How will Hong Kong's stablecoin be played?

For investors concerned about the development of virtual assets in Hong Kong, the new stablecoin regulatory framework that took effect on August 1 provides a clear industrial picture.

According to news from the Chasing Wind Trading Desk, this week JP Morgan and GUOSEN SECURITIES published research reports indicating that a global market exceeding $230 billion is welcoming compliant entry from Hong Kong. For investors, this means that Hong Kong's stablecoin issuers, licensed virtual asset exchanges, and related financial and technology service providers will become direct beneficiaries.

However, JP Morgan emphasized that despite the market's enthusiasm, the entry ticket to Hong Kong is not available to everyone, and making profits in the short term is not easy:

Market scale is in its early stage: The current trading volume of Hong Kong's cryptocurrency market is still very small compared to the United States and globally, and investors should rationally view its short-term growth potential to avoid overly high expectations.

Diverse profit models: Issuers are the starting point of the ecosystem, directly sharing the returns from reserve assets; licensed exchanges (such as OSL) earn fees by providing trading and clearing services; reserve banks (such as ZhongAn Bank) provide custody services; technology/financial brokers (such as Futu and Sifang Jichuang) offer trading systems, technical support, and compliance services.

Regulation decides the winners: Those who can obtain stablecoin issuance licenses from the Hong Kong Monetary Authority (HKMA) and exchanges that already hold VATP licenses will become the main beneficiaries of this game. For individual stocks, internet brokers (such as Futu) with a large retail customer base and VATP license layout have an advantage over traditional brokers.

Stablecoin returns: The business model of stablecoin issuers is extremely clear and attractive. However, Hong Kong regulations explicitly prohibit paying interest to stablecoin holders, which means that the "holding generates interest" model does not work in Hong Kong, and investment strategies need to be adjusted accordingly.

A $100 Billion Table: Current Status and Giants of the Stablecoin Market

The stablecoin market is no longer a niche concept but a massive market at the billion-dollar level.

Data cited by GUOSEN SECURITIES shows that the market is dominated by a few giants. The USDT issued by Tether exceeds $150 billion, and the USDC issued by Circle exceeds $60 billion, both of which are off-chain stablecoins pegged to the US dollar at a 1:1 ratio, collectively accounting for nearly 87% of the market share.

According to JP Morgan's report, as of the second quarter of 2025, the total market capitalization of global stablecoins will exceed $230 billion. JP Morgan categorizes stablecoins into four types:

1. Off-chain (fiat-backed): Issued 1:1 with real-world assets (such as US dollars and US Treasury bonds) as credit guarantees, such as USDT and USDC. This is the mainstream of the current market and the core focus of Hong Kong regulation
2. On-chain type: Issued based on blockchain smart contract collateralized crypto assets (such as Bitcoin), like Dai.
3. Commodity-backed stablecoins: For example, Tether Gold, a stablecoin pegged to gold, backed by actual gold assets.
4. Algorithmic type: Stablecoin value is stabilized through algorithms and market arbitrage mechanisms, such as the former UST, which peaked at nearly $20 billion but has since been liquidated, highlighting its high risk.

For investors, this means that future competition in the Hong Kong market will primarily revolve around the most robust and regulator-favored "off-chain" stablecoins.

"Lying down to make money"? The core profit model of stablecoin issuers

The business model of stablecoin issuers is extremely clear and attractive.

A report from Guosen Securities uses Circle, the issuer of the world's second-largest stablecoin USDC, as an example to detail its sources of profit. Circle's revenue mainly comes from two major areas, but is highly unbalanced.

Its core is reserve asset income. When a user purchases 1 USDC for 1 dollar, Circle reserves that 1 dollar. The report points out that Circle invests over 80% of its reserves in short-term U.S. Treasury funds managed by BlackRock, while the remaining 10-20% is held in globally systemically important banks. The risk-free interest income generated from these investments constitutes the core of Circle's profits. Data shows that in 2024, this portion of reserve asset income accounted for 99% of Circle's total revenue.

Another source of income is payment and settlement fees, which are the fees generated when users exchange stablecoins, but this portion of revenue is relatively small.

The essence of this model is that issuers utilize large user reserves for low-risk investments to earn interest rate spreads. Its profitability entirely depends on the scale of reserves and short-term interest rate levels.

For companies seeking to invest in the stablecoin ecosystem, whether they can obtain an issuance license to control a large reserve is key to determining if they can share in this largest pie.

The Hong Kong license competition: Who are the beneficiaries in the ecosystem?

With the Hong Kong "Stablecoin Ordinance" officially taking effect on August 1, 2025, a competition for licenses has already begun. Reports from Guosen Securities and JP Morgan jointly point out several key participants and potential beneficiaries in the ecosystem.

First is the starting point of the ecosystem—issuers. The Hong Kong Monetary Authority launched a "stablecoin issuer sandbox" in 2024, with the first batch already including three groups of issuers, totaling five institutions, which are popular candidates for the first batch of licenses:

• Standard Chartered Bank, Anni Group, and Hong Kong Telecommunications' joint venture plans to issue the Hong Kong dollar stablecoin HKDG.
• JD Coin Chain Technology plans to issue the Hong Kong dollar stablecoin JD-HKD, focusing on cross-border payments and supply chain finance.
• Yuan Coin Innovation Technology plans to collaborate with Cobo and LianLian International to issue HKDR, focusing on DeFi and cross-border payments. In addition, Ant Group's Ant Digital and Ant International have also clearly stated that they will apply for licenses in Hong Kong.

Next is the monetization channel—virtual asset trading platforms. Licensed exchanges are the core places for the circulation and trading of stablecoins. According to a report by Guosen Securities, as of June 25, the Hong Kong Securities and Futures Commission has issued 11 licenses for virtual asset trading platforms.

Taking OSL Group, the first licensed platform in Hong Kong, as an example, its revenue structure for 2024 clearly demonstrates the monetization path:

24.5% comes from SaaS services and related income, while 70.2% comes from digital asset trading. Its trading fees vary based on customer type and trading method, with retail customers paying 0.2%-0.28% and institutional customers paying 0.15%-0.225%.

Then there are the brokerages and financial institutions that face both opportunities and challenges. A report by JP Morgan believes that compared to issuers who directly share reserve earnings and exchanges that charge trading fees, traditional brokerages have a more indirect profit model and need to share profits with exchanges. However, brokerages like Futu, which have a large retail customer base and advanced technology platforms, are in a more advantageous position in the competition. The report mentions that Futu has provided customers with cryptocurrency trading services (in collaboration with HashKey) and is actively applying for its own VATP license.

Finally, there are the indispensable "water sellers"—infrastructure providers. The operation of the entire ecosystem relies on underlying support. The Guosen Securities report mentions reserve banks (such as ZhongAn Bank providing custody for Yuan Coin Technology), asset management companies (such as BlackRock managing Circle's reserves), and technology providers (such as Four Directions Technology and China Information) that provide KYC/AML, payment, blockchain security, and other services, all of which will benefit from the industry's compliance and scaling.

In summary, the compliance process of the stablecoin market in Hong Kong provides investors with a clear industrial landscape. Capturing companies that have a first-mover advantage in terms of licensing, technology, and customer base will be key to sharing in this digital financial feast