The growing strength of stablecoins as a bridge between Web3 and traditional finance could give an edge to markets like Hong Kong, which has its currency pegged to the US dollar (USD), but the Asian financial hub still faces challenges in attracting major blockchain businesses.

The Hong Kong dollar’s peg to the US currency is seen as a unique advantage for the city, as the majority of stablecoin trading activity happens through cryptocurrencies backed by the US dollar. This can help smooth out business operations for companies whose main asset holdings are also pegged to the USD, including the largest stablecoins Tether (USDT) and Circle’s USD Coin (USDC).

“Hong Kong has long been a global financial hub with a deep and liquid foreign exchange market, supported by a regulatory environment that facilitates currency conversion,” said David Katz, the Asia-Pacific vice-president of strategy and policy at Circle. “Its peg to the US dollar and strong banking infrastructure make it an attractive location for USD conversions.”

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The preference for US dollar-backed stablecoins is so strong that some have seen the technology has further entrenching the dollar’s position in global finance, as a one-for-one peg requires a large reserve of the currency – something that is increasingly being enforced by law, including in Hong Kong with its pending stablecoin regulation.

“The reality is everybody, everywhere in the world – China and everywhere else included – wants dollars,” said Chris Maurice, CEO of the Africa-focused stablecoin exchange Yellow Card. “This is why you have US$200 billion now in market cap in USD stablecoins.”

Maurice spoke on the sidelines of the Consensus Hong Kong Web3 conference on February 18. He attended the event, organised by the crypto news outlet CoinDesk, in search of new business opportunities coming out of China as the country’s ties with Africa grow. He said he had meetings with a number of major Chinese tech firms.

Hong Kong Financial Secretary Paul Chan Mo-po speaks at the opening of the Consensus Hong Kong Web3 conference in Hong Kong on February 19, 2025. Photo: Peter Parks alt=Hong Kong Financial Secretary Paul Chan Mo-po speaks at the opening of the Consensus Hong Kong Web3 conference in Hong Kong on February 19, 2025. Photo: Peter Parks>

Stablecoins were a major topic last month at Consensus Hong Kong, during which Hong Kong officials and companies touted the city’s strengths in traditional finance as a significant reason for how it can capture the next phase of Web3 business.

“Globally, the application of Web3 in finance is gaining traction. Blockchain innovations not just reduce transaction costs but also enhance market transparency, and the efficiency and accessibility of financial services,” Financial Secretary Paul Chan Mo-po said during his opening remarks at the event. “Hong Kong, with its advanced financial infrastructure and robust regulatory environment, is at the forefront of this transformation.”

Stablecoins have proven highly attractive in emerging markets, where there are large underbanked populations and needs for use cases such as remittances. This has made them especially appealing in Asia and Africa, where Maurice said Yellow Card operates in “20 of what are by every available metric the hardest countries to do business in”.

“Given Asia’s status as a global trade hub with significant remittance flows, stablecoins will increasingly be used to settle international payments in real time, reducing friction and costs,” said Fiona Murray, Asia-Pacific managing director at blockchain firm Ripple.

Ripple, best known for starting the cryptocurrency XRP, launched its own US dollar-backed stablecoin in December. It already has a US$120 million market value, according to Murray.

“With stablecoins, users can trade and transfer tokenised assets with speed and efficiency – they’re available 24/7/365 which is extremely convenient with both traditional and crypto markets,” she added.

Stablecoin trading volume reached US$27.6 trillion in 2024, according to a report by crypto exchange operator CEX.io. By one estimate from crypto tracker CoinCodex, the value of total cryptocurrency trading last year was US$149.46 trillion, putting stablecoin trading at nearly a fifth of total crypto activity.

While Hong Kong continues to make progress in courting some international crypto business, Singapore remains the preferred regional base for many companies operating in the space. Circle and Ripple both have their Asia headquarters in the city state, as does Coinbase, the largest US cryptocurrency exchange and an early backer of Circle and USDC.

“USDC provides a more efficient solution compared to traditional USD transfers” for use cases involving a “high volume of small-value transactions”, said John O’Loghlen, Asia-Pacific head at Coinbase.

“USDC serves this need well by offering lower transaction fees compared to traditional banking channels, while maintaining the stability of USD-pegging,” he added. “This is especially valuable in sectors like agricultural finance and small-scale trade, where traditional USD reserve requirements can be burdensome.”

Yet it is Hong Kong’s cryptocurrency reserve requirements that could be seen as burdensome to industry players looking for a way into the market. The virtual-asset trading platform licence requirements – which do not apply to stablecoins, but would apply to Coinbase as a general exchange – require all user assets be stored locally.

Under proposed stablecoin regulations, Hong Kong would require issuers of any stablecoin that actively markets to residents to have a licence, while Singapore would only licence company tokens backed by the Singapore dollar or issued in the city state.

Both Hong Kong and Singapore require 100 per cent reserves. Hong Kong specifies that the assets be highly liquid and low-risk. Singapore also allows for low-risk assets, which in its current proposal allows for debt securities that mature within three months.

Beyond the currency peg, Hong Kong’s role as a financial bridge to and from China is also appealing, which is why Maurice attended the Consensus event. He said he was meeting with fintech giants Tencent Holdings and Alibaba Group Holding, owner of the Post, which dominate mobile payments in China and have their own cross-border services.

When asked about whether he was worried tech giants could soon encroach on this space, setting up their own payment solutions for African markets, he dismissed it as unlikely.

“These are not the type of countries where you’re going to have these big companies going in and actually figuring out how to make stuff,” he said.

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP’s Facebook and Twitter pages. Copyright © 2025 South China Morning Post Publishers Ltd. All rights reserved.

Copyright (c) 2025. South China Morning Post Publishers Ltd. All rights reserved.