The topic of Hong Kong dollar stablecoins has been a hot topic over the past six months. From national levels to local communities, everyone is eager to try their hand at the project, hoping to seize the development opportunities presented by this major wave of the times. However, let's take a moment to reflect: who will become the customers of a Hong Kong dollar stablecoin? Where will it be used? How can it be rapidly promoted? What will be the level of customer acceptance? What is the competitive landscape? Clearly answering these questions will determine the long-term success of a Hong Kong dollar stablecoin! Who, exactly, are the customers of stablecoins? According to a CEX.io analysis report, the total transaction volume of stablecoins in 2024 will exceed US$25.8 trillion, with annual stablecoin transfers reaching US$27.6 trillion, far exceeding the combined transaction volume of Visa and Mastercard. The leading stablecoin is undoubtedly USDT, issued by Tether, followed by USDC, issued by Circle. The former holds over 70% of the market share, while the latter holds only around 20%. This further validates the core settlement role of stablecoins, particularly USDT, in crypto transactions. Have you ever considered who buys stablecoins? In my opinion, they can be broadly divided into three categories: (1) cryptocurrency investors (cryptocurrency speculators); (2) money launderers; and (3) cross-border traders. Of these three groups, I would venture to assert that currently, the largest user of stablecoins is the cryptocurrency speculator. This is because they have a "strong need" for stablecoins. Without stablecoins, cryptocurrency trading would be nearly impossible. The underlying logic is that, due to compliance issues, cryptocurrency exchanges in most countries cannot directly accept fiat currency from customers like stock exchanges do, and then conduct centralized bidding and real-time transactions during the buying and selling of virtual currencies. Since it is illegal for exchanges to directly accept fiat currency, they can instead create a layer of separation by allowing customers to convert their fiat currency into stablecoins and then deposit these stablecoins into the exchange. In this way, stablecoins effectively replace fiat currency, enabling real-time bidding for virtual currency transactions within the exchange. Some say that OTC transactions can also allow fiat currency to buy BTC and other mainstream cryptocurrencies. However, it's important to understand that centralized auctions within exchanges are the norm. Otherwise, if you transfer money to me and wait a few minutes for me to transfer the coins, who gets to pay for the price increase? In summary: Due to exchange compliance issues, stablecoins have become settlement tools used in centralized auctions. Users must use them to complete crypto-to-crypto transactions on exchanges. Just imagine how huge this demand is. Binance's futures trading platform, Binance Futures, launched in September 2019, with its first product being the BTC/USDT perpetual contract. Officially launched on September 9th, it saw first-day trading volume of 19,253 BTC (approximately $170 million). However, if we look at the "money laundering community" and the "cross-border trade community," their demand for stablecoins is far less significant than that of cryptocurrency speculators. First, many money launderers have only begun using stablecoins as a tool for disposing of stolen goods in the past two to three years. However, these groups rely far less heavily on stablecoins than those speculating in cryptocurrency; they primarily use traditional US dollar bills. Second, stablecoin issuers can freeze on-chain virtual currencies. We understand that Tether has frozen a significant amount of involved coins. In cases where there is clear evidence, Tether can even destroy and reforge the coins directly on-chain before returning them to the victims. This demonstrates that stablecoins have the potential to prevent money laundering and are not completely unregulated. Regulatory measures will be gradually implemented in the future. Cross-border traders have relatively simple motivations for using stablecoins, focusing on the following: First, some countries have insufficient US dollar reserves. For example, Iran, Russia, and some countries in the Middle East and Africa cannot easily use the US dollar for cross-border trade settlements due to international financial sanctions. Furthermore, their domestic currencies are not widely accepted in international trade. Therefore, stablecoins have become a widely accepted alternative settlement tool. For these countries with historically unstable currencies, dollar-backed stablecoins can serve as a hedge against inflation. Second, tax evasion: In countries with strict foreign exchange controls, using stablecoins for settlement may allow foreign traders to circumvent state regulation of cross-border funds, thereby avoiding taxes. For example, our country is subject to foreign exchange controls, and foreign trade merchants are required to pay taxes on exports. However, if Chinese merchants use stablecoins to settle with overseas merchants, the government cannot collect taxes. Third, there are issues with the cost of using fees and settlement efficiency: Foreign trade merchants traditionally choose to settle through the Swift system, which takes approximately 1-5 business days and carries high fees. Using stablecoins allows for near-instant