Cobo Market Watch: Stablecoins bring a second growth curve opportunity to Hong Kong

Author: Alex Zuo, Senior Vice President and Head of Stablecoin Business at Cobo

Over the past few years, we have witnessed the evolution of stablecoins from an innovative experiment in crypto-native assets to a key component of the global payment system. Stablecoins are no longer just trading tools in exchanges, but have begun to assume a broader financial intermediary function, especially in cross-border settlement scenarios. In this trend, Hong Kong's position, institutional flexibility and policy window make it potentially an important hub for the next stage of stablecoin internationalization.

Market-driven demand shift

Cobo has observed some new changes in the industry since the end of 2023: more and more cross-border payment companies have taken the initiative to come to them, and their upstream and downstream customers have begun to demand the acceptance of stablecoins such as USDT and USDC for settlement. This is not the result of regulatory promotion, but a spontaneous demand driven by the market: traditional payment paths are long and expensive. When enterprises and merchants expand cooperation overseas, they urgently need a more convenient and neutral medium of value exchange.

The cross-border payment potential of stablecoins is not just talk. Through our contacts, we have also observed that some e-commerce platforms, logistics service providers and even large Internet companies have begun to explore the embedding of stablecoins into their own payment systems. These companies do not necessarily need to issue their own coins, but they are extremely concerned about improving efficiency in global payment scenarios. Digital wallets are the technical starting point for all this.

Hong Kong's Second Growth Curve

Hong Kong is stepping up the stablecoin regulatory system, clearly introducing a licensing system, emphasizing the security of reserve assets, the transparency of on-chain transactions and the embedding of anti-money laundering mechanisms. Globally, this system construction is in a leading position, which not only guarantees financial stability, but also sets predictable compliance red lines for the industry.

Currently, the use of stablecoins in Hong Kong is mainly concentrated on offshore US dollar assets such as USDT and USDC. Many customers, from traditional payment companies, export e-commerce, service platforms, to emerging Web3 companies, have begun to use stablecoins as a means of settlement. For them, this is not just "changing a currency", but reconstructing their own global capital flows and business logic.

Furthermore, the compliant stablecoins anchored to multiple currencies launched in Hong Kong in the future are expected to reshape Hong Kong's position in the Asia-Pacific payment system. This is an important step for Hong Kong to become the "Asian Clearing Center" in the future.

Under the current monetary system, the essence of stablecoins is still a reflection of sovereign currencies. The ecological prosperity of the US dollar stablecoin is partly due to the high tolerance of the US financial system to the market and clear regulatory expectations. In contrast, the stablecoin path of the RMB is much more complicated.

From a regulatory standpoint, the primary focus of mainland China on the digitalization of the RMB is the digital RMB led by the People's Bank of China, rather than the stablecoin issued by commercial institutions. The competent authorities may have a concern: once the scale of offshore RMB stablecoins expands and is out of regulation, it may affect the control of capital flows and the effectiveness of monetary policy, bringing potential risks. In addition, after all, the size of the offshore RMB market is far from comparable to the size of the offshore US dollar. Therefore, most institutions are still in a wait-and-see state for stablecoins anchored to the RMB. Without clearer policy support and the implementation of cross-border payment scenarios, the promotion of RMB stablecoins still faces realistic constraints.

However, as the largest offshore RMB center, Hong Kong itself is expected to explore offshore RMB stablecoins in the future. Hong Kong Finance Minister Paul Chan Mo-po recently stated that licensed issuers are allowed to choose different legal currencies, which obviously paves the way for RMB stablecoins. The development of RMB stablecoins is an extension of RMB internationalization and a need for RMB internationalization to adapt to the new situation. By making good use of the technical advantages of RMB stablecoins, it is hoped that a better payment experience can be formed in the "Belt and Road" market and between specific countries and China's trade. However, it is foreseeable that RMB stablecoins are unlikely to pose much competition to other stablecoins.

Compliance and trust are the core

The core of stablecoins is not just the issuance of coins itself, but the establishment of a trusted financial infrastructure around the entire life cycle of stablecoins, which includes both the construction of a secure custody infrastructure and the construction of on-chain compliance tools, such as the KYT (Know Your Transaction) mechanism, address risk identification, and Travel Rule rule embedding.

The goal of this system is to help traditional payment companies, Web2 enterprises, and cross-border merchants use stablecoins to complete business operations safely and transparently without being familiar with the native risks of blockchains. By making good use of technology, institutional users of stablecoins can establish reasonable approval processes and risk control mechanisms, and even cooperate with regulators to provide data traceability support when suspicious interactions occur in on-chain transactions. This is the necessary foundation for stablecoins to truly become mainstream, and it is also the direction that Cobo and many partners are committed to promoting.

Stablecoin is not a short-term hype concept, it is a systematic reshaping of the global value circulation architecture. If Hong Kong can successfully complete the construction of the stablecoin system and find a balance between supervision and industry, it will not only attract a number of international projects to land, but also be expected to become a harbor for new financial innovation, and even become the Pearl of the Orient for future Asian capital flows.

For Chinese companies going overseas, stablecoins provide a new tool for flexible allocation of funds under the capital account. If everyone has been talking about cross-border collection platforms in the past decade, then in the next decade, we may be talking about a new global financial network built on stablecoins and compliant custody.

The starting point of this network is likely to be in Hong Kong.