Liu Qiangdong and Lei Jun join forces to enter the stable currency market: Is the RMB stable currency far away?

On August 4, Bitcoin fell below $60,000, and on August 5 it fell below $50,000, while Ethereum fell below $2,100.

Virtual currencies have once again experienced a violent rise and fall.

Because of this, stablecoins have emerged in the virtual currency market. The Bank for International Settlements (BIS) defines stablecoins as cryptocurrencies whose value is linked to legal tender or other assets. Since stablecoins pursue exchange rate parity relative to legal tender, their "stability" makes the storage and trading of virtual currencies more convenient, becoming a connector between legal tender and virtual currencies.

The scale of stablecoins has exceeded 100 billion US dollars. The USDT, a stablecoin issued by Tether in the United States, is the leader, accounting for more than 70%.

Stablecoins are indispensable for the development of the virtual asset market in Hong Kong. Hong Kong regulators have also been planning for the development of the stablecoin market for a long time.

Liu Qiangdong and Lei Jun join forces

On July 18, the Hong Kong Monetary Authority announced the first batch of participants in the "Stablecoin Issuer Sandbox". The first batch of three issuers include JD CoinChain Technology (Hong Kong), Yuanbi Innovation Technology, and joint applicants Standard Chartered Bank (Hong Kong), Animoca Brands Limited, and Hong Kong Telecom (HKT).

According to the Hong Kong Monetary Authority, a stablecoin is a virtual asset that aims to maintain a relatively stable value relative to certain assets (usually currency).

Airstar Bank, a licensed virtual bank in Hong Kong, announced on its official website that it has cooperated with JD CoinChain Technology (Hong Kong), a subsidiary of JD Group, in the stablecoin issuer sandbox of the HKMA. Airstar Bank will assist JD CoinChain Technology (Hong Kong) in trying out new cross-border payment solutions based on stablecoins.

Airstar Bank has been a licensed bank of the Hong Kong Monetary Authority since May 9, 2019, and officially started operations on June 11, 2020. Its largest shareholder is Xiaomi Group. This means that JD.com, founded by Liu Qiangdong, and Xiaomi, founded by Lei Jun, have gathered in Hong Kong to jointly attack the stablecoin market.

The second largest shareholder of Airstar Bank is Futu Securities. Futu Securities recently announced that it has officially opened Bitcoin and Ethereum trading services for its customers, becoming the first online brokerage platform in Hong Kong to directly provide cryptocurrency trading services to retail investors.

Stablecoin landscape and the breakthrough of Hong Kong dollar stablecoin

From the perspective of maintaining "stability", stablecoins can be divided into: stablecoins collateralized by fiat assets, such as USDT, USDC, etc.; stablecoins collateralized by crypto assets, such as DAI, USDe, etc.; and algorithmic stablecoins, such as FRAX.

Among them, fiat currency stablecoins are currently the mainstream stablecoins.

From the perspective of anchoring targets, except for PAXG and other stablecoins anchored to gold prices, 99% of stablecoins are 1:1 anchored to the US dollar. There are also stablecoins anchored to other fiat currencies, such as EURT anchored to the euro, with a market value of 38 million US dollars, and GYEN anchored to the Japanese yen, with a current market value of only 14 million US dollars; IDRT anchored to the Indonesian rupiah has a market value of 11 million US dollars. From the perspective of market value, the current market value of all stablecoins is 160 billion US dollars +, of which USDT is far ahead and has stable growth. The current market value exceeds 110 billion US dollars, and the market value of USDC has risen steadily to 33 billion US dollars +, but there is still a gap compared to USDT, and other stablecoins have basically remained stable. (Data from Aiying Payment Compliance's early July 2024 report "Stablecoin Track: Model, Operating Principles, Trends and Thinking of Hong Kong Stablecoins", hereinafter referred to as the "Stablecoin Track Report")

In the "Policy Statement on the Development of Virtual Assets in Hong Kong" officially released by the Hong Kong Treasury Bureau (Financial Services and the Treasury Bureau) on October 31, 2022, it is clearly stated: "Stablecoins are another focus of ours. Given that stablecoins are said to be able to maintain stable value and their increasing use, such as as a medium of exchange for cryptocurrencies and fiat currencies, they also have the potential to establish links with traditional financial markets (such as payment systems)."

