Asia divided on stablecoins as banks take lead

Asia’s stablecoin race is dividing between bank-backed domestic currencies and US dollar–pegged tokens as Japan, Singapore, and Hong Kong roll out new regulations shaping how crypto can operate alongside regional monetary policies.

The rivalry is heating up, highlighted by Japan’s plan for a major bank consortium and China’s restrictions on Hong Kong initiatives. These moves underscore the hurdles private companies face under existing regulatory frameworks.

Asia’s competition for stablecoins intensifies igniting debate among individuals 

Experts view Asia’s competition for stablecoins as a way to gauge how much freedom governments will permit private systems to make adjustments to national monetary frameworks while still maintaining control over financial transactions.

During an interview, John Cho, Vice President of Partnerships at Kaia DLT Foundation, noted that several lawmakers and regulators across Asia are seeking to accelerate the introduction of specific laws and regulations, particularly for cryptocurrencies and stablecoins.

“There is real enthusiasm throughout the region for the improvements stablecoins can bring to traditional systems,” he added.

Despite these assertions, sources have noted that the situation also stresses a “divide” among regulators and lawmakers in Asia. To illustrate this, Cho mentioned that one group believes that only established institutions have the right to handle the creation of stablecoin and reserve management. On the other hand, another group raises concerns about this approach, stating that it could act as an obstacle to innovation and slow down growth and adoption.

To break down Asia’s competition, Japan’s project involves MUFG, SMBC, and Mizuho joining forces to introduce a yen-pegged coin. For the coin’s launch, they aim to use MUFG’s Progmat platform and launch it by March of next year, according to a report from Nikkei. 

This move aligns with Japan’s intention to expand the scope of its regulations to encompass digital assets. One proposed regulation aims at stopping insider trading in cryptocurrency, granting securities regulators the power to investigate illegal activities.

In the meantime, in China, the government is adopting a different approach by instructing big tech firms to halt their stablecoin initiatives in Hong Kong. 

This decision follows the formation of Anchorpoint Financial by companies such as Standard Chartered, Animoca Brands, and HKT Group last August, which sought a license to issue stablecoins under the city’s new digital asset regulations.

Asia firms demonstrate commitment to explore the stablecoin ecosystem 

StraitsX, based in Singapore, operates with full oversight from the Monetary Authority of Singapore. At the end of September it had its SGD-backed XSGD token listed on Coinbase.

Meanwhile, Tether has been expanding its reach in Asia as well, with the launch of USDT on the Kaia blockchain for South Korean ATMs in July and its connection to LINE’s regional ecosystem. 

Dermot McGrath, co-founder of venture capital firm Ryze Labs, commented on the situation. He acknowledged that Asia is transitioning from planning policies to implementing controlled measures.

In Japan, the development will be steady and measured, while Hong Kong will keep a close eye on Beijing’s limits. On the other hand, Singapore aims to focus on a select group of important issuers as it utilizes its trust benchmark to introduce stablecoin products. 

McGrath noted that regulators “want to maintain control, but financial institutions also do not want to remain inactive for too long.”

On related developments, Bitcoin lenders have begun betting that stricter controls and clearer risk management can rebuild trust in an industry still tarnished by the failures of its predecessors, Celsius and BlockFi.

Following their failure, these notable Bitcoin lenders from the last cycle collapsed after using clients’ deposits to make loans that were not fully backed by collateral. Consequently, when Bitcoin prices plummeted and liquidity evaporated, billions in customer funds were frozen or went missing.

However, sources have pointed out that these implosions do not mean that crypto-backed loans are doomed from the start. They explained that breakdowns were mostly due to bad risk management, not the model itself.

To address the tension in the crypto market, CoinMarketCap’s head of research, Alice Liu, acknowledged that some platforms are now making the right moves, such as implementing overcollateralization and stricter liquidation thresholds.