CGS International Securities
Date of Report: August 20, 2025
Hong Kong Stablecoin Revolution: Growth Prospects, Bank Impacts, and Key Investment Themes

Introduction: Hong Kong Stablecoin – The Next Big Financial Catalyst

Hong Kong’s financial sector is witnessing unprecedented investor interest in stablecoins, following the landmark passing of the Stablecoin Ordinance on August 1, 2025. This regulatory advance sets the stage for accelerated growth, enhanced revenue potential, and transformative impacts on banks and the broader economy.

Why Hong Kong Stablecoin Is in the Spotlight

Recent meetings with ASEAN investors highlighted intense curiosity about the future of Hong Kong stablecoins. The surge in HK-listed share prices underscores market confidence, driven by regulatory clarity and upcoming issuance of FRS (Fiat-Referenced Stablecoin) licenses in early 2026.
Key drivers for Hong Kong’s stablecoin adoption include:

• International financial centre status
• Strong wealth management inflows
• Role in renminbi liberalization
• Export/re-export market significance
• Robust remittance flows (especially from domestic helpers)
• The US\$/HK\$ currency peg

Global Stablecoin Market: Growth, Scale, and Trends

Stablecoins, as blockchain-based payment means, offer a compelling alternative to volatile cryptocurrencies and traditional cross-border payment systems. The global stablecoin market hit a capitalization of US\$261bn in July 2025, dominated by US\$-pegged coins (>99%). Growth projections vary widely, with estimates for 2030 ranging from US\$1.6tr (base case) to US\$3.7tr (bull case), representing 51-82% CAGR.

Stablecoin Use Cases: Beyond Trading, Toward Payments

Currently, only 6% of stablecoin demand comes from payments, with the vast majority tied to crypto-native activities like trading and DeFi collateral. However, the payment potential is immense—Circle projects the cross-border payments market to expand from US\$195tr in 2024 to US\$320tr by 2032, with stablecoins’ share potentially rising from 3% to 20% (35% CAGR).
Key use cases include:

• Digital asset markets
• Cross-border payments
• Retail payments
• Capital markets
• Tokenization of real-world assets
• AI agent payments

Top Stablecoins and Currency Trends

The top stablecoins (by market capitalization in Aug 2025) are:

• Tether (USDT): US\$167bn
• USDC: US\$68bn
• Ethena USDe: US\$11bn
• Dai (DAI): US\$5bn
• World Liberty Financial USD (USD1): US\$2bn

Over the last year, US$-pegged stablecoins’ market cap rose 56% YoY to US$244bn. Euro-pegged stablecoins grew 88% YoY to US$508m, while Asian-pegged stablecoins contracted 25% YoY to US$51m.

Hong Kong Stablecoin: Regulatory Timeline and Key Players

The Stablecoin Ordinance’s implementation in August 2025 triggered rapid share price growth for several HK-listed companies:

• Zhong An Online P&C Insurance (6060 HK): Share price up 81% after ZA Bank expanded its stablecoin custody services.
• Guotai Junan International (1788 HK): Share price up 496% after regulatory approval for virtual asset trading.
• OSL Group (863 HK): Up 213% YoY.
• China Everbright (165 HK): Up 160% YoY.

Offshore developments, including Circle Internet Group’s 357% post-IPO rise and Bullish’s 71% listing rally, have further fueled interest.

Hong Kong Banks: Detailed Company Analysis & Valuation

CGS International retains an Overweight sector rating for China banks, citing easing operating profit pressures and attractive dividend yield spreads over treasury yields. The following table details key valuation metrics for major banks:

Company Highlights and Investment Rationale

• China Construction Bank (CCB): Lowest FY25F P/E (5.6x, tied with ICBC), robust dividend yield (5.4%), large H-share free float, attractive to Southbound investors.
• China Merchants Bank (CMB): High-quality management, strong shareholder value creation, optimistic dividend payout prospects for FY26F-27F.
• Industrial and Commercial Bank of China (ICBC): Competitive FY25F P/E (5.6x), attractive 5.6% dividend yield, strong appeal to Southbound investors.
• Chongqing Rural Commercial Bank (CQRCB): Competitive yield, solid upside potential.

Revenue Streams and Stablecoin Business Model

Stablecoin issuers’ primary income comes from managing asset reserves—especially lucrative when reserves are in US\$ time deposits or treasuries, given the higher interest rates. Exchanges and brokers benefit from trading fees (approx. 0.3%) and revenue-sharing arrangements for distribution. Custodians like Standard Chartered and DBS earn custody fees for managing reserve assets.

Regulatory Certainty & Market Impact

Regulatory clarity is paramount, instilling confidence and driving institutional investment. The HKMA’s rigorous licensing standards ensure only sustainable, compliant issuers gain approval. The new rules also prohibit issuers from paying direct interest to stablecoin holders, although indirect yields via exchanges remain possible.

Risks to Banks and Financial Stability

Potential risks include:

• Possible deposit outflows if stablecoin yields outcompete bank rates
• Disruption of monetary policy transmission
• Impact on bank fee income (payments, wealth management)
• Systemic risk from large-scale stablecoin redemptions and forced liquidation of reserves
• AML and KYC regulatory hurdles possibly dampening adoption
• Central banks’ concerns over monetary sovereignty and “stealth dollarization”
• Stablecoins’ rising influence on US treasury yields and broader bond markets

Hong Kong’s Virtual Asset Trading Ecosystem

Hong Kong currently licenses 11 virtual asset trading platforms (VATPs), with multiple applicants awaiting approval, further fostering a robust digital finance environment.

Hong Kong Stablecoin Growth Outlook: Unique Advantages

Hong Kong’s international financial status, currency peg, export market, remittance flows, and role in renminbi liberalization position it for rapid stablecoin adoption. The HKMA is expected to prioritize licenses for issuers demonstrating cross-border settlement capabilities, especially for CNH-pegged stablecoins.

ESG Focus: China Banks’ Green Finance Trajectory

China banks exhibit medium ESG risk, with strong social responsibility but weaker governance scores due to state ownership. Environmental scores are neutral, though banks are increasingly rolling out green finance solutions in line with China’s peak emissions and carbon neutrality goals.
Key ESG highlights:

• China Construction Bank (CCB) ranks highest among peers
• Shift towards sustainable finance could improve scores and valuations
• Temporary increases in coal/energy lending may dampen environmental scores, but long-term green transition is underway

Conclusion: Strategic Positioning for the Stablecoin Era

With regulatory clarity, robust financial infrastructure, and unique market advantages, Hong Kong is poised to emerge as a global stablecoin hub. Leading banks such as CCB, CMB, ICBC, and CQRCB stand to benefit, while new opportunities and risks will reshape the competitive landscape. Investors should watch the evolving revenue models, regulatory developments, and ESG trends as stablecoins redefine the future of finance in Hong Kong and beyond.