Retail-first for stablecoins in Hong Kong

Retail uses for tokenized HKD cash are internal and closed-loop, whereas wholesale markets remain challenging on multiple levels.

Hong Kong’s stablecoin regime matters worldwide because it is now testing whether licensed stablecoins can become useful market infrastructure for a tokenization economy. But which tokenized economy: retail or wholesale?

The Hong Kong Monetary Authority has explicitly linked licensed stablecoins to both retail payments and tokenized investments, via its licensing regime for fiat-referenced stablecoin issuers and the two licenses it has awarded.

These recipients, HSBC and Anchorpoint, have said they will begin by tackling separate segments: HSBC is going into retail and Anchorpoint into wholesale. These first projects will use stablecoins pegged to the Hong Kong dollar, although regulations allow them to use other fiat references.

HSBC has said its Hong Kong dollar stablecoin will be integrated into its wallet business, PayMe, and its mobile banking app for peer-to-peer payments, merchant payments and subscriptions to tokenized investments. It’s a retail-facing strategy tied to existing distribution.

Given HSBC’s size and scale in corporate banking and other activities, it is likely that the bank will explore wholesale uses for stablecoins. It already has a platform, Orion, for asset tokenization. It could extend PayMe stablecoin uses to external corporate clients, but in ways that are not relevant to Hong Kong-domicile stablecoin issuance; corporate uses would likely steer towards cross-border payments and flows, in which case there is no need for a Hong Kong stablecoin. Effectively, therefore, HSBC’s local stablecoin issuance will probably remain a retail function.

Anchorpoint is a joint venture that is majority owned by Standard Chartered Bank. It has stated its intention to serve institutional and ecosystem use cases associated with digital asset markets, programmable finance, and tokenized asset activity. But the presence of its two investment partners, HKT (telco) and Animoca Brands (Web3 and gaming), suggest it will soon develop retail uses for its stablecoin. It is possible that the retail aspect will become more attractive sooner rather than later.

This neat division of eHKD stablecoin businesses is designed in consultation with HKMA. It is not necessarily an indicator of where these banks see the real opportunity. But we can see that the easiest play will be retail, but the meaningful – and still most challenging one – is wholesale.

Wholesale demand

Financial intermediaries love tokenization because it suits them. Now they’re scrambling to find “use cases” that please investors and issuers. Stablecoins represent one piece of this puzzle: tokenized cash.

These benefits include collateral mobility, programmable market infrastructure, surveillance, secondary trading, interoperability, and institutional access. Notably this does not include everyday consumer payments. Institutions have expressed interest in using stablecoins as the cash leg to allow tokenized assets to move, settle, trade, and be financed inside a compliant market structure.

A licensed stablecoin is not just a crypto payment token. It can function as the settlement asset that pairs with tokenized securities, tokenized funds or tokenized collateral transactions, reducing frictions created when the asset side is on-chain but the cash side remains trapped in conventional systems.

The utility case for licensed stablecoins is therefore strongest where tokenization is trying to solve real, wholesale market frictions: cross-time-zone settlement, intraday liquidity, fractional access, always-on trading, and programmable transfers among known participants. To the extent that retail uses exist, such as remittances, there’s no need for a Hong Kong dollar stablecoin, or even one that falls under HKMA regulations.

Tokenizing wholesale cash is by itself insufficient. To work it also needs additional wholesale steps: capabilities for monitoring, controls, and audits. Listed companies need visibility into who is trading tokenized versions of their securities and need a framework that preserves shareholder transparency and corporate actions.

Retail demand

Retail, on the other hand, is a head-scratcher for people in finance. They try to think of incentives that would convince Mrs. Chan to use a stablecoin, or be willing to open a crypto wallet to enjoy whatever benefits an eHKD coin would bring.

The retail case is based on HSBC’s intended use cases. According to HSBC, its HKD stablecoin will initially support peer-to-peer transfers, merchant payments and subscriptions to tokenized investments through PayMe and the HSBC Hong Kong banking app. That matters because it moves the stablecoin discussion beyond trading venues and into everyday distribution channels with existing customers, merchant relationships and mobile interfaces.

The misconception is that PayMe would market its stablecoin to users, as if it were a standalone product. More likely is that users will never know PayMe is using stablecoins behind the scenes. The stablecoin will serve as an internal treasury and liquidity rail. It cannot serve as an interest-bearing product to users under HKMA regulations. Any ‘yield’ would have to be packaged as a separate, regulated product. Moreover, PayMe users do not receive a yield now, and there is no investor expectation of such from a wallet.

