The only way out for Hong Kong is to become the world's number one stablecoin market.

Written by: Wang Yang, Bai Liang, columnists for FT Chinese.

In the previous article (“The Revelation of the Success and Failure of Stablecoins: Why the Dollar Won and Europe Lost?”), we analyzed the stark contrast in the world of stablecoins: the United States, through “vague wisdom” and market forces, has rapidly iterated and expanded USDT and USDC, and then backed it up with compliant legislation, achieving today's dollar stablecoin empire; while Europe and Singapore, due to their “perfect regulation,” have strangled their own innovation at its roots. The lesson from history is clear and profound: in the arena of financial innovation, timing and ecology are far more important than perfect rules.

What are the implications for Hong Kong? In May this year, the stablecoin regulations passed in the Legislative Council and came into effect on August 1, accompanied by a series of guidelines and rules. The world's attention is focused on Hong Kong. Does Hong Kong have the opportunity to become a new growth pole in the stablecoin field, rather than just being a regulatory example like Europe and Singapore?

Frankly speaking, if Hong Kong continues along its current path—pursuing a “perfect” regulatory framework, cautiously nurturing the market, and implementing gradual innovation pilots—the answer is no. Hong Kong needs to recognize a harsh reality: in the current world of stablecoins, being a “good kid” is destined to fail. The success or failure of Hong Kong's stablecoin cannot merely be regarded as a financial regulatory issue; it must be elevated to the level of the national digital financial strategy.

The only way out for Hong Kong is not to design a flawless regulatory framework, but to spare no effort in creating a stablecoin market that is the most liquid globally, with the richest application scenarios and the most vitality. The emerging RWA is the strategic leverage for stablecoins.

Hong Kong should forge a “stablecoin corridor” with a higher vision and more innovative thinking, thereby seizing the initiative of the stablecoin revolution and becoming a solid support for national strategy, rather than a passive defensive follower.

Breaking the “Regulatory Trap”: A Shift in Thinking from “Regulators” to “Market Cultivators”

The biggest risk currently is that Hong Kong may inadvertently slip into a “regulatory trap.” This is a seemingly responsible yet ultimately fatal mindset: attempting to foresee and eliminate all risks by formulating comprehensive rules. The result, as demonstrated by Europe's MiCA legislation, is the creation of a “sophisticated shell”—the system is perfect, but the market is withering.

Compared to Europe and Singapore, Hong Kong's unique landscape gives it a transcendent potential. The development of stablecoins in Hong Kong is not limited to local regulatory experiments. Hong Kong regulators must undergo a profound shift in mindset: from “financial regulators” to “market cultivators.” The goal of regulation should not be merely “to avoid issues,” but rather “to achieve results”—fostering a prosperous ecosystem while maintaining the bottom line of financial safety. This means that regulation itself needs to become a service (Regulation as a Service), with its core KPI (Key Performance Indicator) being the depth of market liquidity, the number of ecological projects, and the share of stablecoins issued in Hong Kong in global settlements, especially in RWA settlements.

Stablecoins are the infrastructure that drives the digital economy, cross-border payments, and DeFi. The consequences of excessive regulation are evident: small and medium-sized enterprises and startup projects are excluded by high thresholds, leading to oligopolistic monopolies and stifling diverse innovation; the disconnection between stablecoins and the DeFi ecosystem has resulted in Hong Kong being marginalized in the Web 3 wave, unable to integrate into the global decentralized network; the “regulatory arbitrage” effect is prominent, with potential projects flowing to more flexible jurisdictions such as the United States, Dubai, or Abu Dhabi, leaving Hong Kong lagging in the digital finance competition.

To break this deadlock, Hong Kong can introduce a tiered regulatory framework under the existing regulations, classified by scale: large-scale, publicly-oriented stablecoins (such as those issued by banks or tech giants) can be subject to appropriate strict management regarding capital adequacy, reserve disclosures, and risk areas; small-scale, experimental stablecoins can initially test the waters in a relatively relaxed “regulatory sandbox,” obtaining exemptions or lenient treatment. By function classification: payment-type stablecoins emphasize reliability; investment-type or experimental types focus on disclosure and protection rather than comprehensive restrictions. Phased progression: startups begin in the sandbox, gradually transitioning to full regulation as they scale up, avoiding a “one-size-fits-all” approach that stifles new forces.

In addition, the innovation space is worth bold exploration: a normalized sandbox that allows stablecoin issuance platforms to iterate quickly. Here, Hong Kong must change its mindset, transforming the sandbox from a single “regulatory testing ground” into a “regulatory service testing ground”; implementing flexible real-name systems, such as “simplified verification for small transactions”; accommodating DeFi, and developing “compliance packaging” solutions, allowing Hong Kong stablecoins to be compliant while circulating in global protocols. These measures will transform regulation into services, promoting Hong Kong's transition from a “regulator” to a “market cultivator.”

Build a strategic ecosystem: RWA

In the application scenarios of stablecoins, the primary breakthrough for Hong Kong stablecoins is to build a strategic application market—RWA. Compared to Europe and Singapore, the biggest difference in the Hong Kong region is that it is backed by the world's largest manufacturing and trading country—China. In 2024, China's total foreign trade volume has exceeded 6.3 trillion USD, ranking first in the world for many consecutive years. Hong Kong's unique advantage lies in its role as a “super connector”: it can link to the vast real economy of mainland China while integrating into the global capital market. This card is destined to be played through “real-world assets (RWA)”.

The success of the US dollar stablecoin is built on virtual asset trading. The opportunity for Hong Kong stablecoins lies in the digitization of physical assets.

