How Asia’s finance industry is pushing boundaries with stablecoin adoption
Hong Kong, South Korea and Japan are showcasing strategies that the US and others may use
GM,
Stablecoins, cryptocurrencies that maintain a price and are pegged to fiat currencies like the US dollar, are one of the biggest topics of Web3 this year.
Traditionally, stablecoins help traders move between cryptocurrencies and fiat currencies, and serve as a mechanism for storing value amid the crypto industry’s volatility. But in recent years, adoption has grown among companies, regulators and governments who see them as a key stepping stone to digitizing money.
We recently looked at stablecoin payment adoption, and this week’s issue extends our analysis to regulators and the traditional financial industry where Asia is leading the way.
Best,
What’s going on?
The Web3 industry scored a major win in the US last month when the Senate passed the GENIUS Act, a piece of legislation that will regulate stablecoins.
The act has prompted companies like Amazon, Uber and maybe even Google to wonder if they can issue their own tokens that could be used by customers of their businesses worldwide. Regulating stablecoins is an important first step to not only encouraging digital money, but also adding further legitimacy to Bitcoin, Ethereum and other cryptocurrencies that rely on stablecoins for investment inflow.
For a look at how the US and other countries might go about addressing the challenges of introducing regulated stablecoins, we are turning our attention to three places in Asia. Each is at a distinctly different level of adoption. Analysis of their progression may throw up clues as to how things will develop in the US and other countries in the future.
SO WHAT?
1. Hong Kong: blazing a trail for regulated stablecoins
Hong Kong is one of the most forward thinking countries when it comes to Web3.
Companies can apply for a license to issue stablecoins from Hong Kong from August 1 but there are some restrictions. Most notably, they are not permitted to pay interest to stablecoin holders and all holders must have their identity verified.
Stablecoin license applicants must also be able to show transparency and disclosure around the reserve assets backing up the proposed stablecoins, with a clear separation between reserve assets and the company’s own assets.
As a special administrative region of China, Hong Kong maintains strong links with the mainland and it is no surprise that many of China’s top tech firms are keen for the opportunity to issue stablecoins. Reportedly, Alibaba-linked Ant Group and fellow e-commerce giant JD.com are among 40 companies to have applied for a license. Bank Standard Chartered and USDC issuer Circle have applied, too.
Beyond that, Chinese companies are also said to have strongly suggested that Hong Kong issued stablecoins should be pegged to the Chinese yuan. They claim it will boost China’s economic prowess, since most global stablecoins are backed by the US dollar.
Hong Kong regulation will mean the first stablecoins will peg to the Hong Kong dollar, with plans for yuan and US dollar versions later. (It’s worth noting that the Hong Kong dollar itself is pegged to the US dollar.) These introductions will be particularly important given the geopolitical tension between the US and China, and also Circle’s breakout success following its recent IPO.
With China taking a zero tolerance approach to Bitcoin, cryptocurrencies and all things Web3, Hong Kong has emerged almost as a pressure relief valve for Chinese companies and investors seeking exposure to the industry.
But its influence could run further. Hong Kong’s governance framework is likely to be studied by regulators across the world as they figure out how to embrace the benefits of blockchain technology and digital money, without undermining existing financial systems.
2. Korea: finding harmony between new digital money and old
South Korea has long been an important market for Web3. It is estimated that 16 million people in the country own cryptocurrency—that’s more than the total number of stock market investors.
Interestingly, Koreans in their 40s are the most interested in investing in cryptocurrencies ahead of those in their 20s. One-quarter of people aged 50 or over are said to be interested in Web3 investments, principally for retirement funds.
These stats give some indication of why cryptocurrency startups prioritize South Korea as a market to attract retail investors. But the government has been very careful around crypto companies—only now is it in the process of allowing them to be classified as venture-backed businesses, which would allow them to take loans and other financial assistance. Stablecoins are also an area where Korea has been conservative to date.
Politics has been a difference maker. Recently elected President Lee Jae‑myung made opening the stablecoin field a key election pledge, alongside a Bitcoin ETF and looser cryptocurrency rules.
New legislation—the Basic Digital Asset Act—will allow non-banks and payment providers to issue stablecoins. Crucially, Korea’s central bank will no longer approve issuers, that responsibility is now held by the Financial Services Commission.
The central bank this week cautioned that stablecoins should be introduced “gradually” to avoid negatively impacting the current financial system and foreign currency exchange programs.
The issue is still playing out, but the central bank’s stark warning is a reflection of what many global financial institutions are currently thinking. It just so happens that the central bank’s concern is playing out in public.
Like Hong Kong, plenty of eyes will be on how Korea’s adoption of stablecoins goes—and how the central bank is impacted.
3. Japan: the early adopter pushing new boundaries
Japan is one of the most advanced countries for regulating stablecoins. It introduced a legal framework for stablecoins back in 2022 following the collapse of Terra, the algorithmic stablecoin which wiped out nearly $50 billion in digital assets.
However, stablecoins and other cryptocurrencies only became recognized as digital money as recently as June. The changes won’t come into effect until next year, and issuers must be able to guarantee on-demand redemption in Japanese yen.
Japan’s stablecoin framework, like the other two aforementioned countries, focus on local and regulated token issuances. They cover Japanese yen-backed stablecoins that are issued from licensed domestic providers.
The framework does not apply to algorithmic stablecoins or stablecoins issued overseas. Those are instead classified as crypto assets or governed by securities laws.
The avenue for overseas entry is through partnership; that’s the approach Circle took. Its local entity expanded its partnership with SBI Holdings, the $11 billion financial services business which also operates a crypto exchange, in March to bring its USDC stablecoin to Japan.
Traditional financial institutions have shown strong interest in issuing their own stablecoins for a number of years.
The Japan Open Chain blockchain is an Ethereum-based project that includes a number of the country’s banks and other financial companies among its members. It has trialed bank-issued stablecoins for business, but it takes a more centralized approach than traditional blockchain networks.
Three of the country’s largest banks—MUFG, SMBC and Mizuho—joined a system that used stablecoins for cross-border payments between institutions. The trio also created a tokenized network that uses distributed ledger technology.
The newest trend looks to be embracing more decentralized networks, as opposed to the focus of control through centralized networks which incumbent financial institutions tend to prefer.
Minna no Bank, the digital banking arm of the Fukuoka Group, partnered with custody provider Fireblocks and a local IT firm to explore the potential of the Solana chain. Then there’s Sumitomo Mitsui Financial Group—which owns SMBC and is evaluating the potential for issuing a stablecoin on the Avalanche blockchain.
Those approaches are much bolder than you’ll find from the financial industry in most other global markets.
News bytes
Memecoin launch platform Pump.fun, which is already incredibly lucrative as we’ve previously written, raised over $500M from a token sale which sold out in minutes—it is unclear how the new funds will be spent
The GENIUS Act to regulate stablecoins in the US has now passed the Senate and is due to be signed off by President Trump
Tornado Cash developer Roman Cash’s trial takes place in New York this week—we’ve previously written about why the trial could dampen Web3 innovation
Hungary introduced new cryptocurrency laws that criminalize unauthorized crypto trading with penalties of up to 5 years in prison for individuals and 8 years for service providers
Two executives from Web3 payment company MoonPay are thought to have sent $250,000 to a Nigeria scammer, after thinking they were donating to the Trump Presidential campaign
That’s all for this week!
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