Hi folks,

I'm Marc Palet, a fintech venture capitalist focused primarily on Southeast Asian payments and digital assets. I’ve spent the last five years between Hong Kong and Singapore and lived through some of what I’m describing below, so this one was especially fun to put together.

We’re also hosting our inaugural Hong Kong Stable Salon this Wednesday during Consensus, so it felt like the perfect time to write this piece. If you're in Hong Kong, we'd love to see you at the event. And if anyone wants to chat payments, just drop me a line. I’ll be in town from Tuesday through Thursday.

Alright — let’s dive in.

-Marc

There are many ways to explain today’s digital asset landscape and stablecoin use cases in Hong Kong. But not many will tell the story through the lens of history and politics, which is exactly what we’ll do in this article. So get ready for a stablecoins x history x politics crossover!

Let’s rewind a few years.

It‘s 1997.

By now, Hong Kong has already lived several economic lives. What began as a collection of fishing villages on the edge of southern China had become a trading and shipping outpost after the British arrived in 1842.

Later in the 1950s, after World War II and the Chinese Civil War, Hong Kong transformed again. China was going through major political and economic chaos after the communist takeover, and many wealthy families, business owners, and skilled professionals—fearful of the end of private enterprise—relocated to Hong Kong, which was still under British rule and offered a more reliable legal system. At the same time, a huge number of migrants and refugees arrived, creating a large workforce that made manufacturing viable. These inflows pushed Hong Kong into a period of rapid industrial growth, which in turn built the domestic economic base that its financial sector would later be built on.

From the 1970s onward, Hong Kong entered a defining phase. As China began opening up under Deng Xiaoping, Hong Kong became a bridge between two very different systems. Foreign capital flowed through Hong Kong into China, while Chinese capital used Hong Kong to reach the rest of the world.

So we’re back to 1997. Hong Kong has already become Asia’s financial hub and a major FX and banking centre. But the city is about to change hands, and no one knows whether the system that made it successful will survive what comes next.

In another sign of the city’s resilience, Hong Kong adapts to its new reality while maintaining its role as the interface between China and global finance, keeping its legal system, open capital markets, and peg to the US dollar.

Through the 2000s and 2010s, Hong Kong was buzzing. As China’s economy grew and integrated into global trade, the special administrative region became the natural base for Western banks, investors, lawyers, and multinational companies looking to operate in or around China. Capital flowed through the city, global talent followed, and Hong Kong thrived as a place where Western and Chinese financial systems could meet. Ask anyone who was in Hong Kong back then, and they’ll tell you those were the best years to be there.

But the reality of “one country, two systems” was never going to be easy to manage, especially with two very different systems coexisting under one roof. Over time, tensions built, and public frustration spilled onto the streets: first in 2014 with the Yellow Umbrella movement, and later, more forcefully, in 2019 with widespread student-led protests.

After 2019, and especially following the introduction of the National Security Law—which expanded Beijing’s authority over issues like national security and political expression—many expats and multinational firms began to feel uncertain about the long-term independence of institutions, freedom of speech and expression, and the predictability of Hong Kong’s legal environment. Those very qualities that had once made Hong Kong so unique in the first place.

At the same time, US-China tensions were rising, and Hong Kong increasingly became part of the conversation. Uncertainty is never good for business, and operating in Hong Kong increasingly meant taking on China-related risk.

And just when it felt like things couldn’t get any worse, COVID hit. For many, it was the breaking point. Hong Kong imposed some of the strictest and longest-lasting restrictions in the world, which accelerated decisions that were already being considered.

Some people returned home. Others went fully remote. And many others (🙋‍♂️) left for Singapore, as it became more open and welcoming, and attracted a lot of the talent and business that was escaping from Hong Kong.

Alright, this is where stablecoins and digital assets come into the picture, and why they matter for Hong Kong. Phew. I needed to set the stage first. Plus, I love mixing a bit of history and geopolitics with what might otherwise be pretty dry tech stuff.

