How is Hong Kong's stablecoin going to work?

Author: Bao Yilong, Wall Street News

For investors concerned about the development of virtual assets in Hong Kong, the new regulatory framework for stablecoins that came into effect on August 1st provides investors with a clear picture of the industry.

This week, JPMorgan Chase and Guosen Securities published a research report, pointing out that a global market with a scale of more than US$230 billion is welcoming Hong Kong's compliance entry. For investors, this means that Hong Kong's stablecoin issuers, licensed virtual asset exchanges, and related financial and technology service providers will become direct beneficiaries.

However, JPMorgan Chase emphasized that despite the high market enthusiasm, Hong Kong's entry ticket is not available to everyone, and it is not easy to make profits in the short term.

Market size is in its early stages: Hong Kong's current cryptocurrency market transaction volume is still small compared with the United States and the world, and investors should view its short-term growth potential rationally and avoid over-expectations.

Differentiation of profit models: Issuers are the starting point of the ecosystem and directly share the reserve asset income; licensed exchanges (such as OSL) earn fees by providing trading and clearing services; reserve banks (such as ZhongAn Bank) provide custody services; technology/financial brokers (such as Futu and Sifang Jingchuang) provide trading systems, technical support and compliance services.

Regulatory decisions winners: Whoever can obtain the stablecoin issuance license from the Hong Kong Monetary Authority (HKMA) and the exchanges that already hold the VATP license will become the main beneficiaries of this game. For individual stocks, Internet brokers (such as Futu) with a large retail customer base and VATP license layout have more advantages than traditional brokers.

Stablecoin income: The business model of stablecoin issuers is extremely clear and attractive. However, Hong Kong regulations explicitly prohibit the payment of interest to stablecoin holders, which means that the "holding and earning interest" model does not work in Hong Kong, and investment strategies need to be adjusted accordingly.

The Hundred Billion Dollar Table: The Current Situation and Giants of the Stablecoin Market

The stablecoin market is no longer a niche concept, but a huge market of hundreds of billions of dollars.

Data cited by Guosen Securities show that the market is dominated by a few giants. The scale of USDT issued by Tether exceeds 150 billion US dollars, and the scale of USDC issued by Circle exceeds 60 billion US dollars. Both are off-chain stablecoins anchored 1:1 with the US dollar, accounting for nearly 87% of the market share.

According to a report by JPMorgan Chase, as of the second quarter of 2025, the total market value of global stablecoins has exceeded 230 billion US dollars. JPMorgan Chase divides stablecoins into four categories:

1. Off-chain (legal currency standard): Credit-backed by real-world assets (such as US dollars and US bonds), issued 1:1, such as USDT and USDC. This is the mainstream of the current market and the core object of Hong Kong supervision.

2. On-chain type: Issued based on blockchain smart contracts with collateralized crypto assets (such as Bitcoin), such as Dai.

3. Commodity-backed stablecoins: For example, the gold-pegged stablecoin Tether Gold is backed by actual gold assets.

4. Algorithmic type: Relying on algorithms and market arbitrage mechanisms to stabilize the currency value, such as the former UST, which once peaked at nearly $20 billion, but has now been liquidated, highlighting its high risk.

For investors, this means that the future competition in the Hong Kong market will also focus on the most stable and most regulated "off-chain" stablecoins.

"Making money while lying down"? The core profit model of stablecoin issuers

The business model of stablecoin issuers is extremely clear and attractive.

Guoxin Securities' report takes Circle, the issuer of the world's second largest stablecoin USDC, as an example and breaks down its profit sources in detail. Circle's income mainly comes from two major blocks, but they are extremely unbalanced.

The core is the reserve asset income. When a user buys 1 USDC with 1 USD, Circle will reserve the 1 USD. The report pointed out that Circle invests more than 80% of its reserves in short-term U.S. Treasury bond funds managed by BlackRock, and the remaining 10-20% of cash is deposited in global systemically important banks. The risk-free interest income generated by these investments constitutes the core of Circle's profits. Data shows that in 2024, the income from this part of reserve assets accounted for 99% of Circle's total revenue.

Another source of income is payment and clearing fees, that is, the fees generated when users exchange stablecoins, but this part of the income accounts for a small proportion.

The essence of this model is that the issuer uses the huge user reserves to make low-risk investments and earn interest spreads. Its profitability depends entirely on the size of the reserves and the level of short-term interest rates.

For companies seeking to invest in the stablecoin ecosystem, whether they can obtain an issuance license and thus control the huge reserves is the key to determining whether they can share the biggest piece of the pie.

Hong Kong license battle: Who are the beneficiaries in the ecosystem?

With the Hong Kong Stablecoin Ordinance officially taking effect on August 1, 2025, a battle for licenses has begun. The reports of Guosen Securities and JPMorgan Chase jointly pointed out several key participants and potential beneficiaries in the ecosystem.

The first is the starting point of the ecosystem-issuers. The Hong Kong Monetary Authority launched the "Stablecoin Issuer Sandbox" in 2024. The first batch of three groups of issuers and a total of five institutions have been shortlisted. They are the hot candidates for the first batch of licenses:

• The joint venture between Standard Chartered Bank, Ansai Group and Hong Kong Telecom plans to issue the Hong Kong dollar stablecoin HKDG.

• JD Coin Chain Technology plans to issue the Hong Kong dollar stablecoin JD-HKD, focusing on cross-border payments and supply chain finance.

• Yuanbi Innovation Technology plans to cooperate with Cobo and Lianlian International to issue HKDR, focusing on DeFi and cross-border payments. In addition, Ant Digits and Ant International, subsidiaries of Ant Group, have also made it clear that they will apply for licenses in Hong Kong.

The second is the channel for traffic monetization - virtual asset trading platform.Licensed exchanges are the core places for the circulation and trading of stablecoins. Guosen Securities' report shows that as of June 25, the Hong Kong Securities Regulatory Commission has issued 11 virtual asset trading platform licenses.

Guoxin Securities takes OSL Group, the first licensed platform in Hong Kong, as an example. Its revenue structure in 2024 clearly shows the monetization path:

24.5% comes from SaaS services and related revenues, and 70.2% comes from digital asset transactions.The transaction fee rate is 0.2%-0.28% for retail customers and 0.15%-0.225% for institutional customers, depending on the customer type and transaction method.

Then there are brokerages and financial institutions, where opportunities and challenges coexist. JPMorgan Chase's report believes that compared with issuers that directly share reserve revenue and exchanges that charge transaction fees, traditional brokerages have a more indirect profit model and need to share profits with exchanges. However, brokerages like Futu, which have a large retail customer base and advanced technology platforms, are in a more advantageous position in the competition. The report mentioned that Futu has provided crypto asset trading services to customers (in cooperation with HashKey) and is actively applying for its own VATP license.

Finally, there is the indispensable "water seller" - the infrastructure provider. The operation of the entire ecosystem is inseparable from the underlying support. The reserve banks mentioned in the Guosen Securities report (such as ZhongAn Bank providing custody for Circle Coin Technology), asset management companies (such as BlackRock managing Circle reserves), and technology providers that provide KYC/AML, payment, blockchain security and other services (such as Sifang Jingchuang, Shenzhou Information, etc.) will all benefit from the compliance and scale of the industry.

To sum up, the compliance process of the Hong Kong stablecoin market provides investors with a clear industry picture. Seizing those companies with first-mover advantages in licenses, technology and customer base will be the key to sharing this digital financial feast.