The Hong Kong Treasury Department and the HKMA jointly issued a consultation paper on the proposed regulatory regime for stablecoin issuers in December 2023. In March 2024, the HKMA announced the "Stablecoin Issuer Sandbox" policy, allowing the testing of stablecoin issuance within the regulatory sandbox.

In July 2024, the Hong Kong Treasury Department and the HKMA issued a consultation summary, summarizing public opinions and feedback and proposing legislative proposals on the implementation of a regulatory system for stablecoin issuers in Hong Kong. The next stage will be submitted to the Legislative Council for deliberation and relevant guidelines will be issued.

According to the official websites of JD CoinChain Technology and Yuanbi Technology, the Hong Kong dollar stablecoins to be issued by the two institutions are both pegged to the Hong Kong dollar at a 1:1 ratio. Their reserves are composed of highly liquid assets and are deposited in independent accounts of licensed financial institutions, which can be queried through regular disclosure reports.

According to reports, JD.com provided a statement to a reporter from 21st Century Business Herald, positioning itself as a "supply chain-based technology and service company" and its subsidiary JD Coin Chain Technology aims to provide payment solutions for global businesses and individuals to solve cross-border payment problems.

According to the official website of Yuanbi Technology, the Hong Kong dollar stablecoin that the company is about to test is used to connect the Web2 and Web3 worlds and market participants. The company's CEO Rita Liu said that the Hong Kong dollar stablecoin will not compete with USDT and other US dollar stablecoins in the future, but will work with various stablecoins to broaden the application scenarios of stablecoins.

  Is the RMB stablecoin far away?

Although JD CoinChain Technology and Tianxing Bank have their roots in the mainland, the stablecoins currently planned to be issued are based on Hong Kong dollar collateral.

As the legal currency of the world's second largest economy, the RMB has an extremely important position in the international economic system. Stablecoins based on RMB assets have always been a hot topic in the industry, and there are even precedents for attempts.

Tron launched the RMB stablecoin TCHN; Tether, which issued the US dollar stablecoin USDT, launched the RMB stablecoin CNHT; CNHC Group once issued the RMB stablecoin CNHC, but the CNHC Group team was arrested in May 2023. It was reported that the reason for the arrest was not the issuance of stablecoins.

In view of China's current foreign exchange policy and virtual monetary policy, it is more feasible to issue RMB stablecoins with offshore RMB (or RMB assets) as collateral. Offshore RMB stablecoins are not only conducive to the ecological prosperity of Hong Kong and even the international cryptocurrency market, but also conducive to the internationalization of RMB.

Stablecoins connect the entire virtual asset market. RMB stablecoins expand the usage space and innovative business models for RMB overseas, which is conducive to the circulation of offshore RMB. As the virtual asset market and traditional markets become more and more integrated, offshore RMB may form more and more abundant usage scenarios and transaction ecosystems through stablecoins.

As a cryptocurrency, stablecoins use blockchain addresses for user transactions instead of their real identities. These addresses are randomly generated strings and are not directly associated with the user's personal information by default. Although transactions on the blockchain are open and transparent, due to the lack of direct identity association, user identities are anonymous to a certain extent. This effectively circumvents the data jurisdiction issues that may be encountered when the central bank's digital currency is used overseas. The characteristics of the blockchain make some people more willing to use stablecoins, thereby expanding the acceptance of the RMB overseas.

Hong Kong is the world's largest offshore RMB trading market and has unique conditions for developing RMB stablecoin.

As of the end of September 2023, the scale of RMB financial assets such as stocks, bonds, and deposits held by overseas institutions in China totaled 9.3 trillion yuan. In April 2024, the scale of RMB deposits in the offshore markets of Hong Kong and Taiwan was 1,088.184 billion yuan and 125.596 billion yuan, respectively.

Xiao Geng, chairman of the Hong Kong International Finance Association, said at a forum in May 2024 that Hong Kong has always been a testing ground for various cutting-edge financial innovations, has a fine tradition of innovation, has a good institutional and market foundation for implementing experiments, has little resistance from relevant interest groups, has achieved remarkable results in the development of digital finance, and is in a leading position in the world. It can provide solid support for the construction of the most advanced digital financial infrastructure and has the conditions to explore the most advanced digital financial infrastructure. The creation of a Greater Bay Area stablecoin based on stablecoins, limited blockchains, and digital smart contracts pegged to the RMB can consolidate and enhance Hong Kong's status as an international financial center.

How long will it take before we see the birth of a RMB stablecoin in Hong Kong?