settlement and lower fees. Fourth, there are political and geopolitical risks: After being excluded from major settlement systems like Swift, countries like Iran and Russia have been forced to seek alternative cross-border settlement methods. Stablecoins, due to their decentralized nature and lack of reliance on a single country's financial infrastructure, enable continued settlement even under sanctions, becoming a lifeline for sanctioned countries and their trading partners. Hong Kong dollar stablecoins are difficult to use for cryptocurrency trading and settlement. Even if they could, it would be difficult to establish a competitive landscape. (1) Scenario Constraints Under the Conservative Guidance of Policies and Regulations If Hong Kong dollar stablecoins want to enter the cryptocurrency trading and settlement market, they will first face the rigid constraints of policies and regulations. These constraints are not limited to a single region, but rather the control formed by the dual regulatory framework of "mainland China + Hong Kong." From the perspective of Hong Kong, the regulatory logic of its stablecoins has always revolved around "risk prevention and control first." The issuance of a Hong Kong dollar stablecoin must meet requirements such as "100% reserve asset coverage" and "regular audit disclosure." Furthermore, Hong Kong is known for its cautious approach to licensing virtual currency exchanges, making it difficult for Hong Kong dollar stablecoins to gain legal access to mainstream cryptocurrency trading. Mainland China's stance on virtual currency speculation is unequivocally negative. The People's Bank of China explicitly defines virtual currencies as "illegal currencies," prohibiting any institution or individual from engaging in token issuance, financing, and trading activities, and has implemented regulations through documents such as the "924 Announcement." Although the Hong Kong dollar stablecoin is issued in Hong Kong, given the close financial flows between Hong Kong and mainland China, if used for cryptocurrency settlement, it would likely fall under the regulatory scope of "abnormal cross-border capital flows," resulting in restrictions on fund transfers. This potential risk will force exchanges and users to actively avoid Hong Kong dollar stablecoins and instead opt for USDT, which is less susceptible to regulation. (2) Cryptocurrency Consensus Creates Industry Barriers Hong Kong dollar stablecoins struggle to break through in cryptocurrency trading and settlement scenarios. This is primarily due to the multiple barriers created by USDT and other US dollar stablecoins, barriers that are unlikely to be eroded in the short term. User consensus on USDT is highly path-dependent. USDT was the first stablecoin to gain mainstream acceptance and is currently the most widely used. This has fostered a reflex to "use USDT for cryptocurrency trading." New users are guided by established users and exchanges, with cross-platform transactions using USDT as the default unit. Virtual currency pricing is also often benchmarked against USDT. This inertia, similar to user dependence on social media apps, makes it difficult for new stablecoins to penetrate. In terms of credit and scale, USDT has maintained its peg despite market crashes and bank runs, and its tens of billions of dollars in circulating market capitalization make it "too big to fail." However, the Hong Kong dollar stablecoin will struggle to establish the same level of trust in the short term. The Trump administration is betting on stablecoins, and its goal of strengthening the dollar's hegemony is clear. On August 10, 2025, the total U.S. national debt exceeded $37 trillion for the first time, setting a record high since the founding of the country. Since Trump signed the "Big, Big, American" Act on July 4th, raising the debt ceiling, debt has surged by $780 billion in just 37 days, an average daily increase of $22 billion (US$55,000 per second). Meanwhile, traditional overseas sovereign investors have continued to reduce their holdings of US Treasuries. For example, China's holdings have fallen to $759 billion (a new low since 2009), and Japan's holdings have decreased by over $68 billion. Furthermore, all three major international rating agencies have stripped the US of its AAA rating (Moody's downgraded it to Aa1), warning of a "continued deterioration" in its fiscal situation. The current stablecoin bill, which mandates tethering to short-term US Treasuries, will save US Treasuries approximately 24 basis points in interest (billions of dollars) in the first quarter of 2025. Everyone understands Trump's reasons for promoting stablecoins: First, it can create "offshore dollar demand" by forcing stablecoin issuers (such as USDT and USDC) to replace 100% of their reserves with US dollar cash and short-term US Treasury bonds. For example, according to the Q1 2025 attestation report, Tether's Treasury bond holdings have exceeded $120 billion, surpassing Germany to become the 19th largest entity globally in terms of Treasury bond investment. Second, it creates a new path for debt monetization. Having stablecoin issuers purchase US Treasury bonds means that the US dollar can be distributed globally through these issuers. Global stablecoin users would then be forced to passively hold digital dollars with US Treasury bonds as their underlying assets, effectively distributing US Treasury bond credit risk to the private sector. This provides a new