What is the stablecoin that has exploded recently?

Author: He Liuying, Jiemian News

Stablecoins are igniting another wave of market enthusiasm.

Recently, it has been reported that Ant International is planning to apply for stablecoin licenses in Hong Kong and Singapore. On June 12, Ant International responded that it is accelerating investments and expanding collaborations in global asset management, and is putting the company’s AI, blockchain, and stablecoin innovations into real and reliable large-scale applications.

“We welcome the Hong Kong Legislative Council’s passage of the Stablecoin Ordinance Draft, which will come into effect on August 1, and we hope to submit applications as soon as the relevant channels are opened, contributing more to the construction of Hong Kong as a future international financial center,” said Ant International.

According to reports, Bian Zhuoqun, Vice President of Ant Group and President of Ant Digital Technologies’ blockchain business, revealed in an interview that Ant Digital Technologies has started the application for a Hong Kong stablecoin license and has already conducted multiple rounds of communication with regulators.

On June 12, Hong Kong stocks related to Ant Financial saw a collective surge, with Yunfeng Financial experiencing a sharp rise during the day, soaring 54.24%.

What is a stablecoin? How much liquidity does the Hong Kong dollar stablecoin have? Why are financial institutions and technology companies getting involved? What are the pain points in the industry?

1:1 asset backing

For a long time, the significant price volatility of virtual assets has been criticized by the market, while stablecoins, due to their peg to specific assets, have relatively stable prices and are more likely to accumulate value trust.

According to the “Stablecoin Regulation” (hereinafter referred to as the “Regulation”) published in the Gazette by the Government of the Hong Kong Special Administrative Region on May 30, the meaning of stablecoins must conform to “referencing one of the following to maintain a stable value - a single asset; a set or a basket of assets.”

Hong Kong has also specifically defined the concept of “designated stablecoin,” which refers to a stablecoin that is pegged to one or more official currencies; one or more units of account specified by the Hong Kong Monetary Authority (hereinafter referred to as “HKMA”); one or more forms of storage of economic value specified by the HKMA; or a combination of the above, in order to maintain a stable value.

The most familiar stablecoin to the public is Tether (USDT), which is pegged to the US dollar. Tether claims that all Tether coins are pegged 1:1 to the corresponding fiat currency (for example, 1 USDT = 1 dollar) and are 100% backed by Tether’s reserves.

To ensure the true stability of stablecoins, strict requirements for reserve assets have been set by the United States, the United Kingdom, the European Union, Hong Kong, Singapore, and others.

The Hong Kong “Regulations” clearly state that the market value of the reserve asset portfolio must at all times be at least equal to the face value of the specified stablecoins that have not yet been redeemed and are still in circulation, and the licensee’s reserve assets must be of high quality, high liquidity, and have minimal investment risk.

The “Guidance and Establishment of the United States Stablecoin National Innovation Act” (hereinafter referred to as the “Genius Act”) that is being promoted by the United States requires that to issue payment stablecoins, the issuer must support the outstanding stablecoins with a reserve asset ratio of at least 1:1. These reserve assets include U.S. dollar cash, U.S. Treasury bonds maturing within 93 days, and others.

According to the 2020 digital finance strategy, the European Union has launched the “Regulation on Markets in Crypto-Assets” (MiCA), which includes rules regarding asset-referenced tokens and electronic money tokens (both of which are stablecoins) that will come into effect on June 30, 2024.

The Monetary Authority of Singapore issued stablecoin regulatory regulations on August 15, 2023. The new regulatory framework applies to any single currency stablecoin issued in Singapore that is pegged to the Singapore dollar or any G10 (Group of Ten) currency, with reserve assets including cash, cash equivalents, and bonds maturing within three months, denominated in the pegged currency.

On May 28, 2025, the UK’s Financial Conduct Authority (FCA) published a consultation document suggesting that issuers must ensure that stablecoins in circulation are backed 1:1 by a pool of low-risk, liquid assets.

Jeffrey Ding, Chief Analyst at HashKey Group, told Interface News that the purpose of setting a 1:1 peg is essentially to ensure that the stablecoins held by users are backed by real assets, thereby avoiding “empty financial transactions” or the risk of a run.

“A 1:1 peg means that each unit of stablecoin corresponds to a unit of equivalent real asset, giving investors and users confidence to hold, use, or even make large transactions with these assets, thereby avoiding a crisis of trust. If the reserves are not fully backed, the stablecoin’s promise of ‘par redemption’ will fail, making it difficult for financial institutions or users to quickly convert to fiat currency when needed, impacting circulation and settlement functions.” emphasized Jeffrey Ding.

There is a view in the market that the United States will link stablecoins to U.S. Treasury bonds, aiming to establish a “digital Bretton Woods system.”

