Singapore, Hong Kong want a slice of the US$250 billion stablecoin pie

[SINGAPORE] Regional financial centres Singapore and Hong Kong are both aiming to capture a piece of the US$250 billion stablecoin market.

On Aug 1, Hong Kong launched a regulatory regime for stablecoin issuers. Some industry watchers noted that the territory might be positioning itself as a regulated gateway into mainland China.

Singapore, on the other hand, finalised its Single Currency Stablecoin framework back in 2023 – a move that pundits viewed as a boost to its role as a hub for South-east Asia and the West.

A stablecoin is a type of cryptocurrency that is pegged to a fiat currency, such as the US dollar, and backed by reserve assets. Popular stablecoins include USDT and USDC, which are both pegged to the greenback.

In a report last month, investment firm BlackRock noted that although stablecoins are small relative to the size of the overall crypto universe, their adoption has been growing quickly since 2020.

Stablecoins now make up about 7 per cent of the crypto market share, the report indicated, noting: “We see stablecoins as a new part of the future of finance.”

Tale of two cities

Industry players noted largely similar crypto regulation in Hong Kong and Singapore.

Angela Ang, head of policy and strategic partnerships for the Asia-Pacific at blockchain intelligence company TRM Labs, said that Singapore’s opt-in approach gives issuers based there more flexibility in general.

Describing the city-state’s approach as a “golden sticker”, Samson Leo, chief legal officer of StraitsX, emphasised that unregulated stablecoins will be treated like any other cryptocurrency – traded at the user’s own risk.

StraitsX, aigital payment infrastructure provider, began issuing Singapore dollar-backed stablecoin XSGD in 2020. In 2024, StraitsX received full major payment institution licences from the Monetary Authority of Singapore (MAS).

“Every market has its own niche,” Leo said, adding that he does not think Singapore and Hong Kong are competing with each other.

Singapore caters to companies in South-east Asia and acts as a bridge between the East and West, whereas Hong Kong is more of a launch pad into mainland China and Northern Asia.

Ang noted that issuers are much more selective about where they issue their stablecoin tokens, adding that it is costly and unnecessary to do this in several jurisdictions.

“Whether it makes sense to do so in Singapore, Hong Kong or another jurisdiction depends on whether it offers unique advantages for a particular business model,” she said.

Hassan Ahmed, Singapore country director for crypto exchange Coinbase, suggests that a potential Chinese renminbi-backed stablecoin would be a “big catalyst” for firms to set up in Hong Kong.

Fragmentation risk looms

If each country around the world required its own specific stablecoin licence alongside strict licensing regulations, it would lead to “islands” being formed, Leo said. In other words, there is a fragmentation risk.

In July, US President Donald Trump unveiled the Genius Act, which regulates the use of stablecoins in the United States. It also marks the first federal framework for payment stablecoins.

In addition, the Act prohibits issuers from paying interest, and limits issuance to federally regulated banks, some registered non-banks and state-chartered firms.

Ahmed said that the new regulations will create some form of “geographic interoperability issues”, with which the industry will have to contend. Both he and Leo believe that despite the fragmentation of the stablecoin industry, there is still a need to regulate the tokens.

“It inspires more confidence, and it unlocks more capital to be able to participate,” Ahmed said.

To prevent the risk of fragmentation, Leo cites the need for discussions at the regulator-to-regulator level. He suggested stablecoins that are recognised in one market to be recognised in another where the regulations are similar.

In response to queries from The Business Times, a MAS spokesperson said that the regulator is working on legislative amendments to formalise its stablecoin framework.

“Key requirements of the stablecoin framework relate to reserve assets, capital, redemption and disclosures,” the spokesperson added.

Genius Act is a tailwind

Despite the looming risk of fragmentation, the market remains optimistic about the direction of the stablecoins, especially following the passing of the Genius Act.

Describing the United States as a juggernaut in the digital assets ecosystem from both adoption and business standpoints, Ang of TRM Labs said that the Genius Act has created major tailwinds for stablecoin adoption worldwide.

“The stars are really aligned for the industry,” Ahmed added.

Analysts from BlackRock said that new US legislation, notably the Genius Act, is set to cement the role of stablecoins as mainstream digital payment methods. They added: “This regulation could reinforce dollar dominance by enabling a tokenised US dollar-based ecosystem for international payments.”

At the financial institution level, there is also growing interest in stablecoins. “Bank interest in stablecoin issuance has accelerated,” noted Ang.

She added that greater participation from large financial institutions will drive mainstream adoption of stablecoins as a means of payment and value transfer.

StraitsX, meanwhile, has partnered Standard Chartered and DBS. The banks hold XSGD stablecoin reserves.

Ahmed believes that the Genius Act will also encourage major banks and Big Tech platforms to leverage the stablecoin technology.

Besides governments and lenders, payment gateways are also seeking to tap the stablecoin market. Visa, for example, is using stablecoins to improve the efficiency and utility of back-end financial and money movement infrastructure, it said on its website.

Rubail Birwadker, Visa’s global head of growth products and strategic partnerships, said in a Jul 31 press release: “We believe that when stablecoins are trusted, scalable and interoperable, they can fundamentally transform how money moves around the world.”

Similarly, Mastercard has also adopted stablecoins for various purposes, such as on-chain remittances. Citing the fast and cost-effective nature of stablecoins, the company said that these tokens are ideal for these uses.