Author: Zhu Weisha

Introduction: Market Feedback After the Regulation Release

After the release of the Hong Kong Stablecoin Regulation, I published four articles, including “The Current Methods of Issuing Hong Kong Dollar Stablecoins Need Reconstruction” and analyzed related issues (see Chainless Website). From reader feedback, many people confuse "Hong Kong Stablecoin" with "Hong Kong Dollar Stablecoin," leading to misunderstandings about the regulatory scope and market positioning of the Regulation. Many questions from the market regarding the Hong Kong Stablecoin under the Regulation stem from the unclear core meaning. However, using the term "Hong Kong Stablecoin" for explanation can easily lead to two misunderstandings:

1. Mistakenly believing that the Regulation only targets or is equivalent to Hong Kong Dollar Stablecoins,
2. Assuming it is a unified regulatory framework for all stablecoins (while ignoring the attributes of other currencies). This article aims to clarify these conceptual confusions and provide suggestions to avoid further misunderstandings.

Core Distinction: Hong Kong Stablecoin Does Not Equal Hong Kong Dollar Stablecoin

The core subject regulated by the Regulation is "*designated stablecoins," which includes various types pegged to fiat currencies, such as US Dollar Stablecoins, Renminbi Stablecoins, and Hong Kong Dollar Stablecoins. This means that the Regulation is not specifically designed for Hong Kong Dollars but applies to multi-currency stablecoins. However, using the term "Hong Kong Stablecoin" for explanation can easily lead to the misconception that this is a unified regulatory framework for all stablecoins. To avoid confusion, when discussing and explaining the Regulation, the vague term "Hong Kong Stablecoin" should be discarded in favor of the precise term "designated stablecoin" (referring to the category of stablecoins regulated by the Regulation) or specific types based on pegged currencies, such as "Hong Kong Dollar Stablecoin," "US Dollar Stablecoin," etc.

"Hong Kong Stablecoin" as a Synonym for "Designated Stablecoin" and Its Risks

"Hong Kong Stablecoin" is often used as a shorthand for "stablecoins issued and regulated under the Stablecoin Regulation," which is equivalent to "*designated stablecoins." However, this unified term can easily lead to conceptual confusion in practice; for example, readers may mistakenly apply the issuance requirements of US Dollar Stablecoins to Hong Kong Dollar Stablecoins. It is particularly important to note that certain provisions in the Regulation (such as those related to reserve management, integration with Hong Kong's monetary and financial system, and assessments of impacts on local financial stability) impose higher or more specific requirements on issuers of Hong Kong Dollar Stablecoins, reflecting the special significance of Hong Kong Dollar Stablecoins for local financial stability. Market participants must carefully discern the applicable subjects of specific provisions to avoid generalized understanding.

Enhancing Clarity: Suggested Systematic Naming for Stablecoins

To enhance clarity, it is recommended to adopt a standardized naming convention of "National Fiat Currency + Code." Specific examples include:

• US Dollar Stablecoin: USDT, USDC
• Renminbi Stablecoin: CNYT, CNYC
• Hong Kong Dollar Stablecoin: HKDT, HKDC

This naming convention can intuitively distinguish stablecoins pegged to different currencies, avoiding confusion caused by generalized expressions. The specific naming design is determined by the issuer.

Clarifying Boundaries: Digital Currency, Cryptocurrency, and Stablecoin

It is necessary to clarify the hierarchical relationship of related concepts:

Digital Currency: Refers broadly to currency that exists in electronic form, the most general upper-level concept.

Cryptocurrency: A subset of digital currency, specifically referring to digital currencies created and operated based on cryptography and distributed ledger technology (such as blockchain).

Fiat Stablecoin: A subclass of cryptocurrency, whose core design goal is to maintain price stability by pegging to stable fiat currencies. Of course, there are other types of stablecoins.

Key Distinction Points:

Central Bank Digital Currency (CBDC) and Alipay, etc., belong to digital currency but are not cryptocurrencies (as their core does not rely on public chain technology or decentralization), and they are even less likely to be classified as stablecoins.

The "stablecoins" regulated by Hong Kong's Stablecoin Regulation are essentially cryptocurrencies pegged to fiat currencies that are bound by a specific regulatory framework.

Given their nature as monetary tools rather than investment products, the regulation of stablecoins should not simply apply traditional securities issuance regulations.

Potential Uses and Challenges of Hong Kong Dollar Stablecoins

Well-designed Hong Kong Dollar Stablecoins could theoretically serve as one of the potential tools to *enhance cross-border payment efficiency and enrich payment channels, for example, by connecting with platforms like the Cross-Border Interbank Payment System (CIPS) to provide supplementary or alternative options beyond SWIFT. However, realizing this potential faces severe challenges:

1. High Dependence on Ecological Development: Its practical value and influence largely depend on the maturity of the local cryptocurrency payment, settlement, and custody ecosystem in Hong Kong.
2. Intense Competitive Environment: Facing competition from international stablecoin giants (such as USDC), CBDCs from other jurisdictions, and improved traditional payment systems.
3. Risk of Limited Development: If the local ecosystem fails to develop adequately, the role of Hong Kong Dollar Stablecoins may be limited, and their development trajectory may resemble that of Ripple, which, despite having a considerable market value, faces significant challenges in realizing its cross-border payment vision, with its development potential not fully unleashed.

Conclusion: Clarifying Concepts, Seizing Opportunities, and Addressing Challenges

The launch of Hong Kong's Stablecoin Regulation is an important step towards embracing financial innovation, and the market has high expectations for it. However, to translate these expectations into successful practice, it is necessary to confront the challenges of the current path:

1. Rules Must Align with Market Practices: If the implementation details are too stringent or disconnected from reality, it may be difficult to attract quality issuers to participate, ultimately leading to products lacking competitiveness in functionality, efficiency, or user experience.
2. Enhancing User Acceptance: If the regulated Hong Kong Dollar Stablecoin does not offer significant advantages or adds complications compared to existing mature options (such as USDC or efficient banking services), the adoption rate among institutions and retail users will be hard to increase.
3. Preventing Long-Term Negative Impacts: A *stablecoin regulatory framework that fails to meet expectations not only wastes valuable resources and policy windows but may also weaken Hong Kong's competitiveness and reputation as an international financial center and virtual asset hub.

Achieving this goal requires deeper collaboration among regulatory agencies, the industry, and academia to continuously refine the issuance mechanisms, application scenarios, and risks.

By clarifying concepts and optimizing the issuance framework, Hong Kong has the opportunity to create a more competitive stablecoin ecosystem. This article aims to provide a reference for related discussions and assist in the better implementation of the Regulation.

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