This month, Hong Kong officials are set to announce the winners of the city’s first licenses to issue stablecoins.
As Asia’s busiest international financial center, Hong Kong is keen not to be left behind as this ostensibly safer class of cryptocurrency catches on around the region and beyond. The licensing drive has been in the spotlight because of Hong Kong’s role as China’s leading financial gateway and speculation that Beijing could use the former British colony as a testing ground for a more moderate stance toward cryptocurrencies.
But expectations around the pending announcement have cooled dramatically since the licensing process kicked off last summer. With increasing directness, the Chinese authorities have underscored that they have no intention of loosening the country’s restrictions on cryptocurrency.
Along the way, a process that started with 77 groups expressing potential interest in bidding for a Hong Kong license shrank to 36 official applicants. Some mainland Chinese applicants have subsequently largely abandoned their bids, industry sources say, and now no more than a handful of hopefuls are expected to emerge with licenses, even as sentiment toward cryptocurrencies cools globally.
“I’ll be curious to see who eventually gets the license,” said Charlie Liu, a San Francisco-based investor in digital asset businesses who also advises industry players, including one Hong Kong license applicant. “Seeing how many have dropped out,” he said the results may ultimately not look so “interesting or creative.”
Andrew Fei, a partner working on digital asset matters for law firm King & Wood Mallesons in Hong Kong, added:
“We need to reset the expectations for stablecoins. This is a highly regulated business, costly to operate, and issuers’ offerings will (all) be quite similar.”
Yet, an underwhelming announcement could mark a lost opportunity for Hong Kong. Interest in stablecoins has been growing so fast that the total market capitalization of outstanding stablecoins rose nearly 50% to USD 311 billion last year, according to cryptocurrency data platform CoinGecko. The most popular stablecoin, Tether’s dollar-linked USDT, alone had a market cap of USD 183.2 billion as of February 19, while Circle Internet’s rival USDC stood at USD 73.49 billion.
While investors can buy stablecoins linked to at least seven Asian currencies, few actually do. The most popular Asian currency stablecoin, the yen-linked JPY Coin which launched in late October, had a market cap as of February 19 of merely USD 18.45 million, or 0.01% that of USDT.
The failure of Asian stablecoins to catch on is not discouraging others from trying their luck, with preparations underway in Taiwan, India, and Uzbekistan for the issuance of local currency stablecoins in the coming months and pilot tests continuing in Thailand and Malaysia. Moreover, with Hong Kong’s rollout proceeding slowly, Kazakhstan’s Astana Financial Services Authority last June preemptively licensed the issuance of a yuan-based stablecoin called AxCNH.
The stablecoin push by Asian governments appears to come from a belief that the technology may be here to stay and that, without action, stablecoin use could remain overwhelmingly dollar-oriented, especially with the Trump administration viewing stablecoins as an instrument of US financial power. With the dollar and its exchange rates increasingly unstable due to erratic Washington policymaking, Asian governments aim to protect their monetary sovereignty and ensure that local businesses and residents can use stablecoins equivalent to their home currency.
Stablecoins are a different animal from cryptocurrencies like bitcoin. While bitcoin’s primary attraction is its potential to rise in value, stablecoins are designed to maintain parity with an existing currency or commodity like gold. With stablecoins like USDT, this stability is supposed to be ensured by the issuer maintaining equivalent reserves of the underlying currency or commodity.
Stable value enables stablecoins to be used as a direct substitute for regular currency for certain purposes. For individuals or companies receiving funds from overseas, payment in stablecoin form can be far faster and cheaper than a traditional money transfer; while conventional transfers can take days and come at the cost of a few percentage points of the value moved, stablecoin transfers can be virtually instantaneous and incur less than a penny in charges.
These can be compelling draws for companies in major Asian trading hubs and export centers. According to research published earlier this year by consultancy McKinsey & Co and stablecoin research company Artemis Analytics, individuals and companies in Japan, Hong Kong, and Singapore accounted for about 60% of the USD 390 billion in real payments that the report estimates were made globally with stablecoins last year.
Hence, the imperative felt by Hong Kong authorities to get in on the action. Affirming that local licenses would be issued in March, financial secretary Paul Chan said:
“We see stablecoins as a practical tool for addressing the pain points in the real economy, particularly in payments and settlements.”
The city’s stablecoin drive began in earnest in March 2024 with the launch of a regulatory sandbox, forming a virtual testing ground to experiment with how stablecoin issuance, handling, trading and oversight could work in practice.
It was enough to set imaginations racing. “In the early stage of the Stablecoin Ordinance, I received a lot of inquiries from Chinese companies listed in Hong Kong,” said Gilbert Ng, a lawyer with Hong Kong firm Cheung Yan & Associates who advises on licensing applications.
