Liu Qiangdong and Lei Jun join forces to enter the stable currency market: Is the RMB stable currency far away?

Author: Lang Guangzhao

On August 4, Bitcoin fell below $60,000, and on August 5 it fell below $50,000, while Ethereum fell below $2,100.  

Virtual currencies have once again experienced a violent rise and fall.  

Because of this, stablecoins have emerged in the virtual currency market. The Bank for International Settlements (BIS) defines stablecoins as: cryptocurrencies whose value is linked to legal tender or other assets. Since stablecoins pursue exchange rate parity relative to legal tender, their "stability" makes the storage and trading of virtual currencies more convenient, making them the connector between legal tender and virtual currencies.  

Stablecoins have a scale of more than $100 billion. The US dollar stablecoin USDT issued by Tether in the United States is the leader, accounting for more than 70%.  

Stablecoins are indispensable for the development of the virtual asset market in Hong Kong. Hong Kong regulators have also been planning for the development of the stablecoin market for a long time.

Liu Qiangdong and Lei Jun join forces

On July 18, the Hong Kong Monetary Authority announced the first batch of participants in the "Stablecoin Issuer Sandbox". The first batch of three issuers includes JD Coin Chain Technology (Hong Kong), Yuanbi Innovation Technology, and Standard Chartered Bank (Hong Kong), Animoca Brands Limited, and Hong Kong Telecom (HKT) who jointly applied.  

According to the definition of the Hong Kong Monetary Authority, a stablecoin is a virtual asset that aims to maintain a relatively stable value with certain assets (usually currencies).  

Hong Kong licensed virtual bank Airstar Bank announced on its official website that it has cooperated with JD Coin Chain Technology (Hong Kong), a subsidiary of JD Group, in the stablecoin issuer sandbox of the HKMA. Airstar Bank will assist JD Coin Chain Technology (Hong Kong) in trying a new cross-border payment solution based on stablecoins.  

Airstar Bank has been a licensed bank of the Hong Kong Monetary Authority since May 9, 2019, and officially started business on June 11, 2020. Its largest shareholder is Xiaomi Group. This means that JD.com, founded by Liu Qiangdong, and Xiaomi, founded by Lei Jun, have gathered in Hong Kong to jointly attack the stablecoin market.  

The second largest shareholder of Airstar Bank is Futu Securities. Futu Securities recently announced that it has officially opened Bitcoin and Ethereum trading services for its customers, becoming the first online brokerage platform in Hong Kong to directly provide cryptocurrency trading services to retail investors.  

Stablecoin pattern and breakthrough of Hong Kong dollar stablecoin 

From the perspective of maintaining "stability", stablecoins can be divided into: stablecoins collateralized by fiat assets, such as USDT, USDC, etc.; stablecoins collateralized by crypto assets, such as DAI, USDe, etc.; and algorithmic stablecoins, such as FRAX.  

Among them, the fiat stablecoin is the current mainstream stablecoin.  

From the perspective of anchoring, except for PAXG and other stablecoins anchored to the gold price, 99% of the stablecoins are 1:1 anchored to the US dollar. There are also stablecoins anchored to other fiat currencies, such as EURT anchored to the euro, with a market value of 38 million US dollars, GYEN anchored to the Japanese yen, with a current market value of only 14 million US dollars; IDRT anchored to the Indonesian rupiah, with a market value of 11 million US dollars. From the perspective of market value, the current market value of all stablecoins is more than 160 billion US dollars, among which USDT is far ahead and has a stable growth. The current market value exceeds 110 billion US dollars. The market value of USDC has risen steadily to more than 33 billion US dollars, but there is still a gap compared with USDT. Other stablecoins have basically remained stable. (Data from Aiying Payment Compliance's report in early July 2024, "Stablecoin Track: Models, Operating Principles, Trends and Thinking about Hong Kong Stablecoins", hereinafter referred to as the "Stablecoin Track Report") In the "Policy Declaration on the Development of Virtual Assets in Hong Kong" officially released by the Hong Kong Treasury Bureau (Financial Services and the Treasury Bureau) on October 31, 2022, it was clearly stated: "Stablecoins are another focus of ours. Given that stablecoins are said to be able to maintain value stability and their increasing use, such as as a medium of exchange for cryptocurrencies and legal tender, they also have the potential to establish links with traditional financial markets (such as payment systems)." The Hong Kong Treasury Bureau and the HKMA jointly issued a consultation document on the proposed regulatory regime for stablecoin issuers in December 2023. In March 2024, the HKMA announced the "Stablecoin Issuer Sandbox" policy, allowing the testing of stablecoin issuance within the regulatory sandbox.  

