The "stablecoin" concept continues to demonstrate remarkable market appeal.
On July 2, executives from Hong Kong-listed DDM Smart (02586.HK) announced plans to apply for a stablecoin license in Hong Kong. This news propelled the company's stock price up nearly 90% intraday before closing 23% higher. While multiple firms have recently expressed interest in obtaining Hong Kong stablecoin licenses, significant debates persist regarding sustainable profitability models for issuers.
DDM Smart Surges 23% in Single Trading Session
Founded in 2015, DDM Smart specializes in providing digital transformation solutions for retailers. Market data confirms it as mainland China's largest retail digitalization service provider by both revenue and gross merchandise volume (2023). Since its December 2024 Hong Kong Exchange listing, the company has experienced substantial stock volatility, with market capitalization fluctuating between HK$40-200 billion.
CFO Tang Yifan publicly affirmed the company's strategic commitment to cryptocurrency, including Bitcoin holdings and Web3 talent acquisition. He emphasized how stablecoins could enhance cross-border payment efficiency and reduce costs for retail clients, aligning with global crypto adoption trends.
The firm previously partnered with Hong Kong's HashKey Group to collaborate on:
- Digital asset trading platforms
- Web3 technology development
- Blockchain ecosystem construction
This announcement triggered broader sector gains, with Victory Securities (08540) rising 14.51%, Guotai Junan International (01788) up 11.56%, and China Everbright (00165) increasing 3.41%.
Intensifying Competition for Stablecoin Licenses
Several corporations have recently declared intentions to pursue Hong Kong stablecoin licenses:
- Ant International: Plans post-August 1 application for cross-border payment solutions
- LianLian DigiTech: Evaluating license feasibility in Hong Kong/Singapore
Financial Secretary Christopher Hui confirmed the Stablecoin Ordinance takes effect August 1, with the Hong Kong Monetary Authority (HKMA) commencing license applications then. The HKMA is currently finalizing implementation guidelines through market consultations.
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Despite no official applications being accepted yet, competition for inaugural licenses remains fierce. The HKMA's 2024 sandbox program selected three groups from 40+ applicants:
- JD CoinChain Technology
- Yield Labs Innovation
- A consortium comprising Standard Chartered, ANB Group, and HKT
"Sandbox participants possess regulatory familiarity advantages," noted a stablecoin industry insider. However, HKMA Chief Executive Eddie Yue emphasized that sandbox involvement doesn't guarantee license approval, nor is it a prerequisite. Initial approvals will be limited to applicants demonstrating:
- Concrete business plans
- Practical use cases
- Robust reserve management
- Compliance infrastructure
- Technical security
Profitability Concerns for Stablecoin Issuers
Following Circle's IPO and subsequent 10x share price surge, investors have intensely scrutinized stablecoin business models. Can license holders expect guaranteed profits?
Industry analysis reveals most issuer revenue derives from reserve assets. Circle's 2024 financials showed 99% of its $1.676 billion total income came from reserve yields—primarily short-term U.S. Treasury investments backing its USDC stablecoin.
However, JPMorgan's recent report identified critical vulnerabilities:
- Interest rate dependence: Revenue tied to monetary policy fluctuations
- Rising distribution costs: Squeezing margins through exchange partnerships
- Market competition: New entrants threatening Circle's dominance
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Frequently Asked Questions
Q: What makes Hong Kong an attractive stablecoin hub?
A: Its clear regulatory framework and international financial infrastructure position it as a gateway for Asia-focused crypto projects.
Q: How do stablecoin issuers generate revenue?
A: Primarily through interest earned on reserve assets like government securities, minus operational and compliance costs.
Q: What risks do stablecoin investors face?
A: Reserve asset mismanagement, regulatory changes, and technological failures could all impact stability and redemption guarantees.
Q: Why are traditional financial institutions entering this space?
A: They recognize stablecoins' potential to modernize payments while leveraging existing compliance expertise.
Q: How might stablecoin regulations evolve globally?
A: Most jurisdictions are moving toward Circle-like reserve requirements, with emphasis on regular audits and transparency.
Q: What differentiates Hong Kong's approach from other markets?
A: Its sandbox program allows real-world testing while maintaining strict oversight—balancing innovation with consumer protection.