In 2022, as Hong Kong is watching talent and companies relocating to hubs like Singapore, it decides to focus on digital assets as one of its core strategies to maintain its edge as a financial hub.

In October that year, the government published its first Policy Statement on Virtual Asset Development. That was the moment Hong Kong switched from a cautious stance on crypto to essentially saying: we want this industry here, and we’re going to regulate it properly.

Back then, only a few jurisdictions, such as Singapore, Abu Dhabi, and Dubai had taken steps to regulate digital assets. Remember, this was at a time when the U.S. was bringing enforcement actions against unregistered exchanges and token offerings.

Hong Kong had to play catch-up.

In June 2023, the city introduced a new licensing regime for VASPs and VATPs, which created a regulated path to market that many crypto firms had been waiting for. OSL, HashKey, and Bullish were some of the early digital asset exchanges that received regulatory approval under the new framework.

This was successful at turning Hong Kong into an attractive base for web3 entrepreneurs. Digital payment companies like Redotpay (which recently reached unicorn status) and KUN (which recently raised a $50M Series A) were founded in that same year. Cyberport, the city’s government-backed incubator, shifted its focus from traditional tech to supporting web3 start-ups. Even firms like Reap, originally a corporate card provider for traditional SMEs, found its niche serving crypto-native companies as the number of digital asset companies in Hong Kong grew.

In May 2025, Hong Kong’s Stablecoins Ordinance was passed, creating a regulated licensing regime and reserve requirements for stablecoin issuers. The law is broadly similar to what we’ve seen across the major jurisdictions (US, Europe, Singapore, Japan, etc.). While each framework has its own nuances, regulators are largely converging around the same principles: full reserve backing, clear redemption rights, and direct supervision of stablecoin issuers.

Since the law took effect on 1 August 2025, the HKMA has received 36 applications, including a joint venture between Standard Chartered, Animoca, and HKT. The HKMA is now targeting March 2026 for the first licenses, though it is expected only a small batch will be approved initially.

So, Hong Kong finally has stablecoin issuance regulation, and the first HKD stablecoins are about to launch. Now the big question is: what are the actual use cases, if any?

Honestly, it’s still not very clear right now. But let’s explore a few possible arguments:

Local stablecoins could make domestic payments more efficient where existing systems fall short. Sure. But in Hong Kong, that’s a solved problem. FPS, Hong Kong’s domestic real-time payment system, is ubiquitous, with around 15 million registered users, more than double the city’s population. So it’s hard to see what HKD-denominated stablecoins would improve on the domestic payments side.

Issuing local stablecoins allows countries to protect monetary sovereignty, ensuring their currency remains useful rather than becoming overly dependent on the U.S. dollar. Yes. At the same time, most people and businesses still prefer to earn and pay in their local currency. Holding or earning in USD while operating elsewhere can create unexpected FX risk, especially in regions with stable currencies like the Euro. This matters even more today with the growing global sentiment around de-dollarisation.

That said, this argument is weaker in Hong Kong, where the HKD is pegged to the USD and therefore moves almost exactly against other currencies. So I don't buy this either.

Local stables make on-chain FX more efficient. Today, if you want to move from HKD to Philippine pesos, you’ll have to route through a USD-denominated stablecoin. With local stablecoins on both ends, you’d remove one leg of that conversion and potentially cut roughly half the FX cost.

The caveat with this argument is that liquidity still needs to be addressed. Launching a local stablecoin on its own doesn’t automatically create efficient FX markets. You still need liquidity behind it. If local banks are the ones issuing the stablecoin, then you essentially have an infinite supply of local currency. But if the stablecoins are issued by non-bank entities and liquidity remains thin, then they won’t improve FX markets.

