Stablecoins have emerged as a new frontier in financial investment this year, driven by pending legislation in the U.S. and Hong Kong to regulate their development. Major multinational corporations and retail/tech giants are vying for stablecoin licenses, while financial institutions seek to capitalize on this trend to expand innovative services. Investors are keenly interested in understanding: What are stablecoins? What can they do? Why regulate them now? What is their future potential? This article explores these questions and shares insights into the evolution of stablecoins.
What Are Stablecoins?
Stablecoins are cryptocurrencies pegged to external references like fiat currencies or specific assets. They address two critical pain points in crypto markets:
- Limited fiat on/off-ramps: Traditional financial institutions often avoid crypto services due to perceived risks.
- Bitcoin’s volatility: Stablecoins provide a more stable medium for daily transactions.
Types of Stablecoins
- Fiat-Collateralized: Backed 1:1 by reserves (e.g., USDT, USDC).
- Crypto-Collateralized: Overcollateralized with multiple assets (e.g., DAI).
- Algorithmic: Maintain stability through smart contracts (e.g., defunct UST).
Key Differences from Other Cryptocurrencies:
- Stability: Minimal price fluctuations.
- Core Function: Payments, not speculation.
As of June 2025, the total stablecoin market cap reached $253.6 billion, with fiat-collateralized stablecoins like USDT (62% share) and USDC (24%) dominating.
Why Issue Stablecoins?
Strategic motivations for enterprises include:
- Revenue from reserves: Tether earned $13 billion in 2024, largely from interest on U.S. Treasuries.
- Cost reduction: E.g., JD.com aims to cut cross-border payment costs by 90%.
- Ecosystem expansion: Enhancing supply-chain finance and data monetization.
- Digital economy positioning: Securing a foothold in future financial infrastructure.
Why Regulate Stablecoins Now?
Recent risks (e.g., USDT’s reserve controversies, UST’s collapse) have prompted global regulators to act:
Hong Kong’s Stablecoin Ordinance (2025)
- Licensing: Mandatory for issuers (minimum capital: HKD 25M).
- Reserves: 100% backing with high-liquidity assets.
- Transparency: Regular audits and anti-money laundering (AML) compliance.
U.S. GENIUS Act (2025)
- Definition: Stablecoins as non-interest-bearing payment tools.
- Issuer Restrictions: Limited to banks or approved non-bank entities.
- Reserve Requirements: Cash or short-term Treasuries only.
Regulatory Goal: Balance innovation with financial stability while preventing misuse.
Stablecoins + RWA: Bridging Real and Crypto Worlds
Real-World Assets (RWA) tokenize traditional assets (e.g., bonds, real estate) on blockchain. Key points:
- Current RWA Market: $244 billion (June 2025), led by private credit ($14.3B) and U.S. Treasuries ($7.4B).
- Stablecoins’ Role: Serve as the "money" in RWA ecosystems, analogous to traditional markets’ currency funds.
Example: BlackRock’s BUIDL (a tokenized fund) uses stablecoins for dividends.
Future Outlook: Four Key Considerations
- Monetary Velocity: Stablecoins cannot create money but accelerate fiat circulation.
- HKD Stablecoin Challenges: Initial focus on B2B cross-border payments (e.g., JD’s supply chain).
- RWA Growth: Depends on asset digitization and regulatory clarity.
- Decentralization Dilemma: Balancing innovation with compliance remains unresolved.
FAQs
Q1: Are stablecoins safe?
A: Risks include reserve transparency and regulatory uncertainty. Opt for audited options like USDC.
Q2: How do RWAs benefit investors?
A: They enable fractional ownership of illiquid assets (e.g., real estate) with lower fees.
Q3: Will HKD stablecoins replace USD stablecoins?
A: Unlikely soon, given USD’s dominance in global trade and DeFi.
👉 Explore how stablecoins are reshaping finance
👉 Learn about RWA investment opportunities
Risks: Regulatory delays, RWA operational hurdles, and technological vulnerabilities.
Source: CICC Research Report, July 2025