Hong Kong’s decision to regulate stablecoins, digital currencies tied to the value of a reference asset, has generated interest among mainland institutions.

Analysts expect an increase in tokenization projects in the city, with the law requiring issuers to obtain a license from the Hong Kong Monetary Authority (HKMA) and set to take effect later this year.

Citic Securities, a major Chinese brokerage, anticipates that this legislation will allow mainland firms to launch tokenized real-world asset (RWA) projects in Hong Kong.

According to their analysts, stablecoins could enhance market liquidity and improve digital payment and settlement systems.

Tokenization, which represents assets on a blockchain for digital trading, is becoming more popular in Hong Kong.

.source-ref{font-size:0.85em;color:#666;display:block;margin-top:1em;}a.ask-tia-citation-link:hover{color:#11628d !important;background:#e9f6f5 !important;border-color:#11628d !important;text-decoration:none !important;}@media only screen and (min-width:768px){a.ask-tia-citation-link{font-size:11px !important;}}

🔗 Source: South China Morning Post

🧠 Food for thought

1️⃣ The strategic importance of stablecoins in financial architecture

Hong Kong’s stablecoin law represents more than just cryptocurrency regulation, as it positions the city as a crucial link in global settlement networks.

Stablecoins processed over $27 trillion in settlements last year, demonstrating their growing importance in global finance 1.

The regulatory framework could significantly enhance Hong Kong’s role as a “node in global settlement networks” by creating infrastructure for digital currency payments and settlements 2.

The HKMA’s licensing regime requiring 100% reserves in high-quality, liquid assets creates a foundation of trust necessary for mainstream adoption 3.

By developing clear rules while mainland China maintains stricter crypto policies, Hong Kong is strategically creating a bridge for Chinese companies seeking to engage with global digital finance markets 4.

2️⃣ Global regulatory competition drives innovation with different approaches

Hong Kong’s stablecoin law emerges amid an intensifying global regulatory race, with the U.S. Senate advancing the GENIUS Act the same week Hong Kong passed its bill 2.

While both frameworks emphasize reserve backing, they differ in key areas—the U.S. prohibits interest on payment stablecoins, while Hong Kong’s approach allows more flexibility 2.

The EU has already implemented its Markets in Crypto-Assets (MiCA) regulation, requiring 1:1 liquid reserves and banning algorithmic stablecoins entirely 5.

This regulatory diversity creates different innovation environments: Hong Kong’s framework distinguishes between security tokens and utility tokens, avoiding regulatory overreach seen in other jurisdictions 4.

The regulatory clarity provided by Hong Kong’s approach aims to attract institutional capital while ensuring consumer protection, creating a competitive advantage in the region 4.

China’s perspective on these developments remains complex, with economist Wang Yongli warning that the unchecked expansion of dollar-backed stablecoins could hinder China’s efforts to internationalize the renminbi 1.

3️⃣ Real-world asset tokenization emerges as the practical use case

While cryptocurrency debates often focus on speculative trading, Hong Kong’s regulatory approach is enabling the more practical application of tokenizing traditional assets.

Mainland companies are already implementing real-world asset projects in Hong Kong, such as Longshine Technology’s raising of 100 million yuan through tokenized EV charging station data 6.

The stablecoin market’s global capitalization is approaching $250 billion after growing 22-fold in five years, providing the stable foundation needed for tokenization projects to flourish 2.

Analysts at Citic Securities specifically highlighted that stablecoins could serve as stabilizing tools to increase market liquidity for real-world asset projects 6.

This focus on tokenization represents a maturation of the blockchain space, moving beyond speculative cryptocurrencies toward digitizing traditional financial instruments and physical assets.

The practical application of blockchain for traditional assets suggests Hong Kong is pursuing a middle path that could appeal to mainland institutions seeking innovation within regulated frameworks.

……