Conversation with Xiao Feng: Cool-Headed Thoughts on Hong Kong Stablecoins

Summary

• The most important pricing variables for Hong Kong stablecoins are not the August 1 “gate opening,” but license scarcity and unexpectedly strict AML requirements. Xiao Feng believes the market is “a little too hot”: the law taking effect does not mean applications open immediately, and of the dozens or even hundreds of institutions rumored to be interested, only a handful may be allowed to apply. Hong Kong regulators’ core concern is AML and the resulting implications for the city’s reputation as an international financial center; circulation after minting that bypasses bank accounts and SWIFT could instead trigger regulation “stricter than anyone imagines.”
• Xiao Feng’s projected path for China to readmit Crypto may be stablecoins → public blockchains → RWA → Bitcoin, but this is a policy projection, not an established fact. After Hong Kong passed its Stablecoins Ordinance on May 21, he saw two areas of consensus across several Beijing seminars: China cannot continue ignoring the global compliance wave and must respond; the debate has shifted from whether to fight to how to fight—“whether to fight the Huaihai Campaign is already settled.” But concerns that sanctioned countries’ trade could be facilitated, along with pyramid schemes and fraud spreading on the mainland under the banner of stablecoins, could significantly slow that path.
• The biggest bottleneck for physical RWA today is not the chain, but the inability to continuously prove a one-to-one anchor between off-chain assets and on-chain Digital Twins. Xiao Feng divides RWA into fiat-money tokenization beginning in 2014, financial-asset tokenization beginning in 2024, and physical-asset tokenization, which has yet to mature; DePIN remains a “premature baby,” and the oracle problem may take a long time to solve. A workable transition is to financialize physical assets first: for example, have licensed institutions issue funds or ETFs backed by four-nines gold, have reputable banks inspect and custody it, and mint tokens only on the basis of custody instructions.
• The real bet behind stablecoins and RWA is new financial-market infrastructure, not issuing one more type of coin or repackaging old assets. Distributed public ledgers turn central registration, custody, trading, and settlement into peer-to-peer, transaction-by-transaction delivery-versus-payment, enabling settlement in seconds, near-zero fees, and 24/7 operation; traditional net settlement must shut down to reconcile the books, and the NYSE’s proposed 5+23-hour schedule rather than 24 hours is a textbook example of the institutional difference. In Xiao Feng’s view, a system with “higher efficiency, lower cost, and fewer links” will inevitably replace the old system given enough time.
• For at least the next 3 years, stablecoins’ main use case will remain as a unit of account and medium of exchange for on-chain assets, not everyday payments. Xiao Feng says “99% of existing dollar stablecoins are not used for payments, but for trading,” with payment volume of about $73.2B in 2024; stablecoins are “stable” first and foremost relative to the volatility of Bitcoin and other Crypto, rather than simply by staying pegged to the dollar. Payments still have real value: Filipino domestic workers sending HK$1,000-2,000 home once waited 15 days and paid 7%-10%, while stablecoins settle in a few dozen seconds.
• Anonymity on-chain does not mean AML is impossible; address histories may even be more effective than cross-border identity investigations. HashKey can trace a token from its creation and identify every wallet it has entered, while industry firms continuously label blacklisted and clean addresses; if an asset has ever passed through a blacklisted address, it can be rejected. Traditional finance faces judicial procedures, data-sharing constraints, and GDPR once a transaction crosses 2 or 3 jurisdictions. Xiao Feng says that after understanding the mechanism, many traditional finance professionals agree it may be the more effective solution available today.
• Digital-twin assets will shift exchange value from “offshore flow” toward “onshore compliance,” and are a necessary condition for the market to grow from $3T to $30T. HashKey’s offshore platform registers customers faster, but the transaction volume, commissions, and other value generated by an onshore exchange are about 10 times those of an offshore exchange; brokers are better suited to upgrading their brokerage licenses and routing orders to independent exchanges, sharing the cost of expensive liquidity pools. Xiao Feng sees US legislation this year as the key to Crypto’s second growth curve and expects traditional financial capital to accelerate materially into the market next year once US laws pass.

