Recently, Jiang Zhaosheng, a senior researcher at OKLink Research Institute, Wang Yang, Vice President of the Hong Kong University of Science and Technology and Chief Scientific Advisor of the Hong Kong Web3.0 Association, and Bai Liang, founder and CEO of Zero One Think Tank, published a joint article in Ta Kung Pao - "Web3.0 Insights / Issuing Hong Kong Dollar Stablecoins and Building a New Web3.0 Ecosystem", which discussed in depth the development of Hong Kong's stablecoins and proposed that the development of Hong Kong's stablecoins should focus on the RWA ecosystem, and focus on the openness, integrity and security of stablecoins and RWA. The article stated that the biggest problem facing Hong Kong's stablecoins at this stage is not who will issue them, but who will use them. Finding suitable scenarios and business models is the key to the sustainable development of Hong Kong's stablecoins. Focusing on the demand for virtual asset transactions, it is not meaningful to re-issue US dollar stablecoins in Hong Kong. Relevant institutions should go deep into the Web3 ecosystem, try more innovations from the asset side, and make RWA the main area of focus and development of stablecoins at this stage.
The article also stated that in the development of stablecoins in Hong Kong, in addition to an appropriate regulatory framework, relevant institutions should also use compliance technology to empower the ecosystem and use various technical means to enhance the ability of issuers and regulators to prevent and respond to potential risks of stablecoins. Only safe and compliant stablecoins can lay a solid foundation for Hong Kong to build an open, orderly and dynamic RWA tokenization ecosystem, and effectively enhance Hong Kong's strength and level in digital economy and financial technology.
As the world's leading Web3 on-chain data service provider, OKLink continues to pay attention to and deeply participate in the innovation and development of Hong Kong's Web3.0 ecosystem, including stablecoins. Regarding the security of stablecoins and anti-money laundering, OKLink has previously proposed more specific establishments in its suggestions submitted to the Hong Kong Monetary Authority, such as: encouraging issuers of fiat stablecoins to improve on-chain monitoring mechanisms, and improving on-chain transaction verification, on-chain address analysis, on-chain risk monitoring, and on-chain asset tracking capabilities for fiat stablecoins through the use of blockchain analysis tools and other technological solutions.
The following is the full text:
Hong Kong is accelerating the establishment of a regulatory system for stablecoin issuers and recently released a public consultation summary on stablecoin regulation. From the consultation summary, it can be seen that Hong Kong's proposed stablecoin regulatory system, while ensuring effectiveness and leadership, maintains greater flexibility and openness on many issues, in an effort to strike a balance between effective investor protection and providing greater innovation space for potential issuers.
Bringing stablecoins under regulation is another important measure for Hong Kong to continuously improve its regulatory framework and vigorously promote the development of virtual assets. Hong Kong has made positive progress in VATP compliance, tokenization and ETFs in the past two years, but the overall pace of building a crypto ecosystem is still slow. We understand that the premise of Hong Kong's development of virtual assets is security and compliance, but at a time when global competition is becoming increasingly fierce, Hong Kong needs to accelerate its layout in the Web3 field, not only to explore compliance in financial transactions, but also to go deep into the Web3 ecosystem and try more innovations from the asset side.
The introduction of a stablecoin regulatory framework will provide Hong Kong with a new opportunity to accelerate the promotion of RWA and tokenization practices with the help of stablecoins in a compliant environment. This may bring more innovative vitality and space to Hong Kong's virtual asset ecosystem, helping it to truly gain a voice in the global Web3 competition.
1. Hong Kong stablecoin should focus on the RWA ecosystem
After the consultation summary was issued, the industry was very concerned about Hong Kong's attractiveness to international issuers of USDT/USDC, etc. From the existing information, Hong Kong's proposed stablecoin regulatory framework is relatively friendly to international issuers, with more open measures than before, which alleviates the potential burden on international issuers. For example, the consultation summary document does not restrict the types of anchor currencies for stablecoins, and is open to the storage of reserve assets in other regions. Considering the friendliness and continuity of Hong Kong's virtual asset policies, as well as Hong Kong's importance in the global financial market, Hong Kong's stablecoin licenses should be attractive to international issuers in the future.