channel for "non-sovereign investors" to absorb the US's $37 trillion in Treasury bonds, easing the pressure from traditional holders like China and Japan to reduce their holdings. In the past, other countries needed to reserve US dollars for international trade, allowing the US to reap global wealth through the dollar. Now, those who trade in cryptocurrencies around the world are also implicitly seeking to reserve US dollars through stablecoin issuers. In recent years, with the weakening of the US dollar, the share of cross-border trade settled in US dollars has been declining. Therefore, the US government has introduced US dollar stablecoins in response to this trend, attempting to put the US dollar in the background while allowing US dollar stablecoins to take the lead and continue to consolidate the dollar's hegemony. Currently, USDT has already established a dominant position in the cryptocurrency market; what remains is the traditional cross-border trade market, which uses stablecoins. In this market, traditional settlement methods and new stablecoin settlement methods will inevitably coexist for a short period of time. In the current context of using stablecoins as an innovative approach to cross-border trade, USDT still holds the largest share of usage, followed by USDC. In the future, if we hope to compete with a Hong Kong dollar stablecoin, we'll need to compete with USDT and USDC in cross-border trade. Whether we can be competitive in this context is something we need to seriously consider. If the Hong Kong dollar stablecoin is used for cross-border payments, how will it compete with traditional currencies like Swift, USDT, and USDC? If stablecoins are used for cross-border payments, pre-transaction verification of available funds and confirmation of the sender and receiver's identities allows for almost instant fund clearing and payment settlement! Thanks to digital compliance processes and smart contracts, these payments can automatically check for anti-money laundering (AML) and know-your-customer (KYC) issues, and screen for sanctioned entities through on-chain analytics services and automated instructions. This directly challenges traditional global payment networks, such as those using Swift, correspondent banks, or wire transfers (e.g., Fedwire). Because of the reliance on multiple intermediaries, most traditional payment networks can take one to five business days to complete a transaction. These operations span different business time zones and are processed in batches on a regular basis. Furthermore, traditional payment methods still largely rely on manual or semi-manual processes for compliance checks, such as AML, KYC, and sanctions screening. Despite the obvious shortcomings of traditional cross-border payment methods, driven by the profitability of commercial transactions, according to Swift and the Bank for International Settlements, existing traditional payment infrastructure processes approximately $5 trillion to $7 trillion in global funds transfers (including institutional, commercial, and consumer funds) daily. By contrast, on-chain data (i.e., transactions verified and recorded on the blockchain) shows that approximately $250 billion in stablecoins have been issued, including $155 billion from Tether and $60 billion from Circle. These stablecoins process $20 billion to $30 billion in real-world on-chain payment transactions daily, encompassing remittances and settlements. Therefore, despite widespread hype about stablecoins, they process less than 1% of global funds transferred daily, far from the volume of funds transferred by traditional payment networks. However, this does not mean that the threat posed by stablecoins to existing payment networks is negligible. Over the past four years, stablecoin transaction volume has naturally grown by an order of magnitude. At the current rate of stablecoin usage and growth, stablecoin transaction volume could surpass that of traditional payment networks in less than a decade, or even sooner! This is especially true as their application cases continue to expand. Tokenized cash can operate continuously, meet instant settlement requirements, and provide improved operational risk control. It addresses real-world pain points and offers a compelling value proposition to end users, potentially accelerating its adoption. Therefore, companies operating in the payment industry must begin planning for future integration with tokenized cash, while payment technology companies relying on traditional technologies should also actively develop the technology to support this new payment method. Everyone must be prepared for the potential changes that lie ahead. This comparison shows that stablecoins, as a new payment tool, offer significant advantages over traditional global payment networks like Swift, particularly in cross-border payments. However, the competitive landscape for stablecoins is complex and volatile, and the future of the payments market will be influenced by multiple factors, not just a technological revolution. To date, stablecoin issuance has largely been dominated by private companies. With the launch of the Hong Kong dollar stablecoin, how it will stand out from the competition with USDT and USDC has become a key focus of market attention. This article will delve into how the Hong Kong dollar stablecoin competes with USDT and USDC, detailing both its advantages and challenges in cross-border payments. First, credibility is a key factor