The Hong Kong Monetary Authority (HKMA) awarded its first stablecoin issuer licences to HSBC and a Standard Chartered Bank‑led consortium on April 10, marking a pivotal step in the city’s bid to become a global digital assets hub.
The decision concluded a long regulatory process and months of speculation, which drew over 100 feedbacks following HKMA’s first discussion paper in January 2022 and 36 licence applications after the Stablecoin Ordinance came into effect last August. By awarding the first licences to these two institutions, the regulator has made clear that stablecoins will be treated as regulated payment and settlement infrastructure, not a frontier for speculation.
The bar for entry is high. To qualify, applicants must be a locally-incorporated company or an authorised institution, hold at least HK$25 million (US$3.19 million) in paid‑up capital, and back every stablecoin issued with 100% high‑quality, segregated reserve assets. Issuers must demonstrate bank‑grade governance, robust risk, liquidity, and cybersecurity frameworks, and strict anti-money laundering/counter-financing of terrorism controls, and present a viable and sustainable business plan with key personnel already in place.
The regulator has repeatedly signalled its preference to issue only “a very small number” of licences initially, underscoring its intention to treat stablecoins as a regulated, bank‑grade payment and settlement layer rather than a frontier for speculations.
This conservative approach has altered the business calculus. Many early enthusiasts, after reassessing what it would actually take to run a viable licensed business, adopted a wait‑and‑see approach.
Beijing’s directive
The outlook shifted further on February 6 when eight Chinese regulatory bodies, including The People’s Bank of China (PBoC), issued a notice tightening rules on virtual currencies and real‑world‑assets tokenisation. The directive bars any entity or individual, whether domestic or foreign, from issuing RMB‑linked stablecoins offshore without prior approval, explicitly covering domestic institutions’ offshore vehicles.
Beijing is steering institutions towards the digital yuan (e‑CNY) rather than permitting privately issued RMB‑pegged stablecoins that could erode monetary sovereignty or circumvent capital control. This decision effectively removed the Mainland market from the scope, dashing issuers’ hopes of capturing demand for RMB‑pegged coins. Issuers now have to focus on a significantly narrower addressable market for HKD-pegged stablecoins.
Consequently, many early Chinese‑linked names –– from financial giants such as Bank of China to tech groups such as Ant International and JD.com –– have stepped back or pivoted towards partnerships with non‑Chinese issuers, rather than putting their own names on stablecoin projects.
Against this backdrop, the selection of HSBC and Standard Chartered is logical. Both are note‑issuing banks already subject to HKMA oversight and trusted by the public as providers of money‑like liabilities. Anchoring stablecoins in these two institutions, which are well-versed in strict reserve and redemption discipline, reflects Hong Kong’s priority on strong governance and prudential supervision over speed and experimentation.
While some Web3 enthusiasts had hoped for a low‑barrier environment, the HKMA model aims to assure institutional investors, asset managers and global banks that the city’s stablecoin ecosystem is a legitimate extension of its existing financial system.
That is attractive to traditional finance, but it also means that the early market players will be dominated by large, well‑capitalised institutions and exchanges with existing pipelines to corporates, wealth clients and forex desks. For smaller financial technology (fintech) or crypto native firms, the regulatory and capital barriers remain formidable.
HSBC plans a HKD‑linked coin aimed at institutional clients, cross‑border trade and settlement. The Standard Chartered‑led consortium will launch a HKD‑pegged stablecoin with Animoca Brands –– a Hong Kong‑based Web3, blockchain and digital entertainment company –– and Hong Kong Telecommunications as partners.
Real test
Now that the winners have been announced, the real test lies in building profitable and sustainable use cases.
Hong Kong’s rules bar issuers from paying interest or similar incentives to coin holders, removing a revenue lever that some overseas models use. Furthermore, the limited supply of high‑grade short‑term HKD investment instruments suitable for reserve management constrains returns. As one applicant pointed out: “Business models in the US or other markets cannot be applied here.”
This forces stablecoins to embed themselves into real‑world financial flows that generate large recurring flows, such as cross‑border remittances, corporate forex, trade finance, and the on‑ramp‑off‑ramp services for licensed crypto exchanges.
Success will depend on building partnerships, liquidity channels, and integrating with existing banking and payment infrastructure. Issuers that treat stablecoins as a payment layer on top of existing banking infrastructure will have the edge; startups aiming to operate a standalone, fee‑driven token model will face an uphill battle even with strong blockchain skills.
Retail adoption of digital payments in Hong Kong lags the Mainland and other Asian markets. While the 2024 e‑CNY pilot by HKMA and PBoC showed promise in cross‑border usage, retail uptake within the city remained limited. This suggests that, initially, the most viable use cases for HKD‑pegged stablecoins will be wholesale and business to business, not mass retail.
Licensed exchanges and custodians may be the primary beneficiaries. HKD‑backed coins provide a local‑currency, HKMA‑supervised alternative to dollar‑pegged tokens such as Tether’s USDT and Circle’s USDC for fiat on‑ramps and off‑ramps.
For small and medium enterprises, foreign workers and regional corporates moving money between Hong Kong, China and Southeast Asia, HKD stablecoins could reduce forex costs and shorten settlement times.
Trade finance is another natural fit. Stablecoins can serve as a programmable rail for multi‑party invoicing and settlement, and tokenised deposits and inter‑bank settlement rails will appeal to corporates and institutions already using Hong Kong’s established payment systems.
Path to profitability
However, none of this is a foregone conclusion. The path to profitability may be long because the regulatory regime imposes significant fixed costs but revenue from transaction fees or float‑based spreads tends to be modest unless transaction volumes are significant. The economics clearly favour incumbent banks and exchanges over startups.
Many early applicants viewed the licence as a way to position themselves as pioneers in a new asset class, but lacked a clear business model. They quickly realised that the licence is not a ticket to easy growth, but a costly, high‑barrier option that only provides value if the issuer can integrate the coin into existing infrastructure and volume‑generating workflows.
Market structure poses another challenge. Globally, USDT and USDC account for over 90% of the stablecoin market value and trading volume, with USD‑pegged coins representing 98% of the total market. Most decentralised finance protocols and exchanges are built around USD‑linked liquidity.
HKD‑pegged coins are unlikely to displace dollar tokens in global markets. Their value proposition lies in regional niches. Because the Hong Kong dollar is pegged to the US dollar –– and thus a stablecoin by design –– HKD‑stablecoins inherit a familiar, dollar‑linked stability. For businesses in Hong Kong and southern Chinese, this reduces forex risk and conversion costs versus repeatedly switching between HKD and USD‑pegged tokens. They may also act as a bridge currency in HKD–RMB–Asia corridors, allowing companies to manage offshore positions in a dollar-linked currency while remaining within Beijing’s regulatory boundaries for virtual assets.
The business prospect for HKD‑pegged coins is to carve out a policy‑acceptable, bank‑anchored niche in regional business flows, not to supplant USDT or USDC.
The HKMA’s decision to award the first licences to two note‑issuing banks is a safe start. However, stablecoins will not thrive until a full ecosystem emerges –– one where financial institutions, corporations, fintech firms, and users actively collaborate to convert those niche use cases into integrated, high‑volume flows. This will require sustained government support and progressive policy-making.
If the city’s stablecoin community succeeds in doing that, HKD‑pegged coins could become a durable part of Asia’s digital‑asset landscape. If not, the licences may remain little more than a regulatory badge with limited commercial payoff.
