As one of the most important infrastructure and tools in the Web3 industry, the standardization of stablecoins is an inevitable result.

Article author: 0x9999in1

Article source: MetaEra

Recently, MetaEra Hong Kong launched a series of events titled "Hong Kong Cryptocurrency New Policy Second Anniversary Celebration", with an important part being "High end Dialogue: Hong Kong Web3.0 Influential Leaders". The influential figure interviewed in this issue is Liu Yu, CEO of Yuancoin Technology.

The Hong Kong Monetary Authority announced the list of participants in the stablecoin issuer sandbox on July 18th of this year, effective immediately. Among them, Yuan Coin Innovation Technology Co., Ltd. prominently appeared on the list. It is a blockchain based digital wallet and stablecoin company, currently with two major businesses: the "Yuan Coin Wallet" that supports fiat payments and the upcoming "Hong Kong Dollar stablecoin". The company recently announced the completion of a $7.8 million Series A1 financing. In this round of financing, Yuancoin Technology has received strategic investments from well-known industry players such as Sequoia China, Hivemind Capital, Aptos Lab, Hash Global, SNZ Capital, Solana Foundation, Anagram, and Upward Capital. Liu Yu Rita, CEO of Yuan Coin Technology, shared the development of Hong Kong dollar stablecoins in this interview. She firmly believes that compliance and credibility are important factors, and Hong Kong's advantages as a global trading center, financial center, and payment center will also be reflected.

Essence viewpoint

Different types of tokenized currencies may coexist, serving different application scenarios in different fields and channels.

Compliance is a very important point in taking Web3 to the next level.

Stablecoins are definitely one of the Web3 tracks that can solve real-world pain points.

As one of the most important infrastructure and tools in the Web3 industry, the compliance of stablecoins is an inevitable result.

The goal of Hong Kong dollar stablecoins is to increase their value, rather than to seize the existing share of stablecoins.

At the beginning of its establishment, Yuan Coin aimed to enter the stablecoin market and play the role of a promoter and pioneer in the development direction of stablecoins in Hong Kong.

Interview transcript

MetaEra: In July of this year, the Hong Kong Monetary Authority (HKMA) announced the list of participants in the stablecoin issuer "sandbox", which included companies such as JD.com and Yuan Coin. This news has once again increased people's attention to Hong Kong dollar stablecoins. Can you introduce the development of Hong Kong dollar stablecoins to everyone?

Liu Yu: Hong Kong is one of the leading regions in the world in terms of stablecoin regulation. The Financial Services and the Treasury Bureau of the Hong Kong government and the Hong Kong Monetary Authority jointly released a public consultation document in December 2023 to collect opinions on legislative proposals for regulating stablecoin activities in Hong Kong. Everyone is quite excited about this. In July of this year, the list of participants in the stablecoin issuer "sandbox" was announced as scheduled, and Yuan Coin is pleased and honored to be a member of the list.

In fact, the regulatory framework for stablecoins has already been clearly outlined in the public consultation document just mentioned. The next step for the government is to incorporate stablecoin regulation into the legislative process, introduce relevant laws and regulations for stablecoin regulation, and then issue licenses according to the law. The overall development is gradual and continuous.

MetaEra: What are the main businesses currently carried out by Yuan Coin Company?

Liu Yu: Currently, in addition to stablecoins being included in the sandbox list, Yuan Coin also has a fiat payment license, which has led to the launch of the payment platform "Yuan Coin Wallet". This business is developing rapidly and can provide **all and medium-sized enterprises with SVF based fiat account numbers and payment services from Hong Kong. So currently, Yuan Coin Technology Company mainly has the above two major businesses.

MetaEra: Currently, some people are still unclear about the similarities and differences between digital Hong Kong dollars and Hong Kong dollar stablecoins? Can Mr. Liu explain this? Also, do you agree with the statement that digital Hong Kong dollars and Hong Kong dollar stablecoins are potential competitors in the short term?

Liu Yu: The most fundamental difference is that digital Hong Kong dollars belong to the category of CBDC central bank digital currencies, while fiat stablecoins are also stablecoins linked to a certain type of fiat currency. So from this perspective, both are pegged to the Hong Kong dollar, but the former is a digital currency issued by the central bank, while the latter is a stablecoin issued by private companies. There are regulatory policies around the world to constrain two different types of tokenized assets.

Another major difference is that digital currencies issued by central banks are generally not issued on public blockchains. On a global scale, we may have seen several central bank digital currencies being piloted, none of which have been issued on public chains. However, stablecoins issued by private companies, including those already existing on the market, are almost all issued on public chains.

