Digital currency concept

CRCL

HOOD

COIN

CP00079

12. Hong Kong Market Stablecoins:1) Purposea. Cross-border settlement; b. Interbank settlement; c. Facilitating the purchase of USD assets.2) Issues:Hong Kong lacks high-quality public blockchains in the entire industry chain. Additionally, there is insufficient global demand for HKD stablecoins.3) Operations:Users: HK users can use licensed exchanges (HashKey/OSL) to convert HKD into USDT/USDC and then trade assets like BTC to reduce exchange rate losses.Users can use stablecoins from different issuers for cross-border payments, which may eventually integrate with platforms like WeChat Pay and Alipay.Issuers: Regulated by licenses: a. Deposit HKD 25 million as collateral; b. Only operate 1:1 HKD-backed models; c. Algorithmic stablecoins are prohibited.Currently, only three issuers are approved: a. JD.com’s blockchain; b. RD Technologies; c. Standard Chartered. A sandbox mechanism is also established, allowing unlicensed institutions to participate in testing to foster innovation.4) Application Scenarios:a. Commercial Payments: Nigerian merchants can use HKD stablecoins for cross-border trade settlements, promoting HKD internationalization while avoiding local currency volatility risks.b. After the HKD is pegged to the USD, due to the USD’s vast wealth management market (including U.S. bonds and stocks), users can indirectly invest in stocks via USD stablecoins.$Circle(CRCL.US) $Robinhood(HOOD.US) $Coinbase(COIN.US) $Digital currency concept(CP00079.US)

Circle

Robinhood

Coinbase

11. Regulatory Trends:Countries are enacting laws to regulate stablecoin issuance. The future of stablecoin issuance is destined to be a licensed business. Europe has MICA, Hong Kong has just legislated, and the U.S. has also recently passed laws. The essence of legislation is to seize the pricing power of stablecoins.1) Legislative Intent:a. Issuers must have sufficient asset backing to prevent empty coins;b. Standardize anti-money laundering;c. Meet audit requirements;d. The essence of legislation: competing for stablecoin pricing power.2) Country-Specific Situations2.1. Emerging Markets' Demand for Stablecoins:a. Primarily due to local currency depreciation and foreign exchange controls, providing a way to purchase dollar-denominated assets.b. Cross-border remittances: High fees for Mexicans sending money home, while digital currencies offer lower costs.c. Cases like Russia: Cryptocurrencies can bypass the SWIFT system, and stablecoins could disrupt the traditional nation-based monetary system once widely adopted.2.2. U.S. Legislative Motivations:a. The core motive is to consolidate the dollar's dominance, a process likened to establishing a Bretton Woods system for the digital economy.b. Addressing U.S. Treasury demand; Tether is likely the seventh-largest buyer of U.S. Treasuries globally.2.3. European Legislative Push:The MICA bill requires digital asset service providers to obtain licenses by the end of 2024. Institutions like Binance issue compliant euro stablecoins (100% euro-backed). However, MICA has only approved 20 companies to issue stablecoins so far.$Coinbase(COIN.US) $Robinhood(HOOD.US) $Circle(CRCL.US) $Digital currency concept(CP00079.US)

10. Drivers of Stablecoin Market Growth:a. Increase in Participants: Currently, there are only two major players, primarily USD-denominated, indicating the industry is still in its early stages.b. Expansion of Use Cases: Stablecoins are mainly used for crypto trading or hedging, but future applications may include consumer payments. Currently, VISA and Mastercard support stablecoin payments, and merchants also accept them. Switzerland even allows tax payments in USDT. The Philippines permits USDT for social security contributions.Merchants accept stablecoin payments primarily because: a) Lower transaction costs, with on-chain instant settlement reducing supply chain payment cycles; b) Access to crypto-savvy customers—companies like Microsoft and Tesla have already integrated them.c. Financial Market Applications: Through wealth management tools or U.S. stock investments; retail investors can earn interest via stablecoin lending on exchanges, with rates as high as 10%.d. Cross-Border Payments: Usage in regions like Nigeria.Existing cross-border cases include e-commerce clients converting USD to USDT to buy Bitcoin. However, adoption in foreign trade remains limited due to trust and cost issues.Currently, only 5-10% of USDT’s $150B market cap is used in formal trade. For example, due to forex controls, Nigerian importers pay a premium to convert USDT to Hong Kong traders, who then exchange it for CNY or HKD. Demand exists in Nigeria and similar markets, but scale is nascent.As regulations mature and fiat conversion pathways clarify, traders may adopt stablecoins more widely. Traditional banks and SWIFT may see reduced roles, with stablecoins becoming an alternative.$Coinbase(COIN.US) $Robinhood(HOOD.US) $Circle(CRCL.US) $Digital currency concept(CP00079.US)