At the same time, considering that the connection channel with legal currency is the most worthy of development and the easiest to accumulate value in the crypto ecosystem, and stablecoins are currently an indispensable infrastructure for building channels, we believe that more financial institutions and technology companies will participate in the issuance of Hong Kong stablecoins. However, the biggest problem facing Hong Kong stablecoins is not who will issue them, but who will use them. Finding suitable scenarios and business models is the key to the development of Hong Kong stablecoins.
The compliance of virtual assets around the world is an inevitable trend, but at present, simple compliance supervision cannot accelerate its development. Instead, it will impose a heavy burden on some virtual asset companies. This can be easily seen from the general loss-making operation of licensed exchanges after obtaining licenses. In particular, as more and more regions bring virtual assets under supervision, the compliance costs that companies have to pay to meet regulatory requirements will become higher and higher. Compliance is for better development. Whether it is a company or a regulator, if it is only for compliance, it is obviously not in line with market laws. Whether it is a licensed virtual asset exchange or a stablecoin issuer, it needs to explore a more feasible business profit model under the compliance path.
However, considering the transaction demand for virtual assets, it is not meaningful to re-issue the US dollar stablecoin in Hong Kong at this stage. The penetration rate of US dollar stablecoins in the crypto market is already very high and the market structure is relatively stable. The leading position of USDT/USDC is unlikely to be challenged in the short term. Without sufficient scenario support, Hong Kong may find it difficult to establish an advantage in the stablecoin track by simply copying the existing US dollar stablecoin business model. Therefore, it is more feasible and advantageous to issue stablecoins in Hong Kong with Hong Kong dollar assets as the main reserve, and at the same time, explore more suitable application scenarios for Hong Kong dollar stablecoins based on the existing ecology. Looking at the current development direction of virtual assets and Web3 in Hong Kong, RWA may be the most suitable area for Hong Kong dollar stablecoins to focus on and exert their strength.
The next phase of development of Web3 in Hong Kong and even the world is to break the barriers between the virtual world and the real world, so that assets and funds can flow freely between the two systems. RWA is an important innovation that breaks technical barriers and accelerates the integration of virtual and real world. It can not only improve transparency and security with the help of blockchain technology, solve some problems in the traditional financial system, but also fundamentally activate more physical assets, lower investment thresholds, and attract a wider range of small and medium-sized investors to enter the market, thereby injecting more liquidity into the development of the real industry and the digital economy.
As an international trade port and global financial center, Hong Kong has unparalleled advantages and huge market demand in the field of RWA, and has accumulated rich practical experience in this field, the most well-known of which is the tokenized green bonds issued by the Hong Kong government. Only by focusing on the broader tokenization market, promoting the tokenization of a wider range of physical assets, and gradually building a compliant, reasonable and friendly RWA ecosystem can Hong Kong truly lead the development of global Web3.
However, building an RWA ecosystem requires not only multi-dimensional support from capital, technology and regulation, but also a new digital infrastructure to undertake the asset liquidity released through digitization and tokenization. The Hong Kong dollar stablecoin is such an infrastructure. In the foreseeable future, the vast majority of RWA transactions in Hong Kong will be completed with compliant Hong Kong dollar stablecoins as the carrier, and the connection and interoperability with traditional finance will be completed through stablecoins. Without compliant Hong Kong dollar stablecoins, Hong Kong RWA practices will face huge challenges in terms of convenience and security. Therefore, the introduction of a stablecoin regulatory framework may lay the foundation for the innovative development of Hong Kong's RWA ecosystem, and with the prosperity of the RWA ecosystem in the future, the role and value of the Hong Kong dollar stablecoin as a bridge for Hong Kong Web3 to connect to the outside world will become more prominent.
Even in the short term, exploring the construction of the RWA ecosystem using the Hong Kong dollar stablecoin as a liquidity carrier will not only find a clear development path for the Hong Kong dollar stablecoin, but will also create more new business models for the Hong Kong Web3 ecosystem and truly keep the funds, traffic and talents brought by Web3 innovation in Hong Kong.