in the success of a stablecoin. USDT, issued by Tether, holds a dominant market position, but questions about its transparency and regulatory compliance have led some users to harbor concerns. USDT's underlying assets fully support its issuance, and there are insufficient audit reports to verify transparency and compliance, resulting in relatively low market trust. In contrast, USDC, issued by Circle, a well-known public company, regularly publishes audit reports guaranteeing that each USDC is backed by sufficient assets, resulting in a higher level of market trust. Therefore, USDC excels in terms of oversight and transparency, and is well-positioned to meet increasingly stringent global regulatory requirements. For Hong Kong's dollar-denominated stablecoin, if issued by a reputable company such as Ant Group or JD Finance, its market trust is expected to rapidly increase. As well-known technology companies, Ant Group and JD Finance not only possess strong brand influence in the Chinese market, but also possess considerable potential for expansion internationally. If the Hong Kong dollar stablecoin can leverage these companies' brand power, enhance transparency, and strengthen alignment with international regulatory requirements, it could quickly gain market acceptance. Secondly, USDT has long faced compliance issues at the policy and regulatory level, particularly in major markets like Europe and the United States. Tether has consistently lacked sufficient transparency regarding USDT's underlying assets and audit reports, leading to frequent questions about its compliance. The regulatory challenges facing the launch of the Hong Kong dollar stablecoin are also significant. While the Hong Kong Monetary Authority (HKMA) has a relatively proactive approach to digital currency regulation, its comprehensive compliance framework for stablecoins is still under development. If the Hong Kong dollar stablecoin can strictly adhere to local and global compliance requirements and ensure a transparent audit and regulatory process, it has the potential to become a major attraction in the international market. This is especially true given the Chinese government's support for blockchain technology, which may provide more favorable policy support for its compliance. Thirdly, the success of a stablecoin depends not only on its technological advantages but also on its ability to quickly gain widespread adoption, particularly among global traders. Stablecoins have broad application scenarios, particularly in cross-border payments, remittances, and international settlements. Whoever secures a leading position within global trade platforms will capture market share. USDT and USDC currently hold a significant global market share, particularly in cryptocurrency exchanges and cross-border payments. Through partnerships with global financial institutions, businesses, and trade platforms, they have established a broad user base and collaborative network. One of the greatest advantages of the Hong Kong dollar stablecoin is its close connection to Hong Kong as a global financial and trade center. Hong Kong itself is a hub for international trade, with a strong financial infrastructure and network. If the Hong Kong dollar stablecoin can quickly enter the international market and establish partnerships with global cross-border payment and settlement platforms, it will have greater market competitiveness. Can the Hong Kong dollar stablecoin be used as a settlement tool for domestic and cross-border trade, thereby stimulating the use of stablecoins for cross-border trade settlement? Regarding whether the Hong Kong dollar stablecoin can be used as a settlement tool for cross-border trade by Chinese foreign traders, before August 1st, many speculated that China might allow stablecoins to be used as a settlement tool for domestic and foreign traders in specific areas through pilot zones. This would require some breakthroughs in existing foreign exchange management laws and regulations. However, the Stablecoin Regulations, which came into effect on August 1st, clearly make this unrealistic. It's not difficult to surmise that, rather than allowing mainland China to use stablecoins to counter the expansion of US dollar hegemony, top policymakers are more concerned about the unbearable harm caused by capital flight after stablecoins are made available to domestic and foreign traders. If domestic merchants are unable to use the Hong Kong dollar stablecoin and exploit the "virgin territory" of domestic foreign trade to rapidly develop, this means that the Hong Kong dollar stablecoin will be unable to be used within China, which has foreign exchange controls, losing a key development opportunity. The Hong Kong dollar stablecoin will continue to compete with Swift, USDT, USDC, and other stablecoins issued by other countries in overseas markets. The above are my concerns regarding the development of the Hong Kong dollar stablecoin. However, my views are merely my own, limited by my perspective and depth of thought. It's possible that these concerns are dismissed as insignificant by policymakers, and that targeted solutions are in place. If so, I would be deeply relieved. I sincerely hope that, in an era where great power competition manifests itself in financial competition, our country can rapidly internationalize its currency and minimize the long-standing restrictions and exploitation imposed by the US dollar hegemony.
Kikyo
Catherine
Weatherly
Anais