The Stablecoin Market Heats Up as All Parties Rush In

The stablecoin market is witnessing a new wave of excitement. Recent news has reported that a well-known tech company is planning to apply for stablecoin licenses in Hong Kong and Singapore. The company responded by stating that it is accelerating investments and expanding collaborations in global financial management, and is putting its AI, blockchain, and stablecoin innovations into large-scale applications.

"We welcome the Hong Kong Legislative Council's passage of the 'Stablecoin Bill' and will submit our application as soon as the bill takes effect, hoping to contribute more to building Hong Kong as a future international financial center," the company stated.

According to reports, an executive from the company revealed that the company has initiated the application for a Hong Kong stablecoin license and has already had multiple rounds of communication with the regulatory authorities.

This news has attracted market attention, and related concept stocks have surged in response. So, what exactly is a stablecoin? How much room for development is there for the Hong Kong dollar stablecoin? Why are financial institutions and technology companies rushing to enter the market? What challenges does the industry face?

1:1 Asset Backing to Ensure Stability

For a long time, the significant volatility of virtual asset prices has been a concern in the market. Stablecoins, due to their anchoring to specific assets, have relatively stable prices and are more likely to gain value trust.

According to the "Stablecoin Regulation" issued by the government of the Hong Kong Special Administrative Region, stablecoins need to "refer to a single asset or a group of assets to maintain stable value". The regulation also defines the concept of "designated stablecoin", which refers to stablecoins that maintain stable value by referencing official currencies, designated units of account, or forms of storage of economic value.

The most well-known stablecoin at present is USDT, which is pegged to the US dollar. The issuer states that all USDT is pegged 1:1 to the corresponding fiat currency and is 100% backed by reserves.

To ensure stability, multiple countries and regions have strict requirements for the reserve assets of stablecoins. The Hong Kong Ordinance clearly states that the market value of reserve assets must always be no less than the face value of the stablecoins in circulation, and they must be high-quality, highly liquid, and low-risk assets.

The bill being promoted in the United States also requires that the issuance of payment stablecoins must be backed by reserve assets of at least 1:1, including cash in US dollars, short-term US Treasury bonds, etc. The European Union, Singapore, the United Kingdom, and other regions have also introduced relevant regulations.

Industry experts say that the purpose of setting a 1:1 peg is to ensure that the stablecoin has real asset backing, avoiding "circular finance" or run risks. Full coverage is necessary to ensure the stablecoin's "par redemption" commitment, maintaining its circulation and settlement functions.

There are opinions that the U.S. intends to link stablecoins to U.S. Treasury bonds in order to construct a "digital Bretton Woods system." Experts point out that this is beneficial to U.S. interests, as stablecoin issuers will become major buyers of U.S. Treasury bonds.

Finding application scenarios is key

Currently, the total scale of stablecoins is about 230 billion USD, with USDT and USDC holding the largest market share. To get a piece of the pie, Hong Kong is accelerating the relevant process, launching a "sandbox" environment for stablecoin issuers, and has passed related legislation.

Experts believe that the development of a Hong Kong dollar stablecoin is of great significance for enhancing Hong Kong's status as an international financial center. However, since the market is currently dominated by US dollar stablecoins, the development prospects of the Hong Kong dollar stablecoin still need to be observed.

"Apart from regulatory approval, the key is to find application scenarios to expand the practical role and market share of non-U.S. dollar stablecoins," said an industry insider.

Currently, stablecoins are mainly used for cryptocurrency trading, but the trading volume in Hong Kong is still relatively small. Therefore, in the short term, the HKD stablecoin may maintain a certain volume, but it will not be too large.

"Application scenarios can expand from virtual currency trading to cross-border payments. As an important financial center and service trade hub, the demand for cross-border payments in Hong Kong should be significant," an expert added.

Industry insiders say that using stablecoins for cross-border payments can shorten time and reduce costs. However, achieving seamless on-chain and off-chain cross-border transactions will require long-term efforts.

All parties are eager to enter the market

As the outlook for the stablecoin market looks promising, relevant institutions are accelerating their布局. In February of this year, several financial and technology companies have reached agreements to apply for licenses to issue Hong Kong dollar stablecoins.

It is worth noting that stablecoins have formed a financial incremental space in themselves. Recently, a digital currency giant went public in the United States, becoming the "first stablecoin stock," with a market value exceeding $20 billion.

"I believe the prospects for stablecoin development are very promising. In addition to American companies, companies in China, Europe, South America, and other regions will also join in." said an expert.

Large technology companies respond quickly, with some companies already taking action to apply for stablecoin licenses. Industry insiders analyze that this aims to strengthen the layout of blockchain technology and further serve cross-border payment and fund management businesses.

From a global competitive perspective, Chinese companies position themselves to benchmark against international payment giants, all of which have ventured into stablecoin issuance. With strong capital management capabilities and a global fintech background, Chinese companies possess significant first-mover advantages.

While competing for opportunities, there are also considerations for asset allocation. After participating in the stablecoin issuance, institutions can obtain funds at a low cost and invest in low-risk assets to generate returns. The higher the issuance of stablecoins, the more substantial the potential investment returns.

Industry pain points still need to be addressed

Currently, there are relatively few laws and regulatory rules regarding stablecoins, and the popular stablecoins in the market all carry compliance and financial risks.

Although 100% backing with reserve assets increases safety, it still cannot completely eliminate risks. High-security assets like short-term U.S. Treasuries and cash ( can be quickly liquidated to reduce liquidity risks. However, if the reserves consist of volatile or low-liquidity assets, the risks will significantly increase.

Another risk is that if there are issues with the reserve assets that the stablecoin is pegged to, the stablecoin will also be affected. Last year, when Silicon Valley Bank collapsed, it caused some stablecoin prices to temporarily deviate significantly from their pegged prices.

At the application level, stablecoins face compliance challenges. Although the advantages in the cross-border payment sector are obvious, issues such as how to ensure strict peg and prevent money laundering still need to be addressed. The high compliance costs are also a significant challenge that the industry must overcome.

In addition, for some countries, the convenience of stablecoins may lead to the selling off of the local currency, posing challenges to financial sovereignty and security.

Overall, the stablecoin market has bright prospects, but it still faces many challenges in its development, requiring joint efforts from all parties to promote healthy industry growth.