Deep dive

1. Hong Kong Stablecoins Face Cold Regulation First, Not a Flood of Licenses

• When the episode was recorded on July 25, just 1 week remained before the Stablecoins Ordinance took effect on August 1. Every other table in the café seemed to be discussing stablecoins, yet Xiao Feng’s view was that the market was “a little too hot,” with a huge gap between street-level excitement and the regulators’ stance.
• HKMA officials repeatedly warned the industry that Hong Kong would not issue many licenses and that initial issuance would be highly cautious; August 1 marked only the law’s effective date. It did not mean companies could apply that day, much less that “everyone and everything could suddenly rise together,” as market talk suggested.
• Regulators care most about applicants’ financial-risk-management backgrounds and AML capabilities. Once minted, stablecoins can move outside bank accounts and SWIFT, while existing tools for continuous supervision are limited; if that causes other financial centers to question Hong Kong, it would directly damage the city’s most prized reputation as an international financial center.

2. Hong Kong Went from “Impossible to Regulate” to Licensed Compliance—Common Law Explains the Turn

• HashKey was founded in Hong Kong at the end of 2018. In 2019, Xiao Feng applied to the SFC for a Crypto-exchange license and was told: “You don’t need a license, and it’s not illegal. Turn left when you leave and you can open one.” The reason was that under common law, anything not prohibited is permitted, while regulators operate under the opposite principle: anything not authorized is prohibited.
• At the time, the SFC could not regulate exchanges under securities law, but the police Commercial Crime Bureau could still investigate fraud, because even if Crypto was merely a commodity, consumer protection was involved. In 2022, the HKMA likewise told Xiao Feng that issuing stablecoins was not illegal, but that the authorities had no power to regulate it. The practical bottleneck was that no Hong Kong bank was willing to provide fiat on- and off-ramps.
• Xiao Feng does not deny that compliance in Hong Kong is expensive, but he sees that cost as the ticket for the industry to grow up. Finance has strong externalities; a market that claims it could eventually reach $10T, tens of trillions, or even $100T cannot refuse investor and consumer protection and still expect mainstream acceptance.

3. China’s Possible Path Runs from Stablecoins to Public Chains, RWA, and Then Bitcoin

• Since 2017, Xiao Feng had kept asking where the mainland might begin accepting Crypto again. Only after Hong Kong passed its ordinance on May 21 and the US “GENIUS Act” advanced did he reach an answer, following roughly 1.5 months of internal seminars in Beijing: “The mainland will begin accepting the whole of Crypto by accepting stablecoins.”
• He observed 2 gradual areas of consensus: China cannot continue ignoring the global legislative wave around Crypto, stablecoins, and Blockchain, and it must respond. Friends in Beijing put it this way: “Whether to fight the Huaihai Campaign is already settled; what remains unresolved is how to fight it, whether on a small or large scale, and which army to annihilate first.”
• His conditional projection is that accepting stablecoins would require accepting public blockchains in order to gain global competitiveness; the next step could be RWA, which supports the real economy and is more readily accepted by policymakers, followed only later by the possibility of “accepting Bitcoin.” Hong Jun summarized this as monetary competition forcing policy to accept the least-Crypto product first, then gradually open the boundaries around technology and assets.
• The obstacles are concrete. Overseas institutions worry that offshore RMB stablecoins could bypass banks and SWIFT and facilitate oil trade with Russia, Iran, and Venezuela; several mainland provinces have already seen early signs of pyramid schemes and fraud using stablecoins. Xiao Feng warned against “adding fuel to the fire,” or China could repeat its crackdown on the internet-finance order and significantly delay policy opening.

4. The Hard Barrier for Physical RWA Is Not Issuance, but the Oracle

• Xiao Feng divides asset tokenization into 3 stages: USDT initiated fiat-money tokenization in 2014; from 2024 onward, BlackRock, Fidelity, and Franklin Templeton put financial assets such as dollar bond and money-market funds on-chain; the hardest third stage is the physical-asset tokenization now attracting market attention.
• Physical RWA has not solved the problem of maintaining a permanent one-to-one correspondence between off-chain assets and on-chain Digital Twins. Whether an asset continues to exist and whether it remains matched one-for-one with a token cannot be proven merely by minting. DePIN could become part of the solution, but Xiao Feng calls it a “premature baby,” just as the Internet of Things has spent 20 years without finding an independent business model.
• Xiao Feng’s proposed path for gold is not for miners to issue Tokens directly against “8 or 10 tons of annual production,” but first to meet four-nines financial standards. A licensed institution would issue a gold fund or ETF; a reputable bank would then inspect, warehouse, and custody the gold, with tokens minted on-chain only after the bank’s confirmation.
• Liu Feng’s challenge was that this type of RWA does not create a new asset; it merely moves the financial ledger onto a chain. Xiao Feng agreed. The core value is precisely the new trading, clearing, and settlement system enabled by blockchain’s “real-time settlement and real-time consensus,” not “issuing coins and assets.”

