Stablecoins on the Rise: Unlocking New Possibilities in Hong Kong
As Hong Kong’s Stablecoins Bill makes its way through the Legislative Council, the city is poised to unlock the vast potential of stablecoins, revolutionizing domestic payments, cross-border trade settlements, and more.
What are Stablecoins?
Stablecoins are digital assets issued by private entities, maintaining a fixed value relative to a government-issued fiat currency or other reference rate. They serve as a bridge for transactions involving digital assets on blockchains, which cannot directly interact with fiat currencies.
Beyond Cryptocurrency Trading
While primarily known for facilitating cryptocurrency trades in the Web3 world, stablecoins have the capacity to expand their usage in the real financial economy. Industry experts envision their potential in automating incentives, rebates, or loyalty points in digital wallets, like the Octopus programme, by leveraging stablecoins’ programmability.
New Investment Avenues
Stablecoins can provide access to new investment opportunities, such as tokenised funds, which use the blockchain for sales and redemptions. According to a report from Aptos Labs, Boston Consulting Group, and Invesco, assets under management are expected to surge to around US$600 billion in seven years, up from US$2 billion at the end of this year.
Industry Insights
“The applications of stablecoin will be numerous,” said Sean Lee, co-founder of IDA, a Hong Kong-based Web3 digital asset company. “It can be for payments, settlements, payrolls, financing, and related to investments. New products will spring up, and transactions will be faster, instant, 24/7 – and at a lower cost.”
Connecting Traditional Finance and Web3 Markets
Dominic Maffei, head of digital asset and fintech for Hong Kong at Standard Chartered, believes stablecoins are the best available tool for connecting traditional finance and Web3 markets, with proven use cases and business models to support that belief.
Market Growth
The market capitalisation of stablecoins has grown to over US$200 billion over the past decade, with trading volume reaching US$125 billion, according to CoinGecko. In 2023, stablecoins settled US$2.3 trillion worth of transactions in activities like payments and cross-border remittances, a 17 per cent increase from the previous year.
Cross-Border Payments and Trade
Hong Kong can leverage its position as the world’s seventh-largest trading hub by merchandise trade value and fourth-largest foreign exchange market to facilitate cross-border payments and trade using stablecoins pegged to the Hong Kong dollar and other currencies.
Competition and Coexistence
Stablecoin issuers often face questions about competition from other digital assets like central bank digital currencies (CBDCs) and tokenised deposits. However, industry experts believe users will have choices, and stablecoins can coexist with these alternatives, offering diverse programmability and innovation.
Regulatory Compliance and Innovation
BCG’s David Chan notes that stablecoins primarily target early adopters, while tokenised deposits and CBDCs need to target institutions and traditional uses like wholesale payments. However, wider adoption of the latter two digital assets can be expected, with more differentiated financial products being developed. IDA’s Lee emphasizes that stablecoin, operating under a regulatory regime, is a way to innovate while being compliant.
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