77 stablecoin applications: a lot or a little?

Author: Zhang Feng

A spokesperson for the Hong Kong Monetary Authority stated that as of August 31st, 77 applications had been submitted to the HKMA, including from banks, technology companies, securities/asset management/investment firms, e-commerce companies, payment institutions, startups, and web3 companies.

Market reaction to the news was mixed. Some viewed it as a reflection of regulatory prudence, while others questioned whether this number was sufficient to support Hong Kong's ambitions as an international financial center. Considering the application prospects of stablecoins, the need for industry empowerment, and Hong Kong's international competitive positioning, the 77 applications are both a positive signal and a reflection of deeper challenges. I. Regulatory Perspective: Encouraging Innovation and Prudence and Pragmatism As a cryptoasset pegged to fiat currency, stablecoins, whose value is typically linked to fiat currency or a basket of assets, serve as a bridge between traditional finance and the world of digital currency. However, stablecoins also present risks that cannot be ignored: these include the opacity of reserve assets, bank runs, potential systemic financial risks, and the potential for use in money laundering and illicit transactions. For this reason, the Hong Kong Monetary Authority (HKMA) adopts a cautious regulatory approach, screening qualified issuers through a rigorous access mechanism. The number of 77 applications, to a certain extent, reflects the market's confidence in Hong Kong's stablecoin regulatory framework. Compared with some jurisdictions that completely ban or are overly lax, Hong Kong attempts to find a balance between innovation and stability. This prudent regulatory principle helps prevent risks, protect investor interests, and lay the foundation for the long-term stability of the financial system. However, caution does not mean conservatism. If the regulation is too strict, it may lead to insufficient innovation and even cause Hong Kong to miss out on its leading position in digital finance. Therefore, behind the 77 applications, what is more important is how the regulators select projects from these applications that can both meet risk control requirements and promote industry development.

II. Industry Perspective: Meeting Scenario Requirements and Appropriate Competition

From the perspective of stablecoin applications, industry empowerment requires more options and a richer range of application scenarios. Stablecoins are not only a payment tool but also a critical infrastructure for the future digital economy. They can be used in a variety of areas, including cross-border trade settlement, supply chain finance, smart contracts, and DeFi (decentralized finance), injecting new vitality into the traditional financial system.

If only a few stablecoin issuers are approved, the market may face limited choice and insufficient competition. Conversely, moderate competition can promote technological innovation, reduce transaction costs, and improve service quality. The 77 applications indicate strong market interest in stablecoin issuance, but if only a very small number of applications are ultimately approved, it may inhibit market diversity and innovation. Furthermore, different application scenarios may require different types of stablecoins. For example, some stablecoins may be more suitable for commodity trading, while others may focus more on retail payments or cross-border remittances. If the market is limited to a few stablecoins, their scope of application may be limited. Therefore, from the perspective of industry empowerment, 77 applications is not only not a small number, but may even require a more diverse range of participants. III. Financial Perspective: International Competition and Global Vision As an international financial center, Hong Kong faces fierce competition from cities such as Singapore, Dubai, and London. In the field of digital finance, many countries and regions are actively exploring the development of central bank digital currencies (CBDCs) and stablecoins. For example, Singapore has launched multiple stablecoin pilot projects, while the EU has adopted the Markets in Crypto-Assets Act (MiCA), providing a clear regulatory framework for crypto-assets. Against this backdrop, Hong Kong needs to adopt a global perspective and adopt a more open mindset and innovative policies to consolidate its position as an international financial center. The offshore market offers ample scope, and international competition requires Hong Kong to not only keep pace with trends but also lead them. Overly cautious approvals for stablecoin issuance could lead to a flight of talent, capital, and projects to more welcoming jurisdictions. On the other hand, financial innovation requires appropriate room. Regulation is intended to mitigate risks, but it should not come at the expense of innovation. Hong Kong can use mechanisms such as the "regulatory sandbox" to provide stablecoin projects with opportunities for testing and iteration, encouraging innovation while managing risks. 77 applications is a starting point, but how to cultivate internationally competitive projects from these applications is the key issue that Hong Kong needs to consider.

Fourth, the dialectic between more and less: basic principles and infrastructure

Is 77 applications too many or too few? The answer lies not in the absolute number, but in considering how to seize the opportunities presented by stablecoins.Generally speaking, stablecoin operations require projects with strong technical capabilities and clear business models, not simply seeking licenses without actual operational capabilities.

The task of regulators, then, is to grasp the fundamental logic of stablecoin operations and regulation: encouraging innovation while at the same time protecting user rights and maintaining an orderly market competition environment. On the one hand, excessive concentration should be minimized to prevent the market from being monopolized by a few giants; on the other hand, a tiered regulatory model could be considered to avoid wasting resources and increasing regulatory complexity. Furthermore, regulators must also recognize that the development of stablecoins depends not only on the number of issuers but also on supporting infrastructure, including compliant trading platforms, custodians, audit mechanisms, and a legal framework. Hong Kong needs to advance simultaneously in these areas to lay a solid foundation for the widespread adoption of stablecoins. V. The Road Ahead: Balancing Innovation and Regulation For Hong Kong, stablecoins present both opportunities and challenges. Striking a balance between innovation and regulation will directly impact Hong Kong's competitiveness in the digital financial era. The following points may be worth considering:

Classification and grading regulatory mechanism:Different regulatory standards can be designed according to the scale, application scenarios and risk level of stablecoins. For example, stricter supervision can be implemented for systemically important stablecoins, while relatively loose rules can be adopted for small or specific-purpose stablecoins.

International cooperation:Stablecoins often have cross-border attributes. Hong Kong can work with other jurisdictions to jointly develop global standards to avoid regulatory arbitrage and fragmentation.

Encourage innovative experimentation:Through "regulatory sandboxes" and pilot projects, a real testing environment is provided for stablecoins, helping regulators and market participants better understand their risks and potential.

Strengthen user risk education:As an emerging financial instrument, many users of stablecoins may not fully understand their operating mechanisms and risks. Strengthening user risk education is an important means of preventing risks.

The 77 stablecoin applications reflect both the market's confidence in Hong Kong as a financial center and the huge potential of the stablecoin industry. From the perspective of application scenarios and industry empowerment, this number may not be enough to meet future market demand; but from the perspective of regulatory prudence, ensuring the quality and compliance of each application is equally important.