5. Blockchain Changes Bookkeeping First, Then Finance

• Xiao Feng explains the technological foundation through the history of bookkeeping. Sumerian clay tablets from 3500 BC recorded only receipts and payments; around 1300, Florence and Venice began using double-entry bookkeeping to record assets and liabilities simultaneously. Paper, mathematics, and Arabic numerals supplied the tools, while complex maritime trade supplied the demand.
• The borrowing, ship rental, long voyages, and “one pound of flesh” contract in The Merchant of Venice are his chosen snapshot of the era. Cross-cycle trade required businesses to distinguish operating, investing, and financing cash flows; a simple ledger could no longer contain economic activity.
• Bitcoin’s mainnet launch in 2009 introduced distributed bookkeeping. Asymmetric cryptography, the internet, distributed databases, and smart contracts made the technology mature; the digital economy’s movement across time, space, organizations, entities, and jurisdictions also forced a “parallel universe” to seek a ledger independent of any single nation’s currency, accounting standards, or legal system.
• For a private ledger to win trust, society must deploy accounting law, criminal law, lawyers, accountants, police, courts, and even prisons. The cost is enormous, yet “almost no company’s books are 100% true.” Crypto’s native ideology challenges that system, but Xiao Feng also rejects the idea that 99% of people can live in an anarchist utopia.

6. Transaction-by-Transaction Settlement Makes 24/7 Operation an Institutional Advantage

• For Xiao Feng, the first-principles definition of a distributed ledger is “a transparent global public ledger.” Because both parties record transactions in the same ledger and share consensus, the system can move from central registration, central custody, central counterparties, and central clearing to peer-to-peer trading.
• Traditional stock trading requires coordination among at least brokers, exchanges, cash settlement, and share clearing intermediaries; a public ledger compresses the outcome into settlement in seconds at near-zero cost. Xiao Feng’s strong view is that if a system with higher efficiency, lower cost, and fewer links cannot replace the old system, that would “violate the laws of business.”
• The deeper difference lies in settlement. Traditional finance performs net settlement at a cutoff time, while Crypto settles each transaction individually on a delivery-versus-payment basis, enabling 24/7 operation. The NYSE’s proposal for 5+23 hours rather than 24 exists because the old system still needs 1 hour of downtime to reconcile the books.

7. Hong Kong’s Crypto Regulation Is Organized Around AML

• Xiao Feng says the global AML body first brought Crypto into global rules around 2021 or 2022. Hong Kong then amended its Anti-Money Laundering Ordinance around 2022 and 2023, adding gold to the AML framework alongside Crypto and assigning the relevant responsibility to the SFC.
• This created a dual-license structure for trading platforms: one is the Type 7 ATS license under securities law, and the other is the VATP license under AML law. Xiao Feng notes that the VATP license officially took effect on July 1 last year, while many exchanges announced they were shutting their Hong Kong businesses on June 1.
• The division of authority also reshaped over-the-counter conversion. In the past, MSO licenses issued by Hong Kong Customs allowed operators to exchange dollars and Hong Kong dollars, after which they naturally expanded into USDT. Customs worried about money laundering and tried to impose additional requirements, but its authority was constrained because statutory AML responsibility for Crypto sat with the SFC.
• Under the consultation proposal described in the episode, released in May 2025, Crypto-related MSO business would be restructured into a VAOTC license and placed entirely under SFC review and supervision. Xiao Feng used this to stress that an AML law is not simply an additional standalone license; it rearranges the regulatory boundaries of Hong Kong’s entire Crypto industry.

8. On-Chain Address Tracking May Be More Effective Than Cross-Border Identity-Based AML

• Traditional finance relies on identity-based KYC and therefore views on-chain anonymity as incompatible with AML. Xiao Feng’s rebuttal is that once an identity investigation crosses 2 or 3 countries, it becomes trapped in judicial requests, institutional non-cooperation, and data-protection restrictions such as GDPR—“highly inefficient and extremely expensive.”
• Crypto AML tracks the asset’s path. HashKey can trace a token from the day it was created and identify every wallet it has entered; specialist firms continuously label addresses as black or clean. If an asset has ever reached a blacklisted address, a platform can determine that money laundering may be involved and refuse to accept it.
• This is not a lower standard created for Crypto, but a different technology for achieving the same financial AML objective. Xiao Feng says that after understanding address tracking, many traditional-finance professionals instead believe it “works better” than cross-border identity investigations and is the most workable solution available today.