HSBC has stated it will use its stablecoin for peer-to-peer, peer-to-merchant, and tokenized investment subscriptions within PayMe. None of these require a retail awareness of stablecoins. Rather, the stablecoin is a tool that will allow HSBC internally to facilitate these transactions more quickly and efficiently.

HSBC’s treasury department can use the stablecoin rail to move Hong Kong dollar liquidity between internal wallets (for PayMe, for merchant settlements, for corporate wallets, or for other HSBC entities) in real time, rather than relying on legacy batch rails. The treasury would also gain granular, near real-time visibility on wallet-level inflows and outflows, which it can use for intraday liquidity management.

The treasury can also harvest a modest spread on a low-risk, low-margin balance sheet item while treating the stablecoin pool as operationally constrained (due to strict HKMA asset-reserve rules) rather than as general funding. This internal return could be structured to fund loyalty points, cashback or fee discounts, rather than as interest payments.

Anchorpoint could establish a business that’s more explicitly about putting stablecoins in users’ wallets. The Animoca clientele is already crypto-native. The challenge is providing incentives for users to take up HKD stablecoins, but this is just a product design question: these people are already into crypto. The company has ambitions beyond this but the same logic applies: for the non-crypto majority, the immediate benefit is using stablecoins as plumbing, not products.

Wholesale questions

There remain several questions about licensed stablecoins in Hong Kong that will only be answered as HSBC and Anchorpoint introduce their tokens. Note that these are mostly about getting wholesale markets to function well, as opposed to internal, closed-loop functions.

• Regulatory coordination beyond issuer licensing. The HKMA regime establishes who may issue fiat-referenced stablecoins in Hong Kong and under what supervisory expectations, but a functioning tokenization industry also requires clarity for intermediaries, trading venues, custody arrangements, wallet infrastructure, tokenized securities treatment and cross-border participation. Institutions cite concerns about secondary market access, trading surveillance, global policy alignment and the ability to move collateral or assets across jurisdictions and market hours.

• Market structure. Many financial institutions want 24/7 trading, secondary liquidity, programmable collateral, and interoperability, but those ambitions require enough venues, counterparties, custodians, market makers and institutional workflows to create real depth. Licensed stablecoins may solve part of the cash-side problem, yet they do not automatically create liquid tokenized asset markets if the underlying products remain scarce, fragmented or operationally awkward.

• Legal and disclosure architecture for the asset side. Companies that issue stock need visibility and control over corporate actions. This suggests tokenized markets need enforceable legal relationships among the asset issuer, the tokenization platform, the settlement token and the end investor. Licensed stablecoins can improve trust in the payment leg, but they do not by themselves solve legal finality, beneficial ownership, disclosure duties, or claims handling across tokenized instruments.

• Technical integration. Interoperability, privacy, programmability, and the coexistence of on-chain and off-chain systems remain ongoing concerns for institutions. That suggests Hong Kong’s tokenization industry at the wholesale level will struggle unless licensed stablecoins can work across different wallets, permissioning models, tokenization protocols, bank systems, and supervisory data requirements without forcing each participant into a separate closed loop. But for the retail uses as envisaged in this paper – which are by definition closed loop activities – such integration issues are minor. This is another reason why the retail use case is likely to outpace the wholesale one, at least initially.

Because the retail use case is likely to be an internal one, it is easier to pursue but invisible to the market and irrelevant to other parties. The true test of Hong Kong’s new stablecoin market is not, contrary to common belief, about getting retail investors to ‘adopt’ stablecoins or eHKD. It is about getting wholesale usage off the ground in a meaningful way. Despite the demand among financial institutions for stablecoins as facilitators of tokenization, it is in the wholesale market where the biggest frictions remain.

It is the wholesale market that will test whether regulated stablecoins can bridge conventional finance, digital assets and tokenized capital markets more effectively than either unlicensed crypto tokens or isolated tokenization pilots. The easiest wins are in retail, though: not by converting the masses into Web3 acolytes, but by creating internal efficiencies that work within local, closed-loop systems where a HKD coin is relevant. It’s an easy win for HKMA and issuers, but relevant only to very specific businesses. The wholesale piece is still the prize, and still the hardest to win.