Stablecoin fever runs high among investors, issuers

Stablecoin fever is running high in Hong Kong, with tech titans jostling to win licenses for the digital assets that could be part of daily life in the not-too-distant future.

Retail investors, too, are in a frenzy over the digital asset whose values are linked to legal tender like the US dollar.

But while excitement looms large over the next big thing in digital assets, experts say that it will likely take a few years before stablecoins join the ranks of fiat currencies in global trade.

Stablecoin heavyweight Circle’s stock is up 480 percent since its debut in New York on June 5, while in Hong Kong, Guotai Junan International’s shares popped nearly 170 percent last week after it became the first Chinese brokerage to win a license for trading in digital assets in the city, in an indication of the euphoria over crypto-linked stocks.

Hong Kong will start accepting applications for stablecoin licenses once a new stablecoin law takes effect from August 1.

In the run up to this, JD.com’s subsidiary Jingdong Coinlink Technology is conducting tests for both Hong Kong dollar and US dollar-pegged tokens on cross‑border transfers, retail payments and investments.

The Chinese e-commerce giant hopes to launch a stablecoin before the end of the year and is dreaming of licenses in all major currency countries.

With stablecoins, merchants could sidestep networks like UnionPay, Visa and Mastercard, saving billions in annual fees, and JD.com believes transaction costs can be reduced by up to 90 percent.

Meanwhile, rival Ant Group’s international arm is also eyeing stablecoin licenses in Hong Kong, Singapore and Luxembourg.

In the US, retail giants like Amazon and Walmart are eyeing stablecoins, with the US Senate passing a law that sets up a framework for greenback-linked stablecoins.

A “private currency” would not only enhance an issuer’s credibility but also boost their sales, said Terence Chong Tai-leung, executive director of the Lau Chor Tak Institute of Global Economics and Finance at Chinese University.

They would also pocket the interest on assets used to back the tokens from the “free” money drawn from coin holders, he pointed out.

Last week, Hong Kong issued a second policy statement on digital assets, pledging to issue more tokenized bonds and promote tokenization of physical assets like real estate, art and the like through incentives such as exempting stamp duty for tokenized exchange-traded funds.

The Financial Services and the Treasury Bureau and the Securities and Futures Commission also launched a second public consultation on licensing regimes for digital or virtual assets on Friday. It will run until August 29. 

Still, corporate-backed stablecoins raise concerns. If tech giants, banks and telcos launch their own tokens, people may have to juggle multiple wallets, each locked to their own trading system. 

And while the market has a multitude of players, most of them have a share of less than 1 percent, said Ryan Lam Chun-wang, head of research at Shanghai Commercial Bank.

Also, as stablecoins are not bank-issued money, they are not “stable” as their name implies, the Bank for International Settlements warns.

To avoid any pitfalls, the Hong Kong Monetary Authority expects that only a handful of licenses will be granted initially.

Greenback tokens dominate the stablecoin market with a share of nearly 99 percent, and if America were to pass a stablecoin law, the size of the market could grow to US$2 trillion (HK$15.6 trillion) in the next few years from just US$260 billion today, which could lead to massive inflows into ultra-short-term US Treasury bills as issuers back their tokens with the world’s safest asset. 

But if there were a selloff, issuers might be forced to fire-sell their reserves, potentially resulting in a temporary delinking. 

Lam believes it could take two to three years for major international banks to build the infrastructure to support stablecoins and, until that happens, he does not see stablecoins becoming part and parcel of global trade.

Aiden He