9. Stablecoins’ User Value Is Crossing the Bank-Account Barrier

• Xiao Feng calls stablecoins “the last mile of financial inclusion.” In places where dollars are scarce, banks refuse to open accounts, or dollars cannot be exchanged, users need only a mobile wallet and an exchange point to hold USDT and gain immediate access to global payments.
• Against the backdrop of Africa as the largest user base, he cites Nigeria: the country has more than 200M people, and roughly 30%-40% hold dollar stablecoins, many without bank accounts. If financial institutions do not accept these people in the first place, then lecturing them about financial inclusion is “rather hypocritical, isn’t it?”
• Filipino domestic workers in Hong Kong send HK$1,000-2,000 each month to their parents in rural areas. Existing systems take 15 days and charge 7%-10%; stablecoins arrive in a few dozen seconds without that fee. On the supply side, Xiao Feng draws a sharp distinction: those who began preparing 3 or 4 years ago may see the long-term opportunity, while most of those rushing in “this month” are simply speculators.

10. The Short- to Medium-Term Main Battleground Is Trading, Not Payments

• Asked who would use Hong Kong-dollar or offshore RMB stablecoins, Xiao Feng says the question is framed incorrectly as a payments competition. About 99% of existing dollar stablecoins are used for trading between Crypto assets and stablecoins; payment volume was about $73.2B in 2024 and is not the current main event.
• Stablecoins will primarily become the unit of account for the digital world and the trading medium for Crypto and, eventually, RWA; Hong Kong-dollar and offshore RMB stablecoins will follow the same path. Payments are a secondary use case, and Xiao Feng believes “for at least 3 years, it will not be a major one.”
• “A stablecoin is stable relative to Bitcoin’s volatility, not relative to the dollar.” USDT was created in 2014 because the market needed a way to price and trade highly volatile Crypto; when 1 Bitcoin is worth $120,000, the on-chain reality is often 120,000 USDT.
• Liu Feng added a forgotten piece of history: USDT was not popular in its first several years. Crypto was long priced directly in dollars or RMB, and RMB once had an important international use case. Only after China halted fiat trading did stablecoins inherit that space; now the market is again discussing whether to let stablecoins return.

11. Permissioned Consortium Chains Without Tokens Struggle to Become Global Networks

• From late 2014 to early 2015, a report from the UK Government Office for Science represented a wave of thinking that “blockchain is good, coins are bad,” and organizations such as R3 and Hyperledger developed along those lines. Xiao Feng’s retrospective conclusion is blunt: “Consortium chains don’t work. The essence of a chain is that it comes with its own Token.”
• The key to public-chain growth is permissionlessness. A Bitcoin miner only needs to buy a mining machine and find electricity and a network; joining and leaving are self-determined. If users must apply, authenticate, and obtain approval one by one, an ostensibly open consortium chain merely reproduces traditional KYC costs, and it may be harder for banks to find customers on-chain than offline.
• He compares blockchain’s underlying protocols to IP, TCP, HTTP, and SMTP: only something open-source, open, free, and permissionless can become a global standard. In the ideal state, there may be only a handful of base chains such as Bitcoin and Ethereum; the more chains there are, the higher the cost of cross-chain connectivity and interoperability, and the larger the accident surface.

12. Brokers Need Shared Liquidity, and Digital Twins Need Onshore Exchanges

• Traditional Hong Kong brokers usually apply not for standalone Crypto exchanges, but to upgrade their existing brokerage licenses so they can buy and sell Crypto for clients alongside stocks. Orders are then routed to independent third-party exchanges such as HashKey, preventing brokers from locking liquidity inside competitors’ venues.
• Xiao Feng believes a single broker building its own exchange is almost certain to be unprofitable: other brokers will not send it orders, building a liquidity pool is extremely expensive, and there is not enough trading volume to amortize the cost. Having roughly 40 brokers share 1 pool is the only way to improve both depth and unit costs.
• HashKey’s offshore platform registers customers faster, but the transaction volume, commissions, and other value generated by an onshore exchange are about 10 times those of an offshore exchange. Xiao Feng acknowledges that the compliant route is brutally competitive, but says it was a deliberate choice made in 2018 rather than a missed offshore opportunity.
• His industry framework is that digital-native assets create offshore exchanges, while digital twins will create onshore exchanges; the latter must be licensed if tokenized assets are to grow from $3T to $30T. At the same time, Bitcoin and ETH are moving from On-chain to Off-chain through ETFs, while BlackRock funds and future stocks are moving from Off-chain to On-chain.

