Hong Kong Version Stablecoin Issuance: Analysis of Issuance and Usage Rules

The Hong Kong government published the "Stablecoin Ordinance" in the Gazette on May 30, marking the countdown to the official issuance of the Hong Kong version of stablecoins. This article will explore two key issues: how to become an issuer of the Hong Kong version of stablecoins, and how users can effectively utilize the Hong Kong version of stablecoins.

Ways to Become a Hong Kong Version Stablecoin Issuer

Currently, the Hong Kong Monetary Authority has selected three entities as potential issuers of the Hong Kong version of stablecoin, which are JD Coin Chain Technology (Hong Kong), Yuan Coin Innovation Technology, and a consortium of Standard Chartered Bank (Hong Kong) with the other two companies. Starting from July 18, 2024, these three entities will test their stablecoin issuance plans within a specific scope through a "regulatory sandbox" approach. It is worth noting that whether issuing stablecoins in Hong Kong or issuing stablecoins pegged to the Hong Kong dollar outside of Hong Kong, permission from the Hong Kong Monetary Authority is required.

Application Conditions Key Points

1. Applicant entity: Must be a company registered in Hong Kong or a recognized legal entity registered outside of Hong Kong.

2. Personnel requirements: Management must have appropriate knowledge and experience.

3. Capital requirements: The minimum paid-up capital is 25 million HKD or an equivalent currency, and sufficient high-quality, highly liquid reserve assets must be held.

4. Asset Custody: Reserve assets must be stored in recognized custodial institutions and strictly separated from other assets.

5. Redemption mechanism: The redemption mechanism must be disclosed to the public in a timely manner, and redemption cannot be restricted or charged additional fees.

6. Risk Control System: A comprehensive AML & CTF compliance plan and user data security measures need to be established.

7. Information Disclosure: A white paper must be published, financial and reserve asset status should be disclosed regularly, and significant changes must be reported in a timely manner.

8. Audit Requirements: Accept independent audits annually.

9. Compliance requirements: including timely payment of license fees, displaying license numbers, maintaining minimum standards, etc.

application process

The application process mainly includes two steps:

1. Apply to become a "regulatory sandbox" participant.
2. Apply for stablecoin issuance license.

The financial management bureau will decide whether to approve the license and whether to attach conditions based on the application situation. The approved license will remain valid unless revoked.

The Application Prospects of Hong Kong Version Stablecoin

Although the official details on the specific usage of the Hong Kong version of the stablecoin have not yet been introduced, some development directions can be glimpsed from related reports. Taking the JD stablecoin as an example, it plans to issue a stablecoin anchored 1:1 to the Hong Kong dollar and the US dollar based on public chain technology. Its application areas mainly include:

1. Cross-border payment: Achieve instant arrival within seconds and significantly reduce intermediary costs.

2. Investment Trading: Collaborate with compliant exchanges to provide investment services.

3. Retail Payments: Conduct payment testing by integrating with e-commerce platforms.

Differences in Regulatory Policies Between Mainland and Hong Kong

It is worth noting that there are significant differences between Hong Kong and the mainland in terms of virtual currency regulation:

• Hong Kong: Actively promoting stablecoin legislation and testing, with the courts through multiple cases protecting the rights and interests of parties involved in coin disputes.

• Mainland: The regulatory stance on virtual currencies remains strict, and most courts tend to reject or dismiss related dispute cases. However, for criminal cases involving virtual currencies, law enforcement agencies usually treat them as an asset.

With the launch of the Hong Kong version of the stablecoin, this difference may become more pronounced, and investors and users need to fully understand the policy environment in both regions and reasonably assess the risks.