoins can be divided into: fiat-collateralized stablecoins, such as USDT and USDC; crypto-collateralized stablecoins, such as DAI and USDe; and algorithmic stablecoins, such as FRAX.
Among them, fiat-collateralized stablecoins are currently the mainstream.
In terms of anchoring targets, except for PAXG, which is anchored to the price of gold, 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, which is anchored to the euro with a market value of $38 million, GYEN, which is anchored to the Japanese yen with a current market value of only $14 million, and IDRT, which is 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. USDC's market value is steadily rising and is over $33 billion, but there is still a gap compared to USDT. Other stablecoins are relatively stable. (Data from Aiying Payment Compliance's report "Stablecoin Track: Models, Operation 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 connections 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 Issuers 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 review and issue relevant guidelines.
According to information from JD Coinchain Technology and Circle Coin Technology's official websites, the Hong Kong dollar stablecoins to be issued by the two institutions are pegged to the Hong Kong dollar at a 1:1 ratio. Their reserves consist of highly liquid assets held in independent accounts of licensed financial institutions and can be queried through regular disclosure reports.
According to a statement provided by JD Group to 21st Century Business Herald, JD Group positions itself 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 problems.
According to information on Circle Coin Technology's official website, the Hong Kong dollar stablecoin they are about to test is designed to connect the Web2 and Web3 worlds and market participants. Rita Liu, CEO of Circle Coin Technology, stated that the Hong Kong dollar stablecoin will not compete with USDT and other US dollar stablecoins in the market, but will expand the application scenarios of stablecoins together with various stablecoins.
Will there be a Chinese yuan stablecoin in the future? Although JD Coinchain Technology and Airstar Bank are rooted in mainland China, the planned stablecoin issuance is based on the Hong Kong dollar collateral.
As the second-largest economy in the world, the Chinese yuan has a very important position in the international economic system. Stablecoins based on Chinese yuan collateral have always been a hot topic in the industry, and there have even been attempts.
TRON launched the Chinese yuan stablecoin TCHN; Tether, which issues the US dollar stablecoin USDT, launched the Chinese yuan stablecoin CNHT; CNHC Group has issued the Chinese yuan stablecoin CNHC, but the CNHC Group team was arrested in May 2023, and there are reports that the reason for the arrest was not the issuance of stablecoins.
Considering China's current foreign exchange policy and virtual currency policy, issuing a Chinese yuan stablecoin based on offshore renminbi (or renminbi assets) collateral is more feasible. Offshore Chinese yuan stablecoins are not only beneficial to the ecological prosperity of the cryptocurrency market in Hong Kong and even internationally but also conducive to the internationalization of the Chinese yuan.
Stablecoins connect the entire virtual asset market, and Chinese yuan stablecoins expand the broad usage space and innovative business models for offshore renminbi, which is beneficial to the circulation of offshore renminbi. As the integration between the virtual asset market and traditional markets becomes higher, offshore renminbi, through stablecoins, may form increasingly diverse usage scenarios and trading ecosystems.
As a cryptocurrency, stablecoins use blockchain addresses for user transactions, rather than the user's real identity. These addresses are randomly generated strings that are not directly associated with the user's personal information by default. Although transactions on the blockchain are publicly transparent, due to the lack of direct identity association, user identities are to some extent anonymous. This effectively avoids the issue of data jurisdiction that central bank digital currencies may encounter when used overseas. The characteristics of the blockchain make some people more willing to use stablecoins, thereby expanding the acceptance of the Chinese yuan overseas.
Hong Kong is the world's largest offshore renminbi trading market and has unique conditions for developing Chinese yuan stablecoins.
As of the end of September 2023, the scale of RMB 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 International Finance Institute of Hong Kong, said 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 system and market foundation for implementing experiments, less resistance from relevant interest groups, significant achievements in digital finance development, 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 Chinese yuan based on stablecoins, limited blockchain, and digital smart contracts can consolidate and enhance Hong Kong's position as an international financial center.
How long will it take to see the birth of a Chinese yuan stablecoin in Hong Kong?