JD Digital Stablecoin Analysis Report

Background Overview

Several important events have recently occurred in the field of digital stablecoins:

1. The U.S. Senate passed the GENIUS Act bill, providing a comprehensive framework for stablecoin regulation.

2. The Hong Kong Legislative Council officially passed the digital stablecoin regulatory bill.

3. Former Deputy Governor of the Bank of China, Wang Yongli, calls for greater attention to be paid to the development of stablecoins in Mainland China.

4. Stablecoin issuer Circle went public on the NYSE, with the stock price soaring 168% on the first day.

Moreover, industry opinions suggest that the stablecoin pegged to the US dollar extends the dollar's hegemony, while the stablecoin pegged to the Hong Kong dollar may be a way for the internationalization of the Renminbi.

JD issued digital stablecoins in Hong Kong, which is China's proactive exploration in the field of digital currency. This report will analyze the background, progress, technical implementation, impact, and related policy environment of the JD stablecoin project.

Current Progress

JD Coin Chain Technology ( Hong Kong ) Limited is actively promoting the pilot of the Hong Kong dollar stablecoin, aiming to enhance cross-border payment capabilities. In July 2024, JD was selected as one of the first participants in the "stablecoin issuer sandbox" by the Hong Kong Monetary Authority. Currently, the second phase of testing is underway, focusing on cross-border payments, investment trading, and retail consumption scenarios.

JD.com maintains close communication with Hong Kong regulatory authorities and collaborates with regulators in other regions around the world. The project is in the late stage of sandbox testing and is expected to launch in the market once the license is officially issued by Hong Kong.

Timeline:

• By the end of 2023: Hong Kong establishes a stablecoin regulatory framework
• July 2024: JD.com enters the sandbox pilot
• May 2025: The Hong Kong Legislative Council passes the "Stablecoin Ordinance"
• Mid 2025: JD's stablecoin completes multiple rounds of testing, issuance imminent.

Strategic Significance

To Jingdong:

• As a global business payment infrastructure, addressing the pain points of cross-border settlement
• Bring resources and benefits to the fintech sector
• Consolidate the positioning of technology-driven service enterprises and expand the landscape of financial technology.

To Hong Kong:

• Consolidate the status of the international financial center
• Attract well-known companies to participate and drive attention in the capital market
• Mastering the discourse power in the formulation of international rules

To mainland China:

• Provide samples to observe the benefits of stablecoins in trade settlement and payment.
• Force reflection on how to integrate into the digital financial system under the premise of safety and controllability.
• May affect the cross-border application of the digital yuan

Technical Implementation

Technical Architecture:

• Digital tokens based on public chains
• 1:1 pegged to the Hong Kong dollar
• 100% full reserve

Reserve Custody:

• Composition of high liquidity assets
• Stored in independent accounts at licensed financial institutions
• Regularly disclose reports

Cross-border payment mechanism:

• Utilize blockchain peer-to-peer transmission to achieve near real-time arrival
• Reduce cross-border remittance fees and exchange rate costs

Smart Contract:

• Integrate automated payment and financial innovation features
• Supports compliance features such as blacklisting and freezing.

Profit Model

1. Seigniorage and interest margin income:

   • Invest reserve funds in low-risk assets to earn interest

2. Trading and Exchange Fees:

   • Charge fees for issuance, redemption, or large transfers

3. Cross-border settlement value-added services:

   • Provide services such as exchange, wallet custody, and payment gateway.

4. Supply Chain Finance:

   • Provide financing, factoring, and other services for upstream and downstream suppliers.

5. Ecological Effects:

   • Enhance user stickiness and retention rate
   • Promote data accumulation, feedback to risk control and marketing

Hong Kong Policy Environment

Key points of the "Stablecoin Regulations":

• Establishing a licensing system, implemented by the Monetary Authority.
• Reserve asset management requirements
• Redemption obligation
• Risk and compliance requirements

Sandbox policy:

• Launch of "stablecoin issuer sandbox" in March 2024
• Allow testing of technical and operational solutions
• Provide a basis for the formulation of regulatory details

Latest Updates:

• Regulations effective May 2025
• The Monetary Authority has released a detailed regulatory guidance consultation document.
• The first batch of stablecoin issuance licenses is expected to be issued within the year.

International Comparison

United States:

• The GENIUS Act establishes a unified regulatory framework across the United States.
• Market dominance, USDT and USDC account for 90% of the global market value
• Payment giants like PayPal are entering the game.

EU:

• The MiCA regulation comprehensively regulates stablecoin supervision.
• Special rules for important stablecoins
• Traditional financial institutions are starting to position themselves.

Singapore:

• Clarify single currency stablecoin standards
• License issued under the framework of the Payment Services Act
• Explore CBDC and cross-border payment interoperability

Industry Giants Dynamics

PayPal:

• Launch PYUSD stablecoin
• Integrated into wallet applications, supporting low-cost cross-border transfers.
• Provide coin holding reward incentives

Stripe:

• Integrate payments with stablecoins like USDC
• Launch stablecoin payment account
• Acquiring Bridge Company to layout the future

Adyen:

• From observation to preparation
• Upgrade payment gateway supports stablecoin settlements
• Explore cross-border settlement of stablecoins in cooperation with Visa and others.

Conclusion

The development of digital stablecoins has become an inevitable trend. With clearer regulations in various countries, stablecoins are ushering in new development opportunities. Whether JD can leverage Hong Kong's stablecoin to reach new heights, or if new challengers will emerge, remains to be seen.