In July 2024, the Hong Kong Treasury Bureau and the HKMA issued a consultation summary, summarizing public opinions and feedback, and put forward legislative proposals on the implementation of a regulatory system for stablecoin issuers in Hong Kong. The next stage will be submitted to the Legislative Council for deliberation and relevant guidelines will be issued.  

According to the official website of JD Coin Chain Technology and Yuanbi Technology, the Hong Kong dollar stablecoins to be issued by the two institutions are both pegged to the Hong Kong dollar at a 1:1 ratio. Their reserves are composed of highly liquid assets and are deposited in independent accounts of licensed financial institutions, which can be queried through regular disclosure reports.  

According to a statement provided by JD Group to a reporter from 21st Century Business Herald, JD Group is positioned as a "supply chain-based technology and service company", and its JD Coin Chain Technology aims to provide payment solutions for global enterprises and individuals to solve cross-border payment problems.  

According to the official website of Yuanbi Technology, the Hong Kong dollar stablecoin that the company is about to test is used to connect the Web2 and Web3 worlds and market participants. The company's CEO Rita Liu said that the Hong Kong dollar stablecoin will not compete with USDT and other US dollar stablecoins in the future, but will work with various stablecoins to broaden the application scenarios of stablecoins.  

 Is the RMB stablecoin far away?  

Although the "roots" of JD Coin Chain Technology and Tianxing Bank are both in the mainland, the stablecoins currently planned to be issued are based on Hong Kong dollar collateral.

As the legal currency of the world's second largest economy, the RMB has an extremely important position in the international economic system. Stablecoins based on RMB asset collateral have always been a hot topic in the industry, and there are even precedents for attempts.  

Tron launched the RMB stablecoin TCHN; Tether, which issued the US dollar stablecoin USDT, launched the RMB stablecoin CNHT; CNHC Group once issued the RMB stablecoin CNHC, but the CNHC Group team was arrested in May 2023. It was reported that the reason for the arrest was not the issuance of stablecoins.  

Given China's current foreign exchange policy and virtual monetary policy, it is more feasible to issue RMB stablecoins with offshore RMB (or RMB assets) as collateral. Offshore RMB stablecoins are not only conducive to the ecological prosperity of Hong Kong and even the international cryptocurrency market, but also conducive to the internationalization of RMB.  

Stablecoins connect the entire virtual asset market. RMB stablecoins have expanded the broad use space and innovative business models for offshore RMB, which is conducive to the circulation of offshore RMB; as the integration between the virtual asset market and the traditional market becomes higher and higher, offshore RMB may form more and more abundant use scenarios and transaction ecology through stablecoins.  

As a cryptocurrency, users use blockchain addresses for transactions instead of their real identities. These addresses are randomly generated strings and are not directly associated with the user's personal information by default. Although transactions on the blockchain are open and transparent, due to the lack of direct identity association, user identities are anonymous to a certain extent. This effectively circumvents the data jurisdiction issues that may be encountered when the central bank's digital currency is used overseas. The characteristics of blockchain make some people more willing to use stablecoins, thereby expanding the acceptance of the RMB overseas. Hong Kong is the world's largest offshore RMB trading market and has unique conditions for developing RMB stablecoins. As of the end of September 2023, the scale of RMB financial assets such as stocks, bonds, and deposits held by overseas institutions in China totaled 9.3 trillion yuan. In April 2024, the scale of RMB deposits in the offshore markets of Hong Kong and Taiwan was 1,088.184 billion yuan and 125.596 billion yuan, respectively.  

Xiao Geng, chairman of the Hong Kong International Finance Association, said at a forum in May 2024 that Hong Kong has always been a testing ground for various cutting-edge financial innovations, with a fine tradition of innovation, a good institutional and market foundation for implementing experiments, little resistance from relevant interest groups, and significant results in the development of digital finance. It is in a leading position in the world and can provide solid support for the construction of the most advanced digital financial infrastructure and has the conditions to explore the most advanced digital financial infrastructure. The creation of a Greater Bay Area stablecoin pegged to the RMB based on stablecoins, limited blockchains, and digital smart contracts can consolidate and enhance Hong Kong's status as an international financial center.

How long will it take for us to see the birth of a RMB stablecoin in Hong Kong?