1 Core Distinctions Between Cryptocurrencies and Stablecoins

Cryptocurrencies and stablecoins, though both digital assets, fundamentally differ in nature, value foundation, and application scenarios – differences that profoundly shape global regulatory policies.

1.1 Definitions and Value Foundations

• Cryptocurrencies (e.g., Bitcoin):

  • Decentralized digital assets using blockchain technology for peer-to-peer transactions.

  • Value determined solely by market supply and demand.

  • Fixed supply (e.g., 21 million BTC) through "mining" via Proof-of-Work (PoW).

  • Extreme volatility due to lack of intrinsic value backing; primarily used for speculation/investment.

• Stablecoins:

  • Designed to maintain value stability by pegging to fiat currencies (e.g., USD), commodities, or asset baskets.

  • Three collateralization models:

    • Fiat-collateralized (e.g., USDT, USDC): 1:1 backing with bank reserves.

    • Crypto-collateralized (e.g., DAI): Overcollateralized (≥150%) with cryptocurrencies.

    • Algorithmic: Supply-adjusted by algorithms (high risk, as seen in UST’s 2022 collapse).

1.2 Technology and Use Cases

Despite shared blockchain foundations, their functions diverge sharply:

• Cryptocurrency Primary Uses:

  • Store of value (Bitcoin as "digital gold").

  • Speculative trading ($70B in U.S. Bitcoin ETFs by 2025).

  • Anonymous transactions (regulatory concerns).

• Stablecoin Core Advantages:

  • Cross-border payments (e.g., JD.com reduced settlement from 30 days to 2 days).

  • Crypto market "safe haven" during volatility.

  • DeFi infrastructure (lending, derivatives pricing).

Table: Key Characteristics Comparison

1.3 Divergent Regulatory Frameworks

Global regulators treat these assets differently:

• Cryptocurrency Focus:

  • AML/CFT controls (FATF standards).

  • Investor protection (SEC securities classification).

  • Energy governance (China’s 2021 mining ban).

• Stablecoin Innovations:

  • Reserve audits (HK’s monthly disclosures).

  • Tiered licensing (HK’s dual-license system).

  • Scenario-limited pilots (China’s rare-earth stablecoin).

2 China’s Cryptocurrency Policy: Comprehensive Ban & Risk Control

China enforces a "cautious high-pressure" stance, combining "technological encouragement with financial suppression."

2.1 Comprehensive Financial Prohibitions

• Exchange/ICO Ban:

  • 2017: Shut down domestic exchanges & ICOs.

  • 2021: Declared crypto activities "illegal financial conduct"; barred bank/payment support.

• Mining Crackdown:

  • Energy concerns: Cleared mines in Inner Mongolia/Sichuan (hashrate share fell 75%→0%).

  • Carbon conflict: Mining’s nation-scale energy use vs. "dual-carbon" goals.

2.2 Judicial Inconsistencies & Property Rights

• Legal Recognition Conflicts:

  • Shanghai courts: Recognize Bitcoin as virtual property.

  • Zhejiang courts: Invalidate crypto transaction contracts.

• Enhanced AML:

  • 2025 draft law regulates OTC crypto trades (>¥500B/year).

  • "On-chain tracking → fund penetration" monitoring system.

2.3 Hong Kong’s Special Role

As a "One Country, Two Systems" financial hub:

• Regulated Gateway:

  • Licensed crypto ETFs (retail trading since 2025).

  • Fiat channels via banks (e.g., ZA Bank).

• Market Integration:

  • 30%+ users on Victory Securities app hold both stocks & crypto.

  • HKMA projects stablecoins to handle 15% of global cross-border payments by 2025.

3 China’s Strategic Approach to Stablecoins & Blockchain

Adopting a "dual-track strategy" – banning crypto while advancing sovereign digital assets:

3.1 Dual-Track Policy Framework

• Technology Promotion:

  • Blockchain as "core technology breakthrough" (2019 Politburo decision).

  • 2023 Pujiang Blockchain Whitepaper for government data sharing.

• Financial Controls:

  • Ban stablecoins as domestic payment tools; limited cross-border testing.

• Standardization:

  • National blockchain standards (2022) for smart contract audits.

  • Supreme Court’s "Judicial Blockchain Platform" (35k+ courts).

3.2 Digital Yuan (e-CNY) as Sovereign Stablecoin

• Development:

  • Launched 2014; piloted in 40+ cities since 2019.

  • Covers retail, government services, cross-border settlement.

• Innovative Features:

  • Programmability: Smart contracts for targeted subsidies.

  • Offline capability: Transactions without internet.

  • Account decoupling: No bank account needed for wallets.

3.3 Hong Kong’s Stablecoin Experiments

Building Asia’s most advanced regulatory sandbox:

• Legal Framework:

  • Stablecoin Ordinance (effective Aug 1, 2025): Negative list + licensing.

  • 11 licensed VATPs; 42 virtual asset service providers (e.g., Guotai Junan, Futu).

• Corporate Pilots:

  • RD Technologies: Fiat gateways for HashKey via ZA Bank.

  • JD Group: Testing HKD stablecoin; pursuing global licenses.

  • Ant Group: Separating Ant International (payments) and Ant Digital (RWA).

3.4 China’s Unique Stablecoin Applications

• Rare-Earth Stablecoin:

  • State-backed pilot (2025): Pegged 1:1 to RMB for $30B rare-earth exports.

  • Targets $45B on-chain transaction volume.

• RWA Tokenization:

  • Longshine Group: Tokenizing EV charger revenue rights.

  • Zuoan Wisdom: "Malu Grape RDA" digital twin for agriculture.

• Green Finance Integration:

  • Tokenizing "AI→Computing→Electricity→Green Energy" chain (Wang Zhongmin).

  • "Virtual power plants + cloud services" for direct energy trading.

4 Global Implications and Challenges

4.1 Technological Sovereignty & Rulemaking

• Quantum Defense:

  • Developing quantum-resistant blockchain; national post-quantum cryptography standards.

• Cross-Border System Overhaul:

  • Testing e-CNY/stablecoin swaps in HK to bypass SWIFT.

  • Attracting Middle East sovereign funds via "Bond Connect."

4.2 China’s Position in Global Finance 2.0

• Dual-Circuit Design:

  • Offshore (HK): Stablecoin hub aligned with global standards.

  • Onshore (Mainland): e-CNY clearing network for financial security.

  • Interconnectivity: Rare-earth stablecoin cleared via e-CNY domestically; circulated offshore.

• RWA Hub Competition:

  • Standard Chartered forecasts $2T stablecoin market by 2028.

  • HK aims for 30% share in Asian RWA market (bonds, green finance).

4.3 Risks and Future Trajectory

• Key Challenges:

  • Regulatory arbitrage between central/local, mainland/HK authorities.

  • Cross-chain data standard fragmentation (e.g., auto parts traceability failures).

  • U.S. competition ($70B Bitcoin ETFs; GENIUS Act).

  • EU’s MiCA framework creating "regulatory havens."

• Strategic Directions:

  • Judicial clarity on virtual property rights.

  • Green pilots: Utilizing stranded wind/solar power in Inner Mongolia.

  • State-led expansion: Rare-earth model → lithium, cobalt, photovoltaics.

China is navigating a path between financial security and technological leadership. Over the next five years, synergy between Hong Kong’s experiments and mainland policy refinement will determine whether China achieves a breakthrough in the global digital currency race.

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