Imagine a scenario where a factory in Dongguan exports a batch of goods worth 5 million USD to Brazil. The traditional process relies on USD letters of credit, SWIFT communications, and multiple intermediary banks, often taking 2-3 weeks for funds to arrive. However, under the RWA+ stablecoin model in Hong Kong, this accounts receivable can be quickly tokenized into RWA tokens and traded in the global market. The factory receives funds immediately, while investors earn a short-term return of 5%-7% per annum. The entire transaction is completed through compliant stablecoins in Hong Kong, with clear advantages in efficiency, transparency, and cost.

This model not only enhances financing efficiency but also reshapes the global financial landscape. For China's real economy, it is a powerful tool for reducing financial costs and enhancing international competitiveness; for the internationalization of the renminbi, it creates a demand for non-speculative stablecoins; and for Hong Kong, it presents a strategic opportunity to become the core hub of the new generation of digital financial infrastructure.

In the new model of RWA plus stablecoins in Hong Kong, the accounts receivable of this transaction are tokenized on a compliant platform in Hong Kong, becoming an RWA token. The factory in Dongguan no longer needs to wait; it can immediately sell this RWA token on the secondary market to global investors—such as a Dubai family office seeking short-term, high-quality returns—gaining funds instantly. The entire transaction, from the issuance and trading of the RWA to the final payment from the Brazilian buyer, is completed using offshore RMB, HKD, or even Hong Kong-compliant USD stablecoins issued in Hong Kong. The stablecoin here is not a speculative tool, but an efficient settlement layer.

The strategic significance of this model is disruptive. For China's real economy, it provides unprecedented financing efficiency and liquidity for millions of export enterprises, greatly reducing financial costs and enhancing international competitiveness. For the country's “de-dollarization” strategy, it creates a strong, non-speculative demand for offshore RMB stablecoins. Brazilian buyers and Dubai investors use CNH stablecoins not for political or speculative reasons, but because it leads to a more efficient and profitable trade finance market. This naturally replaces the settlement position of the dollar at the business level with a “better” tool. For Hong Kong, it will no longer be a follower in the stablecoin field, but a rule maker and core hub of the new generation of digital financial infrastructure. Global trade assets will converge here for tokenization and trading.

Trade finance is just the starting point. China's infrastructure projects, green energy projects, and carbon credits, as well as commercial real estate in the Greater Bay Area… and compliant assets from other countries and regions can all become digital assets that global investors can allocate through Hong Kong's RWA platform, and the underlying blood of all this will be Hong Kong's compliant stablecoin.

Create a “Hong Kong Stablecoin Corridor”

Through policy guidance, reasonable regulation, and innovation promotion, Hong Kong can forge a “stablecoin corridor” that connects China with the global financial system, becoming a hub for stablecoin innovation and cross-border settlement in the world. This is not a narrow payment channel, but a multidimensional ecosystem: geographically linking the mainland with the global, technologically bridging traditional and digital finance, providing a “compliance passport,” and integrating the liquidity of the real world with digital assets.

Providing stablecoin solutions on the RWA trading layer is the most imaginative part of the corridor. Hong Kong is advancing the tokenization of assets such as bonds, funds, and green energy, while stablecoins serve as its natural settlement tool. At the same time, nurturing market-making funds ensures market vitality.

The first pillar is a diversified currency, with pragmatism as the priority. Centered around RWA, it pragmatically promotes the development of diverse stablecoins. The offshore RMB stablecoin is the strategic core for trade financing; the HKD stablecoin is a testing ground for financial investment and local innovation; and it is crucial to boldly incorporate compliant USD stablecoins into the system as an initial “canal” to attract global liquidity, ultimately serving the RWA ecosystem.

The second pillar is scene embedding, igniting the ecosystem. The government must take the lead and inject confidence. The Hong Kong Monetary Authority's foreign exchange fund and the government's fiscal reserves can symbolically allocate 1-2% to fully compliant Hong Kong dollar or offshore renminbi stablecoins. This move will release an unparalleled signal of confidence and act as a “stabilizing force.” More importantly, it is mandatory that RWA projects issued in Hong Kong must raise funds, trade, and clear using compliant Hong Kong stablecoins, deeply binding the stablecoins with Hong Kong's “killer applications” to create a powerful “RWA-stablecoin” flywheel effect. At the same time, it is necessary to unblock the payment “capillaries” and promote, or even mandate, local payment giants like Octopus, Faster Payment System, AlipayHK, and WeChat Pay HK to fully integrate the exchange and payment functions of compliant stablecoins. Only when citizens can seamlessly pay for transportation and shopping with stablecoins can the application ecosystem truly take root.

The third pillar is regulatory innovation, which is dynamic and flexible. Regulation must serve the growth of RWA. The normalization of “regulatory sandboxes” allows RWA issuance platforms to quickly test and iterate; tiered and classified regulation provides moderate space for different types of RWA and stablecoins; and it is also essential to actively explore “compliance packaging” solutions that enable compliant stablecoins to interact with global DeFi protocols, allowing RWA assets to gain global liquidity.

Conclusion: Hong Kong's future, China's opportunities

The landscape of global stablecoins is far from being set. The United States won the first round based on digital asset trading, but the second round, based on the real economy and global trade, has just begun, with RWA being the starting gun.

Hong Kong is facing not a technical issue or a legal issue, but a question of determination and vision. Is it choosing to become a refined but insignificant “regulatory bonsai,” or to become a “strategic rainforest” driven by RWA, reshaping globalization?

The answer is self-evident. Hong Kong must seize this fleeting historical window with the courage to take decisive action, making RWA the absolute core of its stablecoin strategy. By dominating the global RWA market, Hong Kong can not only secure its position as a center of digital finance in the era but also provide the strongest strategic support for the country's trade upgrades and currency internationalization. This is the only future for Hong Kong's stablecoins, and it is its greatest contribution to the nation.