2. How to build a matching Hong Kong dollar stablecoin for the RWA ecosystem?
After defining RWA as the landing scenario of Hong Kong's stablecoin, the next step is to consider how to build a matching Hong Kong dollar stablecoin for the RWA ecosystem. In addition to the necessary basic conditions, openness, integrity and security will be the key to determining whether a Hong Kong dollar stablecoin that matches the needs of the RWA ecosystem can be built.
First of all, the Hong Kong dollar stablecoin should be open enough. Although the Hong Kong dollar stablecoin is denominated in Hong Kong dollars, it should jump out of the Hong Kong market in the actual issuance and operation process, strengthen the connection with the Greater Bay Area and the international market, and allow more high-quality assets to enter through RWA tokenization. Although Hong Kong is now one of the most active regions for virtual assets and Web3 innovation, it must be admitted that the Hong Kong market is actually a very small market in physical terms. It does not make much sense to only focus on local demand to promote virtual assets and Web3 innovation. The outside world pays attention to Hong Kong, and a big reason is that it is also paying attention to the broader market space and development opportunities behind Hong Kong. Therefore, when considering the layout of Hong Kong dollar stablecoins and RWA, we should take Hong Kong as the basis and radiate outward boldly. A theoretically feasible idea is to refer to the previous development model of Hong Kong stocks, use the rich physical assets and trade needs of the Greater Bay Area and the mainland market to promote the development of the RWA ecosystem, and build a token trading system and rules based on the blockchain network through compliant Hong Kong dollar stablecoins to attract more international assets and funds to flow into Hong Kong.
Secondly, we should integrate advantageous resources to comprehensively consider the development of Hong Kong stablecoins and be wary of fragmentation. Although different commercial institutions can theoretically issue their own stablecoins according to their own needs and create a false illusion of prosperity with many market participants in the short term, the actual situation of Hong Kong's small local market and immature RWA ecosystem will further disperse the already scarce liquidity and even trigger vicious competition among different stablecoins. In the early stages of market development, in an open and diverse environment, leading role is more needed.
Previously, Professor Wang Yang, one of the authors of this article, called on Hong Kong to issue a unified Hong Kong dollar stablecoin through overall planning by licensed institutions (including the government and financial institutions such as banks, insurance, and funds), and to provide a corresponding profit distribution plan, so that it can quickly become a mature, reliable and widely used financial product under the joint promotion of different commercial institutions, and also lay the foundation for the overall development of the RWA ecosystem in Hong Kong. The inspiration brought by this plan is still worthy of attention. Within the current regulatory framework, we can concentrate advantageous finance and resources to promote the development of stablecoin leaders, thereby driving stablecoins to flourish in an open environment, explore vertical advantages and compete freely in the increasingly prosperous RWA ecosystem.
Finally, we should pay attention to the risks related to Hong Kong dollar stablecoins and improve their security. A report previously released by the United Nations pointed out that stablecoins have become one of the common payment methods for money laundering and fraud in Southeast Asia. The "White Paper on Global Virtual Currency Crime Situation and Security Governance" jointly released by OKLink Research Institute and the Key Laboratory of Information Network Security of the Ministry of Public Security of the Third Research Institute of the Ministry of Public Security also found that more than 60% of all types of virtual asset-related risk events are related to stablecoins. Although compliant stablecoins are more secure in terms of issuer security, various illegal financial activities, money laundering and terrorist financing related to stablecoins are often not directly related to the issuer, and even if the issuer can be found, it is difficult to solve. Therefore, in the development of Hong Kong dollar stablecoins, in addition to an appropriate regulatory framework, relevant institutions can also use compliant technology to empower the ecosystem and enhance the ability of issuers and regulators to prevent and respond to potential risks of Hong Kong dollar stablecoins through various technical means. Only a safe and compliant Hong Kong dollar stablecoin can lay a solid foundation for Hong Kong to build an open, orderly and vibrant RWA tokenization ecosystem, and effectively enhance Hong Kong's strength and level in digital economy and financial technology.
The authors are:
Wang Yang, Vice President of the Hong Kong University of Science and Technology and Chief Scientist of the Hong Kong Web3.0 Association
Bai Liang, Founder and CEO of Zero One Think Tank
Jiang Zhaosheng, Senior Researcher at OKLink Research Institute