Dianxun Stock Surges 23% on Stablecoin License Bid

The concept of stablecoins continues to be a hot topic, with multiple companies expressing interest in obtaining licenses to issue these digital assets. Recently, a Hong Kong-listed company, Dianxun, announced its intention to apply for a stablecoin license in Hong Kong. This news has sparked significant interest, with the company's stock price surging by nearly 90% on July 3, although it later settled with a gain of over 23%.

Dianxun, established in 2015, specializes in providing digital solutions for retailers. According to Frost & Sullivan, the company is the largest provider of retail digital solutions in the region, based on revenue and total transaction volume. Dianxun went public on the Hong Kong Stock Exchange in December 2024, and its stock price has since experienced significant volatility, with its market capitalization ranging from 40 billion to nearly 200 billion Hong Kong dollars.

The company's vice president and chief financial officer highlighted the long-term potential of the cryptocurrency sector, noting that stablecoins can significantly enhance cross-border payment efficiency and reduce costs for retail clients. This aligns with the global trend of increasing cryptocurrency adoption in commercial activities. Dianxun has also partnered with HashKey Group to explore digital asset trading, Web3 technology development, and blockchain ecosystem construction.

Several other companies have also expressed interest in obtaining stablecoin licenses in Hong Kong. Ant International, for instance, plans to submit an application to the Hong Kong Monetary Authority (HKMA) shortly after the Stablecoin Ordinance comes into effect on August 1. Another Hong Kong-listed company, Lianlian Digital, is also evaluating the feasibility of applying for stablecoin licenses in Hong Kong and Singapore, with the goal of submitting applications as soon as possible after the ordinance takes effect.

The HKMA has been actively preparing for the implementation of the Stablecoin Ordinance, which will come into effect on August 1. The authority is currently conducting market consultations to finalize the specific guidelines for the ordinance. Despite the upcoming deadline, the competition for the first batch of licenses is intense, and it remains uncertain which companies will be the first to secure them.

In 2024, the HKMA launched a stablecoin sandbox program, selecting three participants from over 40 applicants: JD ChainTech, Yuanbao Innovation, and a consortium comprising Standard Chartered Bank, Anshun Group, and Hong Kong Telecom. These entities have been testing stablecoin issuance processes and business models in a controlled environment. However, participation in the sandbox program does not guarantee a license, as the HKMA will evaluate all applications based on consistent and stringent standards.

Despite the enthusiasm surrounding stablecoins, there are significant doubts about the profitability of issuing these digital assets. The first stablecoin company to go public, Yuanhuan, saw its stock price surge nearly tenfold after its listing. This has raised questions about the sustainability of the business model. Yuanhuan's primary revenue source is the income generated from reserve assets, which accounted for 99% of its total revenue of 16.76 billion US dollars in 2024.

Analysts have noted that Yuanhuan's business model is highly dependent on interest rate fluctuations, making its profitability vulnerable to changes in monetary policy. Additionally, the company faces increasing distribution costs to digital currency exchanges, which could erode its profit margins. Competitors entering the market with higher yield rates could further challenge Yuanhuan's market position, as the switching costs for stablecoin users are relatively low.

Stablecoins, primarily issued by private entities and backed by US dollars or dollar-denominated assets, offer advantages such as privacy, low transaction costs, and fast settlement times. These features make them suitable for trading cryptocurrencies, cross-border payments, and transactions in the black and gray markets. However, stablecoins face several challenges that hinder their potential to become the next generation of currency. These include sensitivity to interest rate changes, limited interoperability, and regulatory compliance issues, particularly in developing economies.

In the context of China, the existing financial system, dominated by state-owned banks, has a higher credit level, making privately issued stablecoins less competitive. Additionally, the current use cases for stablecoins, such as cross-border payments and cryptocurrency trading, have not been fully realized in the mainland. Therefore, developing central bank digital currencies (CBDCs) and digital currency bridges may be more suitable for leveraging blockchain technology while meeting regulatory requirements.

In offshore markets, the development of digital renminbi, digital currency bridges, and offshore renminbi stablecoins could accelerate the internationalization of the renminbi and explore the next generation of financial systems. However, risks such as the legalization of US stablecoins, regulatory compliance, macro-prudential supervision, and geopolitical factors could impact the development of stablecoins.