HKMA: Many Stablecoin Applicants Will Be Disappointed
Hong Kong’s passage of the stablecoin bill and the anticipated issuance of related licenses is causing much optimism in the city. According to the local banking regulator, the matter is being overhyped and many applicants will be disappointed.
In May, Hong Kong successfully passed the stablecoin bill which will take effect on August 1, requiring issuers of such digital tokens to obtain licenses from the Hong Kong Monetary Authority (HKMA) and meet requirements, such as reserve assets. In anticipation of stablecoin debuts, a number of locally listed stocks have garnered strong investor demand based on mere press releases.
For example, Goldstream Investment’s share price spiked more than 500 percent in early July on the back of an announcement to collaborate with digital currency firm AnchorX to explore the issuance of an offshore renminbi stablecoin.
The market is seeing «excessive exuberance», according to Hong Kong Monetary Authority chief executive Eddie Yue in a blog post, who said «it seems necessary to further rein in the euphoria».
«Excessive Exuberance»
Thus far, a few dozen institutions have already proactively reached out to the HKMA with some expressing their intention to apply for a stablecoin issuer license. However, «a large number of applicants will be disappointed».
«Earlier on we have clearly stated that, in the initial stage, we will at most grant a handful of stablecoin issuer licences,» Yue said.
«Even for those who successfully obtain a licence, given the imperative for prudent development and the initial investments needed, how much stablecoin issuance business can contribute to the company’s short-term profitability is somewhat uncertain. Investors should remain calm and exercise independent judgement when processing ‘positive' market news.»
Theory Versus Practice
Yue also spoke about the belief in the potential for stablecoins to disrupt the mainstream financial system, such as payments, and the gap between theory and practice when engaging with institutions.
«A common takeaway from these engagements is that many proposals remain conceptual, presenting visions such as enhancing cross-border payment, supporting the development of Web3.0 or optimizing the efficiency of foreign exchange market but lacking practical use cases,» he shared.
«They also fail to put together viable and concrete plans as well as implementation roadmaps, let alone demonstrate their awareness of risks and competence in managing them. Among those that can provide viable use cases, some may lack the technical expertise in issuing stablecoins, as well as the experience and capabilities in managing various financial risks.»
Balancing Regulations
What’s more, Yue noted that stablecoin regulations will start off tight with more stringent anti-money laundering (AML) requirements imposed, for example, in light of risks, especially for cross-border use cases.
«[I]t is better for regulated stablecoin business, which is still in its infancy, to start with stricter regulations to ensure sound operation. With practical experience gained, we will be in a position to be flexible in certain areas. This will be a more suitable approach than dealing with the consequences left by lax regulations,» he added.
Elsewhere, there are also positive regulatory developments, including the US with the recently signed GENIUS Act, which provides the federal legal framework for stablecoins, ensuring clarity for retail and institutional users. Globally, the total stablecoin market size is nearly $270 billion, according to CoinMarketCap data, with Tether’s USDT in the leading position.