Overall, the thesis is that it’s still early days, especially for Asian-denominated stablecoins. Regulation and the launch of the first local stablecoins are just the initial steps. The goal is for local currency stablecoins to be treated like e-money. For example, if you use Alipay in Hong Kong, you don’t worry whether the dollar in your wallet is actually worth less than a dollar. The challenge is ensuring local stablecoins can offer that same level of trust and stability through regulation and redemption mechanisms. Once that foundation is in place, success will still depend on adoption: banks, PSPs, and merchants need to integrate them and buy into the ecosystem. Without broad adoption, they’ll have limited utility.

Regulators see the theoretical potential of stablecoins and digital money, and the risk of doing nothing while other markets move ahead. So they step in with regulation to create space for innovation to develop. In Hong Kong, especially, this is largely about experimentation. The city has increasingly become the laboratory for China’s financial reform, and the HKD stablecoin experiment was likely a pilot for how a future renminbi stablecoin could've potentially operated within China’s tightly controlled capital framework. Especially since Hong Kong’s law allows for the issuance of any fiat-referenced stablecoin, which could include RMB-backed ones. Major Chinese tech firms such as Ant Group and JD.com had been preparing to issue off-shore yuan-backed stablecoins, and the Chinese government was initially supportive.

However, Chinese regulators (like many regulators around the world) are still trying to determine the right path to balance multiple objectives at once. On the one hand, challenging the USD dominance by expanding the renminbi’s global use and internationalization is a core policy priority. They also want to support technological modernization in financial services through distributed ledger technology. But on the other hand, they are only willing to pursue this within frameworks that preserve administrative control and monetary stability.

Stablecoins can circulate beyond Chinese regulatory oversight and sidestep capital controls, which weakens the central bank’s grip over money supply and settlement. For the PBOC, that’s a deal breaker. Allowing a parallel, privately issued currency is fundamentally incompatible with the party-state’s responsibility to control and regulate national money.

So for now, they’ve chosen the blue pill. In October, reports came out that the government had shifted course and was urging Ant Group and JD.com to pause their stablecoin issuance plans.

And yet, this is precisely why Hong Kong matters. For many mainland companies, Hong Kong is where they manage their treasury operations. It’s where they hold fiat, pay international suppliers, and centralize offshore cash management outside China’s capital controls. Many cross-border payment providers in Southeast Asia have seen strong demand from Hong Kong for this exact use case. This was already happening long before stablecoins were a thing. But they now see that this new rail can offer faster settlement, 24/7 payments, and in some cases lower transaction costs.

According to a recent McKinsey report, stablecoin payments originating from Asia account for the largest share of global stablecoin payment volume in 2025 ($245B annually, roughly 60% of the total). Most of this activity comes out of Singapore, Hong Kong, and Japan. While the report doesn’t provide a detailed breakdown of these flows, a likely big portion of the volume coming out of Hong Kong (and, to a lesser extent, Singapore) is from Chinese entities and the nearshoring of their treasury activities.

So once again, Hong Kong has managed to reshape its identity, this time becoming a hub for digital assets. In just a few years, the city has become one of the most proactive jurisdictions in Asia for all web3 related. But Hong Kong’s strategy is also very different from places like Singapore, Dubai, or the U.S. It’s not just a city trying to compete globally on its own terms. It sits next to a much larger power, and increasingly functions as a controlled sandbox for China’s financial experimentation. Many of the policies launched in the special administrative region are shaped by Beijing’s priorities and constraints. In that sense, Hong Kong is slowly shifting away from the original “one country, two systems” dynamic that once made it successful.

Even if HKD-denominated stablecoins don’t yet have an obvious use case, the city has already emerged as a global leader for stablecoin activity more broadly. The use cases we see in Hong Kong, though, look very different from what we see in other markets. Stablecoins don’t have one universal story. Adoption depends on local infrastructure, regulation, and political context. And that’s why, this time, we had to go all the way back a few centuries to explain how stablecoins are being used in Hong Kong.

If you’re at a fintech start-up, scale-up, or even a tradfi multinational and want to get a room full of leads for your business, feel free to reach out. We’ll be hosting Stable Salons and other fintech events across Asia for the rest of 2025, so there will always be sponsorship opportunities.