Why emphasize the importance of regulation for stablecoins issued by private companies? The credibility of this is very important. Firstly, there must be a 1:1 anchored reserve asset, with real asset reserves behind it; Secondly, under the stablecoin framework in Hong Kong, stablecoins cannot provide users with interest; Thirdly, stablecoin issuers need to regularly disclose asset proof to the public, proving that the number of stablecoins issued is supported by the actual assets.

Furthermore, we do not agree with your mention of whether there is a competitive relationship between digital Hong Kong dollars and Hong Kong dollar stablecoins. Now when it comes to tokenized currencies, there are three types: central bank digital currencies, stablecoins issued by private companies, and tokenized deposits issued by banks. These three types can all be referred to as the three types of tokenized currencies, which must coexist because they serve different application scenarios. For example, central bank digital currencies can be applied to bulk trading/wholesale levels, while stablecoins issued by private companies can be more closely integrated with industries such as Web3 and digital assets because they are issued on public chains. The scenarios they serve include digital currency trading scenarios, or private transactions/payments between individuals. So overall, I believe that these different types of currencies may coexist and serve different application scenarios in different fields and channels.

MetaEra: Can you share with new industry users what substantive problems can be solved by the emergence of Hong Kong dollar stablecoins? Is Hong Kong dollar stablecoin a necessary asset to exist?

Liu Yu: Under the stablecoin framework implemented in Hong Kong, stablecoins may not necessarily be equal to Hong Kong dollar stablecoins, as everyone can see that the regulatory framework for stablecoins in Hong Kong does not specify the currency. However, the first stablecoin issued by Yuan Coin Technology will be a Hong Kong dollar stablecoin.

I think stablecoins that have emerged under the regulatory framework of stablecoins in Hong Kong have a very substantial role. The most important aspect is compliance. Against the backdrop of increasing compliance in the global Web3 industry, stablecoins, as one of the most important infrastructure and tools in the Web3 industry, must inevitably become compliant. In various countries and regions around the world, the regulation of stablecoins is moving towards compliance. Hong Kong is one of the early regions to explore and promote stablecoins. It is precisely with compliance that Web3 technology can be used to solve the pain points in Web2. For example, cross-border payments are a good example. We often mention that the emergence of Bitcoin is the invention of a global peer-to-peer electronic payment system, and blockchain has developed to this day. In addition to Bitcoin, stablecoins have also played a relatively important role because stablecoins have leveraged the payment advantages based on blockchain technology.

In traditional cross-border payments, fund settlement requires an intermediary banking system to be completed, which may require one bank after another to settle. For example, when making a payment from Hong Kong to Brazil, it may need to go through several intermediary banks for settlement, and in this process, both information flow and fund flow are fragmented. But in the blockchain payment system, when I tran**er a stablecoin to the other party, the settlement is already completed, and there is no longer a need for a third-party institution to do fund settlement.

Through this example, I would like to say that blockchain payment has enormous advantages. Its atomic settlement and tamper proof characteristics based on blockchain can solve many pain points of traditional payment and finance. However, why hasn't blockchain payment solved real-world problems for a long time? I think one of the biggest obstacles is compliance. When you don't have compliance and credibility, many traditional institutions find it difficult to enter, so compliance is a very important point to take Web3 to the next level.

MetaEra: Currently, US dollar stablecoins dominate the vast majority of the market, especially USDT. What is the significance of the emergence of Hong Kong dollar stablecoins as a benchmark for US dollar stablecoins? How much market share can Hong Kong dollar stablecoins expect to snatch from it?

Liu Yu: The most important word to answer this question is increment. What we need to do is increase, not seize the stock share of stablecoins. Yuan Coin wants to make this cake bigger, only by complying can traditional institutions bring in more funds. If someone's pain point cannot be solved, they will naturally not come in. After these institutions come in, it becomes incremental.

Stablecoins like USDT have been developing for several years and already have a first mover advantage. Compared to today's stablecoin application scenarios, stablecoins at that time were mainly used as a tool for the entry and exit of cryptocurrency risk assets, or possibly as a tool in the DeFi arena. But now it has been increasingly extended to payments, including B To B and C To C. Some reports now indicate that a large amount of funds on addresses do not exceed $100. In fact, stablecoins help many people with cross-border remittances, which is much cheaper and more convenient than traditional cross-border remittance channels.

To sum up, as newcomers to stablecoins, our main focus is on compliance, and we will do a good job in the incremental market of stablecoins.

MetaEra: How do Hong Kong government agencies consider compliance issues and implement relevant regulatory measures regarding Hong Kong dollar stablecoins? Have you learned from the policies of Western countries such as the United States?