Deng Jianpeng, a professor at the Law School of Central University of Finance and Economics and director of the Financial Technology Legal Research Center, told Jiemian News that “for the United States, since currently 90% of stablecoins are pegged to the US dollar, its issuance of regulatory laws has its own interests in mind. For example, the reserve requirements for stablecoins are in US dollar cash, US Treasuries, etc., which also means that issuers of US dollar stablecoins will purchase a large amount of US Treasuries, becoming major buyers of US Treasuries.”

Standard Chartered’s report suggests that U.S. legislation regarding stablecoins is expected to be introduced soon, and the “Genius Act” is likely to be passed in the summer. This will help increase the total supply of stablecoins from the current $230 billion to $2 trillion by the end of 2028. Stablecoins require reserves, and the anticipated growth in supply is expected to bring about $1.6 trillion in new demand for U.S. short-term Treasury bonds.

Looking for Application Scenarios

The Standard Chartered report indicates that the total size of stablecoins is currently approximately $230 billion, with the largest and second largest stablecoins being USDT issued by Tether and USDC issued by Circle, capturing market shares of 63% and 25%, respectively.

In order to get a piece of the stablecoin market, Hong Kong has accelerated the relevant process. In March 2024, the Hong Kong Monetary Authority (HKMA) launched a “sandbox” for stablecoin issuers, providing a testing environment for institutions interested in issuing fiat stablecoins in Hong Kong. On 21 May 2025, the Hong Kong Legislative Council passed the Stablecoin Bill to establish a licensing regime for fiat stablecoin issuers in Hong Kong. On 30 May 2025, the Ordinance will come into effect by gazetting; On August 1, 2025, the Regulations will come into force.

For Hong Kong, which aims to actively become an international virtual asset hub, entering the stablecoin space is to be expected.

“Hong Kong strives to become an international financial center, including becoming an innovation hub for WEB3, issuing a Hong Kong dollar stablecoin, or issuing regulated stablecoins pegged to other fiat currencies in Hong Kong, which is of great significance for enhancing Hong Kong’s status as an international financial center,” said Deng Jianpeng.

However, due to the obvious disadvantage in market share, the development prospects of the Hong Kong dollar stablecoin remain to be seen. “Currently, the stablecoin market is still an oligopoly, with dollar-pegged stablecoins accounting for the vast majority, and Tether’s stablecoin making up an even larger portion of that. Therefore, for a non-dollar-pegged stablecoin, aside from regulatory approval, the most important factor is whether it can find application scenarios to expand the actual role and market share of non-dollar stablecoins,” said Jeffrey Ding.

“The HKD stablecoin is pegged to the Hong Kong dollar, which has a relatively small market value. Currently, the main use case for stablecoins is in the cryptocurrency investment and trading sector. Although there are regulated cryptocurrency exchanges in Hong Kong and there are virtual asset ETFs, the overall trading volume is still relatively low. Therefore, in the short term, the HKD stablecoin may maintain a certain volume, but this volume will not be too large,” said Deng Jianpeng.

“Of course, the application scenarios can break through from virtual currency trading to cross-border payments, as Hong Kong itself is an important financial center and a service trade hub, and there should be a significant demand for cross-border payments.” Deng Jianpeng added.

OSL Chief Business Officer Zhang Yinghua ( Eugene ) recently stated during a media group interview, “OSL supports enterprises in making cross-border payments using stablecoins, which have the advantage of shortening payment times. If you want to remit money from South America to Hong Kong today, it would take at least 3-5 working days through banks, as there are many intermediary banks involved. In contrast, stablecoins can achieve T+0. In terms of cost, the cross-border remittance cost using stablecoins is also lower than that of traditional financial institutions.”

For stablecoins issued in Hong Kong, choosing cross-border scenarios is also a necessary move.

“I believe that stablecoins must definitely be cross-border and cannot be used only in Hong Kong, otherwise their value might not be that significant,” said Zhang Yinghua.

Of course, facilitating cross-border transactions between on-chain and off-chain is a long-term project. “This involves not only the approval of regulatory authorities in various countries and regions but also future financial infrastructure. As a cryptocurrency trading platform, we will also strive to promote communication among all parties,” emphasized Zhang Yinghua.

The Stalkers

The stablecoin landscape is approaching, and relevant institutions are also accelerating their actions.

In February this year, Standard Chartered Hong Kong, ANX Group, and Hong Kong Telecommunications reached an agreement to establish a joint venture, aiming to apply for a license from the Hong Kong Monetary Authority under the new regulatory framework to issue a stablecoin pegged to the Hong Kong dollar.

“We are intensifying the relevant preparations and will announce more details in due course,” said Dominic Maffei, Head of Digital Assets and Fintech at Standard Chartered Hong Kong, recently.

It is worth noting that stablecoins have already created a financial incremental space. On June 5, digital currency giant Circle was listed on the New York Stock Exchange, becoming the “first stablecoin stock,” with an opening price of $69 per share. As of the close of U.S. stocks on June 12, Circle’s stock price had risen to $106.54 per share, with a total market capitalization of $23.7 billion.

