(Yicai) June 26 -- Hong Kong’s monetary authority has stepped in to calm down the hype surrounding stablecoins following a surge in related stocks following the launch of a licensing system last month for stablecoin issuers. The new legislation has fueled market enthusiasm for stablecoins, digital assets and even Web3.0, and prompted a number of companies to announce plans to enter the sector.

“As the implementer of stablecoin regulations, we are certainly pleased to see public interest in stablecoins,” Eddie Yue, chief executive officer of the Hong Kong Monetary Authority, said in an article published on the regulator’s website on June 23. “However, in line with our duties as regulators, I also want to add a note of caution and encourage people to view stablecoins in a more objective and rational way.”

“Stablecoins are not investment tools nor something to speculate on, rather they are another way of using blockchain technology to make payments. They do not go up in value on their own,” Yue said.

Nevertheless, stablecoin-related stocks kept climbing today. Shares in Northking Information Technology [SHE:002987] surged by the exchange-imposed daily limit to CNY20.03 (USD2.80), Beijing Cuiwei Tower [SHA:603123] was trading up 5.6 percent at CNY15.41 as of 2.30 p.m. and HyUnion Holding [SHE:002537], which had hit limit up for the previous three trading days, edged up 0.3 percent to CNY11.50.

In Hong Kong, Yeahka’s share price [HKG:9923] has gained more than 40 percent in value in the past month, Lianlian DigiTech’s stock [HKG:2598] surged 11.6 percent on June 23 and Zhongan Online [HKG:6060] soared more than 8 percent that day. All three stocks have slowed their surge since the regulator issued its warning.

Northking Information has a great deal of experience and offers a number of services in the underlying technologies on which stablecoins are built, such as blockchain, privacy computing and smart contracts, the firm said.

Additionally, the Beijing-based company has participated in the system development of the e-yuan and the digital Macanese pataca, and is currently exploring how this knowledge and experience can be applied within the stablecoin sector.

The Stablecoin Bill was passed by the Legislative Council of the Hong Kong Special Administrative Region on May 21, introducing a licensing system for companies which issue stablecoins that are tied to fiat currencies as part of a broader effort to regulate virtual assets in the region.

Internet giants, including Alibaba Group Holdings and JD.com, have since announced their entry into the stablecoin space. Fintech firm Ant Group, an affiliate of Hangzhou-based Alibaba, said it will apply for stablecoin licenses in Hong Kong and Singapore. JD.com said it plans to issue a stablecoin in Hong Kong that is pegged to the Hong Kong dollar using public blockchain.

Companies that are applying for Hong Kong stablecoin licenses are mainly involved in two types of businesses, namely raising funds or the tokenization of real-world assets, said Pan Helin, a committee member of the Ministry of Industry and Information Technology’s economic expert group on telecommunications.

“Don’t overhype stablecoins,” Wang Pengbo, chief financial analyst at Botong Analysys, told Yicai. “Just because some countries are drawing up legislation for stablecoins does not mean that this virtual currency will replace the existing payment system. In China, for example, the current payment system works very well, especially for large transactions and high-security payments.”

Stablecoins are unlikely to take off in mainland China, Wang said. The existing payment system is cheap, highly sophisticated, convenient, and covers all types of small-value, high-frequency scenarios. Also, from a legal standpoint, the use of non-sovereign cryptocurrencies has been banned by the People’s Bank of China.

In the long run, the key to broadening the role of stablecoins in cross-border payments lies in better international collaboration, Wang said. Hong Kong could act as a bridge between digital assets and the digital yuan. Stablecoins could also help bring more liquidity to traditional assets through tokenization and expand financial applications in emerging markets where infrastructure is still developing.

Editor: Kim Taylor