Liu Yu: Currently, various regions around the world are researching stablecoin regulatory policies, but there are not as many practical reference areas. For example, the MiCA compliant Euro stablecoin in Europe is a relatively complete fiat stablecoin. As one of the pioneers in the development of stablecoins in Hong Kong, I believe that relevant institutions in Hong Kong will have some exchanges with regulatory peers in other countries. Based on this, I have conducted a lot of thinking and customized a regulatory framework for stablecoins in combination with the characteristics of Hong Kong's own financial system.

MetaEra: Web3.0 has always been criticized by the outside world as a financial game lacking practical applications. Do you think stablecoins will quickly enter people's lives? In which application scenarios will Hong Kong dollar stablecoins achieve breakthrough growth?

Liu Yu: Stablecoins are definitely one of the Web3 tracks that can solve real-world pain points, which is something we firmly believe in with Yuancoin. As for which application scenario can be broken through, I think each country and region will have different pain points, such as Asia, especially Hong Kong. I think the retail scenario is benefited from the development of Internet finance. There are many tools available for us to use in the retail scenario, so the stable currency will focus more on the B to B application scenario. Because Hong Kong itself is a trading center, payment center, and financial center, from the perspective of the retail market, the market is not large. However, from the perspective of a global trading center, there are more active institutions here, which will do business with global partners. Therefore, we believe that we should approach from the perspective of Hong Kong as a trading center, financial center, and payment center, and make breakthroughs in cross-border trade and cross-border payments.

But when it comes to payment, people think that payment sounds like a relatively simple thing, but this pain point is huge. Currently, we have entered the AI era, but the circulation speed of this money may still be stuck in a relatively old era, because the speed of cross-border remittance completion is still several days, and we don't know how much commission the intermediary bank will charge. These experiences are actually not in line with the development of our times today.

Based on payment, PayFi is currently a popular term. PayFi is a combination of Web3 payment and Web3 finance, using payment as the entry point. Its circulation speed will be significantly improved due to the acceleration of blockchain payment technology. From this, we can solve many financial problems, such as whether exporters and importers can borrow or finance more quickly. I think Web3 payment will further develop from stablecoins to PayFi, thereby solving some pain points in global cross-border payments and trade.

MetaEra: In order to better promote the stable currency of the Hong Kong dollar, has Yuan Coin implemented corresponding risk control measures and which companies have formed cooperative relationships for this?

Liu Yu: Blockchain itself has advantages in risk control. It is open, transparent, and tamper proof on the chain, so it also has some advantages in anti money laundering. However, the weakness of blockchain is also easy to be hacked. Therefore, before officially issuing our stablecoin, we are also doing some preliminary preparation work, which is also a very important link.

In addition, from the perspective of business expansion, our related work has never stopped. As a stablecoin issuer, the most important thing for us is to establish an ecosystem that will serve our users in the future. In countries and regions where it can be implemented, users can easily and compliantly obtain the stablecoins we issue. Therefore, we need to rely on compliant and liquid exchanges and market makers.

The third aspect is that we hope to develop financial scenarios, such as DeFi, which is very important.

The fourth aspect is that infrastructure is also very important. It is crucial to determine which public chain to collaborate with and whether there will be cross chain collaboration in the future.

So we have implemented cooperation in these four areas globally, hoping to create cooperative relationships with global partners in a more compliant trend.

MetaEra: From your personal observation, among the many tracks of Web3.0 in Hong Kong, which sector do you have a higher confidence in? Which tracks are suitable for Hong Kong's policy environment to quickly emerge and become advantageous projects on a global scale?

Liu Yu: Firstly, I am definitely very optimistic about the stablecoin sector, mainly because Hong Kong is a global trading center, payment center, and financial center.

Secondly, I think the tokenization of RWA real-world assets is also very interesting because many people believe that participating in Web3 is gambling, but many real-world projects require tokenization, which requires a more compliant environment to issue their own tokens. At present, we also see various attempts of RWA in the market, including some traditional financial institutions entering the market. If we can create a credible institution in a compliant environment to help projects issue tokens, we can achieve true real-world asset tokenization, which I think is very meaningful.

MetaEra: Yuan Coin was established in 2021, prior to the release of the "Policy Declaration on the Development of Virtual Assets in Hong Kong". Does this mean that the company was already targeting the stablecoin market? What are the opportunities and challenges among them?

Liu Yu: At the beginning of Yuan Coin's establishment, it was intended to be a stablecoin track, playing the role of a promoter and pioneer in the development direction of stablecoins in Hong Kong. The idea behind the launch of Round Dollar is to become a stablecoin that anchors a package of mainstream Asian currencies, hence the name Round Dollar Technologies. At the time of its establishment, there was no regulatory framework for stablecoins, and Web3 related policies were not clear. However, the company was very clear that issuing stablecoins must follow a compliance route and only do so when regulatory policies were relatively clear.