IX. Downstream: Exchanges, Payments, Cardsa. Exchanges:Provide stablecoin trading services, earning transaction fees and demand deposit interest. Binance purchases large amounts of stablecoins and earns fees through trading; competition is fierce.b. Decentralized Projects:Such as lending protocols, using stablecoins as underlying assets.c. Payment Companies and Wallets:Manage cryptocurrency assets, charging transfer or exchange fees. In the future, they may resemble Alipay, charging merchants transaction fees.$Coinbase(COIN.US) $Circle(CRCL.US) $Robinhood(HOOD.US) $Digital currency concept(CP00079.US)

ETHE

8. Midstream: Public/Consortium BlockchainsStablecoins rely on blockchain for issuance, public chains profit from transaction fees.Public chains like Ethereum, Solana, TRON earn a share of revenue from stablecoin transactions as users pay miner fees.Commercial Barrier: Current regulations can mandate issuers to use specific public chains, making their position unstable.Stablecoins can be issued across multiple chains. On Binance, USDT can be received via Ethereum, Solana, or BNB. Different chains have different addresses, and once stablecoins are deposited, their chain origin is irrelevant. However, withdrawals require chain selection, intensifying competition among chains.Ethereum, though slower technically, is highly recognized in Western markets;Solana is faster and more popular in Asia. Future regulation of public chains will target issuers indirectly rather than the chains themselves. For example, Hong Kong may require stablecoin issuers to use specific chains for compliance.Public Chain Adoption: Regional preferences already exist. Western users favor Ethereum, while Asian and African users prefer Solana.Exchanges face low technical barriers and cheap fees for chain integration, enabling widespread use. Public chains will become a battleground for sovereign competition.$Coinbase(COIN.US) $Robinhood(HOOD.US) $Circle(CRCL.US) $Digital currency concept(CP00079.US)

Grayscale Ethereum Staking ETF

VII. Introduction to the Key Players in the Issuer Group (Hint: Circle, the star of today's stablecoin livestream, makes a grand entrance)Currently, the main players are Tether and Circle.Tether was the first to recognize the demand for stablecoins, so it has the most extensive ecosystem. However, it lags behind Circle in terms of compliance. Tether's annual profit is $13.7 billion.Circle, having entered the market later, expanded its use cases by paying traffic fees to Coinbase, which led the way in adopting it, gradually fostering its ecosystem. It has filed for an IPO, with annual profits of $160-170 million, as it has been paying traffic fees to Coinbase.Future Competition: The key factor may lie in the ability to obtain licenses, as each U.S. state requires its own.Circle: Strong shareholder backing—IDG, ZTE, Everbright, CreditEase. Logically, Circle has higher growth potential. Circle is also highly scarce in the secondary market. It has secured the hardest-to-obtain New York State license and is now collaborating with local institutions in Hong Kong to obtain a license there.Tether: However, Cantor Fitzgerald, a financial firm owned by former U.S. Commerce Secretary Ross, holds a 5% stake in the company, so it also has strong backing. Rumors suggest it will launch a fully U.S.-compliant stablecoin in 2026-2027.$Circle(CRCL.US) $Robinhood(HOOD.US) $Coinbase(COIN.US) $Digital currency concept(CP00079.US)

