Hong Kong residents are one step closer to experiencing the many applications of stablecoins, from local payments to cross-border trade settlements, as a bill covering the digital currency makes its way through the Legislative Council.
proposed by the Hong Kong government Stablecoin bill Closer to becoming law, the city moves to balance financial stability and consumer protection while advancing its virtual assets agenda.
Stablecoins are digital assets issued by private entities that hold a fixed value compared to a government-issued fiat currency or other reference rate. Traditionally, it acts as a bridge for transactions involving digital assets Block chainsWhich cannot interact directly with paper currencies.
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Although it is primarily known as a tool for trading cryptocurrency assets in… Web world 3Stablecoins have the potential to expand their use in the real financial economy, according to industry experts.
One potential use could be to automate incentives, rebates, or loyalty points in digital wallets, such as Octopus software, using the programmability of stablecoins, or the ability to input rules and data into the blockchain.
For example, if a consumer has a loyalty rewards scheme, their spending can be automatically added to their loyalty program and incentives can be applied at checkout without revealing their membership details.
Stablecoins could provide access to new investment avenues such as token funds – which use blockchain for sales and redemptions – as assets under management are expected to rise to around US$600 billion in seven years from US$2 billion at the end of this year, according to Report from Aptos Labs, Boston Consulting Group and Invesco.
People sit in front of a screen displaying the Hong Kong flag ahead of the 25th anniversary of the city’s handover from Britain to China on July 1, 2022, on June 27, 2022. Photo: AFP alt=People sit in front of a screen displaying the Hong Kong flag ahead of the 25th anniversary of the city’s handover. From Britain to China on July 1, on June 27, 2022. Photograph: AFP >
“The applications for stablecoins will be numerous,” said Shawn Li, co-founder of IDA, a Hong Kong-based Web3 digital asset company. “This could be for payments, settlements, payroll, finance and related to investments. New products will emerge and transactions will be faster and instantaneous 24/7 – and at a lower cost.”
“As of today, we believe that stablecoins are the best tool available to connect traditional finance and Web3 markets and have proven use cases and business models to support this belief,” said Dominic Maffei, Head of Digital Assets and FinTech for Hong Kong at Standard. Chartered.
“We are now seeing additional use cases for payments and tokenized assets and we believe this is just the beginning,” Maffei said. His bank participates in Stablecoin sand He supervises it Hong Kong Monetary Authority.
Circle CEO Jeremy Allaire discusses the potential of stablecoins during Hong Kong FinTech Week on October 28, 2024. Image: Hong Kong FinTech Week alt= Circle CEO Jeremy Allaire discusses the potential of stablecoins during Hong Kong FinTech Week on October 28 2024. Image: Hong Kong FinTech Week>
The market cap of stablecoins has grown to more than $200 billion over the past decade with trading volume reaching $125 billion, according to CoinGecko, a data provider. The Coinbase report showed that in 2023, stablecoins settled transactions worth US$2.3 trillion in activities such as cross-border payments and transfers, an increase of 17 percent from the previous year.
Currently, the most prominent stablecoins on the market are Tether and Circle’s USDC, both of which are pegged to the US dollar. But using other currencies for local and international payments requires more stablecoins that are not pegged to the US dollar. Hong Kong can benefit from being the world’s seventh-largest trading center in terms of merchandise trade value and the fourth-largest foreign exchange market.
“For cross-border payments, stablecoins are used to facilitate money transfers within seconds and at lower costs compared to traditional banking methods,” said David Chan, Managing Director and Partner at BCG.
Hong Kong’s Chief Executive John Lee Ka-chiu (left) meets with the Vice President and Prime Minister of the United Arab Emirates, Sheikh Mohammed bin Rashid Al Maktoum (right), in Dubai on February 9, 2023. Image: Handout alt=Hong Kong’s CEO John Lee met Ka Chiu (left) with UAE Vice President and Prime Minister Sheikh Mohammed bin Rashid Al Maktoum (right), in Dubai on February 9, 2023. Photo: Handout>
Hong Kong and United Arab Emirates The UAE, which has bilateral trade worth between $15 billion and $20 billion annually, could use Stablecoins are pegged To Hong Kong dollar and UAE dirham Trade directly Without converting to US dollars and passing through settlement banks. The Hong Kong dollar and the UAE dirham are both linked to the US dollar.
Stablecoins and pegs could help position Hong Kong as a “future international financial center” with Web3 capabilities, said Yue Hongzhang, another BCG partner.
One question that is often asked to stablecoin issuers is competition from other digital assets such as Central bank digital currencies (Central Bank Digital Currencies) and Token depositswhich can live on the blockchain and has many similar properties.
A side explaining the mBridge multi-CBDC platform that facilitates cross-border cryptocurrency transactions between participating central banks, as shown during a presentation by People’s Bank of China (PBOC) Chief Digital Currency Officer Mu Changchun at a panel discussion at Hong Kong Fintech Week on January 11, 2022. Image : Matt Haldane alt=Side explaining the mBridge multi-CBDC platform that facilitates cross-border digital currency transactions between participating central banks, as demonstrated during a presentation by PBOC Chief Digital Currency Officer Mu Changchun at a panel discussion at Hong Kong Fintech Week on January 11, 2022. Photo: Matt Haldane>
“Users should have choices,” Lee said. He added that stablecoins’ programmability can be “more diverse” and come from different players in the ecosystem compared to central bank digital currencies, which can only be controlled by a central bank.
“We believe that stablecoins will be key to this next phase of growth in digital asset markets, with immediate impact,” Maffei said.
BCG’s Chan said stablecoins primarily target early adopters such as cryptocurrency traders and investors, while token deposits and central bank digital currencies need to target institutions and other traditional uses such as wholesale payments. However, wider adoption of the latter two digital assets is expected, with the development of more diversified financial products.
“Operating under a regulatory system, a stablecoin is a way to innovate while complying,” IDA’s Lee said. “People are making sure it’s open, secure, and compatible enough that many people will use it.”
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