13. Hong Kong’s Trump Card in the Digital-Asset Race Remains China and Common Law

• Xiao Feng believes the key variable in Hong Kong becoming a global Crypto center is not the local market but China. Roughly half of the world’s top 20 internet platforms are in the US and half in China; competition among AI foundation models is likewise concentrated between the US and China. From what he has heard, 40%-50% of the staff at any US foundation-model team are Chinese, mainly first-generation Chinese students who went to the US to study.
• The Crypto application layer is also driven mainly by the US, China, and Chinese communities, while Europe’s participation is limited. Hong Kong combines “one country, two systems” with common law and retains, outside the civil-law system, the space where anything not prohibited is permitted. That makes it more likely to represent China in testing new financial infrastructure.
• The first major force behind the recovery in capital markets was what he jokingly calls “DeepSeek saving China”: the same asset might trade at 8x PE in a pessimistic mood, then at 80x PE once investors again believe in its AI capabilities. The second force was Trump turning traditional alliances into transactional relationships, prompting capital to reduce its single-country US allocation and causing some ethnic Chinese investors to worry that their assets could be frozen.
• Xiao Feng also cites Switzerland’s damaged neutrality after the Russia-Ukraine war and the return of some Middle Eastern capital from London as rebalancing forces, with Hong Kong and Dubai among the beneficiaries. Singapore positions itself as “Asia’s Switzerland,” emphasizing social stability and a calm market; Hong Kong is “Asia’s Wall Street” and must offer active assets, investment, and trading opportunities.

14. US Legislation Will Determine the Second Growth Curve; Centralization Must Be Viewed in Layers

• Traditional finance in Hong Kong still has a low rate of Crypto adoption, but Xiao Feng sees it rising steadily. Banks and asset managers earn management fees; they will not chase high returns by “earning cabbage money while taking on heroin-level risk.” Once legal backing reduces institutions’ liability risk, traditional capital may enter at scale.
• He sees US legislation as the key to whether the industry can achieve a second growth curve and expects growth to enter an explosive phase next year once all US laws pass this year: “US legislation is global legislation.” Other jurisdictions will follow, and China will also be pushed to reform. Hong Jun added that Hong Kong, with decades of experience operating an international financial center, will follow very closely.
• Offshore space will be compressed by law, regulation, and asset resources, because securities regulators will not allow RWA to trade indefinitely on platforms that are completely unregulated. Xiao Feng also believes digital-native supply will contract: “This world really does not need hundreds of chains.”
• Asked whether public-chain native ideology conflicts with government regulation, he resolves the issue through layers. The base protocol must be decentralized, while the application layer must necessarily be centralized when dealing with specific users and consumer protection; economically, this is also a trade-off between fairness and efficiency. Commercial applications usually land somewhere around 30/70 or 70/30, just as the book Moving Forward in Paradox puts it: “It is always a paradox.”

15. HashKey’s Compliance and Its Ethereum Bet Both Come from a Long-Term Infrastructure Thesis

• HashKey set its sights on becoming a public company from the moment it established itself in Hong Kong in 2018, and has therefore maintained compliance to listing standards over the long term. Xiao Feng says the group is among the few Crypto institutions globally that can immediately provide continuous audit reports from a Big Four accounting firm for more than 3 years; Hong Kong is also its chosen market for pursuing an IPO.
• The route goes back to his research in 2013 and visits to New York and Silicon Valley in 2014, after which he concluded that blockchain “really could reconstruct the financial industry.” Ethereum’s mainnet had not yet launched, but he found Vitalik’s logic both correct and worth supporting through difficult periods.
• In 2015, Shen Bo relayed that the Ethereum community had spent an entire night in a meeting and still lacked development funding. Xiao Feng said directly from his office, “I can support it,” committing $500,000 that year and continued support the next; there was no DD and no calculation of investment returns. The starting point was not a standard financial investment.
• In 2016, the Ethereum Foundation said it was no longer short of money, but Xiao Feng still honored his second-year commitment by covering the roughly $500,000 cost of the Shanghai DevCon. Advertising and ticket revenue went to the foundation. More than 800 people attended, about 90% of them foreigners; that moment confirmed for him that China had once genuinely been one of the centers of the global blockchain world.