Hong Kong-style Sandbox Strategy Works… Real-Use Competition Enters One Year After Institutionalization

In Hong Kong, preparations are in full swing just a month before introducing the stablecoin issuance license. So far, at least 9 companies have officially announced their license application plans. With blockchain specialized companies, large fintech firms like Ant Group (operator of Alipay), and traditional financial institutions such as Standard Chartered joining the race, an intense competition for initial market leadership is underway. The competition is even more heated as the Hong Kong authorities have clearly stated that they will initially grant licenses to only a few issuers.

The license system was introduced through the first stablecoin ordinance passed by the Hong Kong Legislative Council in May this year. The ordinance mandates registration with the Hong Kong Monetary Authority (HKMA) when issuing legal tender within Hong Kong and requires maintaining reserves exceeding the issued amount. The implementation date is August 1st, an unprecedented rapid institutionalization that will take effect just three months after legislation.



Behind this pace is the stablecoin issuer regulatory sandbox operated by HKMA since last year. HKMA selected three participants: △A joint venture of Standard Chartered, Hong Kong Telecom, and Animoca Brands △RD Technology, a B2B payment specialist △Jingdong Coinlink, a stablecoin subsidiary of Chinese Jingdong.com, to test various use cases. They have been directly communicating with the industry for nearly a year to understand stablecoin business models and pre-coordinate regulatory expectations. While Hong Kong has been researching Central Bank Digital Currency (CBDC) since 2017, it has quickly pivoted to a strategy of coexisting two digital currencies in response to the spread of stablecoins.

In an interview with this publication, HKMA stated, "Hong Kong has various exchange methods like traditional bank deposits and stored value facilities (SVF), and stablecoins will become a new payment option among these." They added, "Through stablecoin issuer regulation and CBDC projects, we aim to contribute to Hong Kong's future digital economy by establishing a foundation for public and private digital currencies to coexist."

The flexible approach to stablecoin regulation is also confirmed in the ordinance design that allows foreign currency-linked issuance. According to the ordinance, companies obtaining a Hong Kong stablecoin issuance license can issue stablecoins linked not only to the local currency (HKD) but also to foreign currencies like USD and EUR. Lee Jae-ho, a lawyer at K&L Gates Hong Kong office, said, "Theoretically, a Korean won-linked stablecoin could even be issued in Hong Kong before Korea" and "Like USDT, which quickly established over 60% market share initially, it's crucial to be a market leader in stablecoins. Hong Kong's rapid design of a realistically acceptable system through the sandbox is also conscious of this speed race."

For Hong Kong companies preparing to issue stablecoins, the key challenge now is securing actual use cases. HKMA has clearly stated that license issuance conditions include presenting practical usage scenarios along with reserve management and redemption capabilities. The authorities will evaluate how stablecoins can solve real economic challenges and whether business plans are executable and comply with regulatory requirements.

Local companies participating in the Sandbox are also prioritizing establishing a foundation for real-world usage. While there is a sense that they can immediately apply for licenses once the regulations are implemented, given the numerous communications and feedback with regulatory authorities, they are focusing on thorough preparation such as real-world usage verification and securing partnerships due to the intense competition. RD Technology experimented with various scenarios using their own stablecoin, including cross-border remittances, digital asset trading, and Real-World Asset (RWA) payments. Through collaboration with Hong Kong GF Securities, they utilized stablecoins as a payment method for tokenized bonds and established a future listing collaboration with HashKey Exchange. Rita Liu, CEO of RD Technology, explained, "We are having substantive discussions about remittances and payments via stablecoins with traders and import-export companies" and "Especially in emerging markets with weak payment infrastructure, stablecoins can be a much more efficient alternative." She further emphasized that RD Technology has aimed for stablecoin innovation as a core goal since its establishment in 2020, given its platform specializes in B2B payments. With numerous merchant and institutional customers, stablecoin utilization can be natural. Considering the current reality of taking days to remit funds from Hong Kong to emerging markets, stablecoins can be an efficient alternative that simultaneously reduces costs and time. After obtaining the license, they plan to focus on building an ecosystem to expand real-world use cases for stablecoins. She stated, "It's not over just by preparing legislation and obtaining an issuance license. Stablecoins are an ecosystem, and we need to bring in more real-world cases like cross-border payments." She added that this requires cooperation from various participants including banks, existing payment providers, and traditional merchants, and as infrastructure builders, they aim to bring more traditional transaction flows into the blockchain world. Animoca Brands, which has been active in blockchain games and Non-Fungible Tokens, participated in the Sandbox through a joint venture with Standard Chartered and Hong Kong Telecom. The three companies divided roles leveraging their respective strengths: financial infrastructure and regulatory response (SCBHK), consumer payment network (HKT), and blockchain ecosystem design (Animoca), securing a strong real-world usage foundation from the early stages. Evan Au Yang, President of Animoca Brands Group, said, "The three companies have solved technical and operational challenges together within the Sandbox" and revealed that they are reviewing the direct purchase of assets within their blockchain games using Hong Kong dollar-linked stablecoins, as well as potential future tokenization of traditional assets like securities and bonds. The industry views the market entry of big tech companies like Ant Group as a "positive stimulus". Liu assessed that "Traditional companies entering stablecoin issuance proves market demand and helps spread user awareness". Au Yang also emphasized, "Adoption is more important than technology" and "It's welcome that various issuers participate in the ecosystem and develop their own use cases".

From Hong Kong by Kim Jung-woo