“I believe the development prospects of stablecoins are very promising. In addition to Circle, which has just been listed in the United States, and the stablecoin giant Tether, I believe companies in China, Europe, South America, and other regions will also enter the market, and the future looks very bright,” said Deng Jianpeng.

The big companies are reacting quickly; as mentioned earlier, Ant International and Ant Financial have already taken action regarding stablecoin licenses.

“In fact, Ant Group participated in the Hong Kong Monetary Authority’s Ensemble regulatory sandbox as early as August last year, mainly promoting RWA (Real World Asset tokenization) projects for physical assets such as new energy charging piles. As the parent company of Alipay, Ant Group’s application for a Hong Kong stablecoin license aims to strengthen its blockchain technology layout and further serve its cross-border payment and fund management business,” said Jeffrey Ding.

From a global competition perspective, “Ant International positions itself to benchmark against international payment giants such as Stripe, PayPal, as well as Visa and MasterCard, all of which have ventured into stablecoin issuance. Ant International, as one of the first companies to publicly announce plans to apply for a Hong Kong stablecoin issuance license, has a significant first-mover advantage due to its strong capital management capabilities and global fintech background,” said Jeffrey Ding.

In comparison, in August 2023, global payment giant PayPal announced the launch of its dollar-pegged stablecoin PayPal USD (PYUSD), which is 100% backed by US dollar deposits, short-term US Treasury bonds, and similar cash equivalents, issued by the US fintech company Paxos Trust Company.

According to PayPal, customers can convert PYUSD between PayPal and compatible external wallets; use PYUSD to send person-to-person payments; choose PYUSD to pay fees at checkout; and exchange any cryptocurrency supported by PayPal for PYUSD.

In fact, while competing for first-mover advantage, there are also considerations for asset allocation. “After participating in the issuance of stablecoins, institutions can obtain fiat currency paid by stablecoin holders at nearly zero cost, and they can use this to purchase some low-risk investment products, such as U.S. Treasury bonds, etc., which will generate returns. Especially as the issuance volume of stablecoins increases, the base becomes larger, so the investment returns could be quite substantial,” said Deng Jianpeng.

There are still many pain points.

“Currently, there are relatively few legal and regulatory rules regarding stablecoins, and the popular stablecoins on the market actually face compliance and financial risks,” emphasized Deng Jianpeng.

Including the issue of asset stability, it was mentioned above that stablecoins will require 100% collateralized reserve assets. To what extent can the asset security of stablecoins be guaranteed under this measure?

Jeffrey Ding believes that a 1:1 peg to real assets enhances asset security, but it cannot completely eliminate risks. High-security assets (such as short-term U.S. Treasury securities, cash, and bank deposits) can be quickly liquidated in a short period, greatly reducing liquidity risk. However, if the reserves are volatile or low-liquidity assets (such as commercial paper or tokenized securities), the risks will significantly increase, which is why Hong Kong and the United States stipulate that reserve assets must be high-liquidity assets, including cash and short-term U.S. Treasury securities.

Jeffrey Ding mentioned that both Hong Kong and the United States require that reserve assets be held by independent, regulated custodians, completely segregated from the issuer’s own funds, to prevent user assets from being harmed due to the issuer’s bankruptcy or misappropriation of funds. Additionally, they accept third-party accounting audits or on-chain verifiable mechanisms to enhance transparency and public confidence, preventing false endorsements or information asymmetry.

One risk is that if the reserve assets pegged to the stablecoin encounter issues, the stablecoin will also face problems. In March 2023, Silicon Valley Bank in the US announced its closure due to a liquidity crisis, and at that time, $3.3 billion of Circle’s $40 billion USDC reserves were held in Silicon Valley Bank. This led to USDC’s price plummeting to around $0.87, significantly deviating from its pegged price.

The application layer is also facing compliance issues. “In the field of cross-border payments, the advantages of stablecoins are obvious; whether it is payment costs or payment efficiency, they are superior to traditional financial institutions. However, the challenge lies in compliance issues. The issued stablecoins must be strictly linked to the corresponding reserve cash or other equivalents. If this cannot be achieved, it is equivalent to overissuing currency or committing fraud, which may be a significant challenge that regulators need to pay attention to in the future,” said Deng Jianpeng.

“Another challenge is anti-money laundering. Stablecoins may be exploited by hackers or used for other illegal purposes, which is also a significant challenge,” said Deng Jianpeng.

It is worth noting that a consensus in the industry is that the high compliance costs are also a major issue that virtual asset participants must overcome.

“Finally, for other countries that use non-US dollars or non-mainstream fiat currencies, or for those countries whose fiat currency credit has gone bankrupt and whose fiat currency inflation is very serious, because the availability of stablecoins is very convenient, there is no need to open a bank account, as long as you can access the Internet, which will make such countries sell their currencies one after another and exchange them for US dollar stablecoins, then the financial sovereignty, monetary sovereignty and financial security of these countries will form a major challenge.” Deng Jianpeng emphasized.