The only way out for Hong Kong is to create the world's leading stablecoin market.

Is Hong Kong choosing to become a refined yet insignificant "regulatory bonsai" or a "strategic rainforest" powered by RWA, reshaping globalization?

In the previous article, we analyzed the duality of the stablecoin world: the United States, with its "ambiguous wisdom" and market power, rapidly iterated and expanded USDT and USDC, and then relied on regulatory legislation to secure it, creating today's dollar stablecoin empire; while Europe and Singapore, due to their "perfect regulation," have stifled the innovation sprouts in their own countries. The lessons of history are 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 were passed in the Legislative Council of Hong Kong, officially coming 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, cautious market nurturing, and incremental innovation pilots—the answer is negative. Hong Kong needs to recognize a harsh reality: in the current stablecoin world, the "good kids" that follow the me too approach are 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 the most liquid, diverse, and vibrant stablecoin market in the world. The emerging RWA is a strategic lever for stablecoins.

Hong Kong should forge a "stablecoin corridor" with a higher perspective and more innovative thinking, thereby taking the initiative in the stablecoin revolution and becoming a solid support for national strategy, rather than a passive follower.

Breaking the "Regulatory Trap":

The shift in thinking from "regulator" to "market cultivator"

The biggest risk at present 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 exhaustive rules. The result, as demonstrated by Europe's MiCA legislation, is the creation of a "sophisticated shell"—a system that 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's regulatory agencies must undergo a profound shift in thinking: from "financial regulators" to "market cultivators." The goal of regulation should not be to "prevent incidents," but to "achieve results"—fostering a prosperous ecosystem while maintaining the baseline 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 by Hong Kong in global settlements, especially in RWA settlements.

Stablecoins are the infrastructure driving 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 due to high barriers, forming an oligopoly that stifles diverse innovation; stablecoins are disconnected from the DeFi ecosystem, leading to Hong Kong being marginalized in the Web3 wave, unable to integrate into the global decentralized network; the "regulatory arbitrage" effect is highlighted, with potential projects flowing to more flexible jurisdictions like the United States, Dubai, or Abu Dhabi, while Hong Kong falls behind in the digital finance competition.

To break this dilemma, Hong Kong can introduce tiered regulatory classification under existing regulations, categorized by scale: large-scale, publicly-oriented stablecoins (such as those issued by banks or tech giants) must adhere to strict capital adequacy, reserve disclosure, and risk management; small-scale, experimental stablecoins can initially test in a "regulatory sandbox," receiving exemptions or lenient treatment. Classified by function: payment stablecoins emphasize reliability; investment or experimental types focus on disclosure and protection rather than comprehensive prohibition. Gradual progression: startups begin in the sandbox, and as they scale up, they gradually enter comprehensive regulation, 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; a flexible real-name system, such as "simplified verification for small transactions"; accommodating DeFi by developing "compliance packaging" solutions, allowing Hong Kong stablecoins to comply with regulations while circulating in global protocols. These measures will transform regulation into services, promoting Hong Kong's transition from a "regulator" to a "market cultivator."

Building a Strategic Ecosystem: RWA

In the application scenarios of stablecoins, the primary breakthrough for Hong Kong stablecoins is the construction of a strategic application market - RWA. Compared to Europe and Singapore, the biggest difference for Hong Kong is its backing by the world's largest manufacturing and trading country - China. In 2024, China's total foreign trade exceeded 6.3 trillion USD, ranking first in the world for several consecutive years. Hong Kong's unique advantage lies in its role as a "super connector": it can connect with China's vast real economy while integrating into global capital markets. 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 intermediaries, with funds often taking 2-3 weeks 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 immediately receives funds, while investors gain short-term returns of 5%-7% annually. The entire transaction is completed through a compliant stablecoin 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; for Hong Kong, it represents 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 from 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—for example, a Dubai family office seeking short-term, high-quality returns, instantly obtaining funds. The entire transaction, from the issuance and trading of the RWA to the final payment from the Brazilian buyer, is completed using offshore Renminbi, Hong Kong dollars, and even Hong Kong-compliant US dollar stablecoins issued in Hong Kong. In this case, stablecoins are 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 dollar's settlement status on a business level with a "better" tool. For Hong Kong, it will no longer be a follower in the stablecoin space, but a rule-maker and core hub of a 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 (such as Belt and Road bonds), green energy projects and carbon credits, commercial real estate in the Greater Bay Area... as well as 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.

Build the "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 multi-dimensional 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 at the RWA trading layer is the most imaginative part of the corridor. Hong Kong is promoting the tokenization of assets such as bonds, funds, and green energy, with stablecoins being its natural settlement tool. At the same time, fostering market maker funds to ensure market vitality.

The first pillar is diversified currency, pragmatism is key. With RWA at its core, pragmatically promoting the development of diversified stablecoins. The offshore RMB stablecoin is the strategic core for trade financing; the HKD stablecoin serves as a testing ground for financial investment and local innovation; it is also crucial to boldly incorporate compliant USD stablecoins into the system as an "aqueduct" to initially attract global liquidity, ultimately serving the RWA ecosystem.

The second pillar is scene embedding, which ignites the ecosystem. The government must take the lead and inject confidence. The Hong Kong Monetary Authority's foreign exchange fund and the government's financial reserves can symbolically allocate 1-2% to fully compliant Hong Kong dollars or offshore RMB stablecoins. This move will release an unparalleled signal of confidence, acting as a "stabilizing anchor." More importantly, it should be mandated that RWA projects issued in Hong Kong must raise funds, trade, and settle using compliant Hong Kong stablecoins, deeply binding stablecoins with Hong Kong's "killer application," creating a powerful "RWA-stablecoin" flywheel effect. At the same time, it is necessary to open up payment "capillaries" and even push or require 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 use stablecoins for transportation and shopping can the application ecosystem be considered truly implemented.

The third pillar is regulatory innovation, dynamic and flexible. Regulation must serve the growth of RWA. A normalized "regulatory sandbox" allows RWA issuance platforms to quickly test and make mistakes; tiered classification regulation provides moderate space for different types of RWA and stablecoins; 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: The Future of Hong Kong, the Opportunities for China

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

Hong Kong is facing not a technical issue or a legal issue, but a question of determination and vision. Will it choose to become a refined yet insignificant "regulatory bonsai," or will it become a "strategic rainforest" powered by RWA, reshaping globalization?

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