6. Stablecoin Industry Chain Introduction — Upstream: Issuers and Service Providersa. Issuers:Earn interest by purchasing Treasury bonds with collateralized dollars (primary profit method), mainly commercial banks, investment banks, and payment giants (VISA, Master, and PayPal). Issuers will likely face restrictions in the future, with only licensed entities permitted to issue. Issuers are the core, with high barriers and high profits (via Treasury bond investments);Issuers dominate the value chain, but exchanges may also attempt to issue stablecoins. For example, Binance partnered with Circle in Europe to issue stablecoins (as banks face low user adoption and high compliance barriers when issuing alone, hence collaborating with exchanges). However, due to tensions with the U.S., they have not issued in the U.S. (due to custody issues).Issuer business barriers: a. Capital, which is an entry threshold but not a barrier; b. Licensing, which will be critical for compliance; c. Ecosystem.The core competitive advantage lies in the downstream ecosystem developed by issuers, which exhibits strong network effects.Expanding the circulation scenarios and velocity of their stablecoins. For instance, JD.com has a supply chain ecosystem, and PayPal has a payment ecosystem. The stronger the application scenarios, the greater the circulation of their stablecoins, leading to more funds and interest income.b. Custodian Banks: For example, BNY Mellon custodies Circle’s stablecoins, earning custody fees; fees are relatively stable but low.c. Custodians and Auditors: Similar to traditional finance, responsible for asset custody and auditing. Auditors can also earn millions annually.$Circle(CRCL.US) $Coinbase(COIN.US) $Robinhood(HOOD.US) $Digital currency concept(CP00079.US)

5. Stablecoin Risks:Risks are decreasing. The main risks may come from regulatory changes or compliance issues of the issuers, but the overall trend is moving towards greater stability.Early algorithmic stablecoins (e.g., USDT) collapsed due to mechanism issues, but most stablecoins today are backed by fiat currencies or highly liquid assets, making them more secure.Initially, there were various types of stablecoins, including algorithmic stablecoins that were essentially aircoins, which triggered specific algorithmic mechanisms when their prices fell; there were also stablecoins pegged to assets like Bitcoin, but these were not true stablecoins because Bitcoin's liquidity is highly volatile and prone to triggering a downward spiral.Such cases are gradually decreasing as regulations now require stablecoins to adopt a 1:1 fiat custody mechanism. For example, USDT's bank custody has long been opaque, but issuer risks will become more controllable in the future.Other risks include institutional bankruptcy, restructuring, or operators absconding, but these are unrelated to the core mechanism of stablecoins.Governments are strengthening control through licensing regulations, such as accessing KYC data, transaction records, and annual audits.$Coinbase(COIN.US) $Circle(CRCL.US) $Robinhood(HOOD.US) $Digital currency concept(CP00079.US)

4. The Role of Stablecoins:a. On-chain fair pricing tool;Can be used as entry chips for cryptocurrency market trading;b. Different blockchains originally could not trade, but through stablecoins, different blockchains can have a bridge for value linkage;c. Driving the crypto industry from niche to mainstream applications:Such as improving cross-border settlement efficiency and promoting real-life application scenarios.d. Meeting the demand for USD assets in developing countries:Inflationary countries like Argentina and Turkey, due to currency depreciation, hold USD assets to preserve personal wealth.$Circle(CRCL.US) $Coinbase(COIN.US) $Digital currency concept(CP00079.US) $Robinhood(HOOD.US)

II. Types of Stablecoins:1) Fiat-collateralized Stablecoins:Typically operate on a 100% reserve mechanism, meaning that to issue $1 of stablecoin on-chain, $1 in cash or U.S. Treasury bonds must be collateralized.In addition to 100% full collateralization, there is also over-collateralization, but the latter is rare. Overall, the risk is low, primarily involving regulatory actions against the issuer or U.S. Treasury bond defaults.In terms of issuers, currently, the stablecoins from two companies are particularly popular:a. USDC, the protagonist of this new stock$Circle(CRCL.US) issued. Holds a U.S. payment license, operates on a 1:1 reserve mechanism, with clients primarily including$Coinbase(COIN.US) and other exchanges. The issuance scale is $1.2 trillion. The public blockchain platform used is Ethereum.Operation mechanism: Institutional clients wire U.S. dollars, and Circle generates an equivalent amount of USDC on the blockchain, depositing the dollars into regulated accounts (e.g., Bank of New York Mellon, which charges custody fees) and earning interest from U.S. Treasury bonds (4.5% interest rate).b. USDT, issued by Tether; holds a U.S. payment license. The issuance scale is $1.5 trillion, and the public blockchain platform used is TRON.2) Algorithmic Stablecoins:Luna, relies on algorithms to maintain stability, lacks underlying assets, and has no physical collateral. During the last Bitcoin rally, algorithmic stablecoins exploded and were gradually phased out.Note: Currently, stablecoins collateralized by U.S. dollars and Treasury bonds account for 95% of the market.$Robinhood(HOOD.US) $Digital currency concept(CP00079.US)