“The majority were companies in traditional business sectors and had limited experience in crypto, or had no solid idea of what they wanted to do with the license,” Ng said, adding that many simply thought of getting involved with stablecoins as a way to draw attention and boost their share price. Such behavior led to a warning to investors from the Hong Kong Monetary Authority (HKMA) and Securities and Futures Commission to “exercise caution” regarding corporate stablecoin announcements and rumors.
Three potential stablecoin issuers were ultimately allowed into the sandbox: a unit of Chinese online retailer JD.com; a joint venture between Standard Chartered Bank, local telecommunications operator HKT and Hong Kong-based gaming and blockchain company Animoca Brands; and RD Technologies, a company founded by former HKMA CEO Norman Chan and backed by Chinese investors, including a unit of ZhongAn Online P&C Insurance.
The full list of license hopefuls has not been made public. Local press reports, though, identified the local unit of Bank of China and Alipay operator Ant Group as among the companies that were planning to submit applications.
Some Chinese companies got cold feet at the last minute after receiving discouraging signals from Beijing. Two and a half weeks before September’s Hong Kong application deadline, Ant Group CEO Cyril Han declared at a conference in Shanghai that the company would not be issuing any kind of cryptocurrency. The fully prepared application of a Chinese state-owned bank was also held back, according to a person familiar with the matter.
JD.com’s subsidiary in the Hong Kong sandbox is still officially in the running for a license, but it has all but given up, according to a person familiar with the company’s decision-making. To some extent, this is the result of a feeling of suffocating oversight in the sandbox from Hong Kong regulators, the person said. Teddy Liu, CEO of the JD.com unit, Jingdong Coinlink Technology Hong Kong, declined to comment on the license application.
Adding to the anxiety of Chinese companies like JD.com, the People’s Bank of China explicitly declared in December that stablecoins cannot be legally used to settle payments, noting it “currently cannot effectively meet the requirements of customer identification and anti-money laundering.”
Weeks ago, the central bank went further in a jointly issued statement with seven other Chinese government bodies:
“No entity or individual, whether domestic or foreign, may issue stablecoins pegged to the [Chinese yuan] overseas.”
The two announcements suggest regulators in Beijing concerned about maintaining financial control have outflanked those who argue that China must offer an alternative to dollar-based stablecoins.
“Mainland Chinese authorities aim to rein in potential financial risk spillover from digital asset activities outside of China,” Michael Huang, associate director of financial institution ratings at S&P Global Ratings, said on February 13.
Highlighting the PBOC’s concerns, Monique Taylor, a global political economy lecturer at the University of Helsinki, wrote after the bank’s December announcement that stablecoins “can circulate beyond regulatory oversight, interfere with capital account management and complicate the central bank’s control over money supply and settlement. Stablecoins also risk re-dollarizing the digital economy.”
Some Chinese officials are also said to worry that stablecoins could distract from the country’s official digital currency, the e-CNY, which has caught on less than authorities had hoped. Others remain wary of hidden risks with stablecoins, as reflected in incidents such as the 2022 collapse of South Korean entrepreneur Do Kwon’s TerraUSD stablecoin, which had a market cap of USD 18 billion but was not backed by dollar reserves and lost more than 90% of its value when its peg gave way.
While Hong Kong’s first stablecoins are now expected to be linked to the US and Hong Kong dollars rather than the yuan, the latest announcement has piled on uncertainty for Chinese companies looking to be involved in the city’s rollout, such as RD Technologies’ shareholders.
“Companies’ stablecoin business plans are now in limbo, because they do not know if they are legal or illegal anymore,” a blockchain executive said. “It will take some time before they can clarify with the regulators.”
The Chinese regulators’ statements also leave unclear the status of Astana-licensed AxCNH, which remains in circulation with a market cap of USD 5.52 million as of February 19. AnchorX, the Hong Kong-based issuer of the stablecoin, did not respond to requests for comment amid the Lunar New Year holidays.
CEO Hill Wang, previously a managing partner at Chinese private equity group Hony Capital, told interviewers last year that AnchorX would apply for a Hong Kong stablecoin license. The company secured rights to the “AxHKD” trademark in Hong Kong in 2024 but it is not clear whether AnchorX went through with filing a stablecoin license application in the city.
Meanwhile, AnchorX remains linked to Beijing-based Hony: Goldstream Investment, a Hony investment arm, holds preferred shares in the AxCNH issuer that can be converted into a 5% stake, according to a stock exchange filing. The stablecoin is based on a blockchain platform developed in China by Conflux Network, which has received funding from the Shanghai government and partnered with state-owned China Telecom.
In any case, even after the license winners are announced, industry players said it could take another four to six months for Hong Kong-issued stablecoins to hit the market, given the need to fix arrangements for custody, distribution and other matters.
There are still “a couple of moving pieces,” said Dominic James, a partner with law firm Sidley Austin in Hong Kong.
This article first appeared on Nikkei Asia. It has been republished here as part of 36Kr’s ongoing partnership with Nikkei.