ZhongAn Online

ZhongAn Online's cryptocurrency business focuses on compliant financial channels and stablecoin ecosystem infrastructure, building a complete closed loop through its subsidiary ZhongAn Bank (ZA Bank, holding 43.43%) and indirectly holding stablecoin issuer Yuan Coin Technology (RD InnoTech, holding 8.7%):

1. Stablecoin Reserve Bank Services

• • ZA Bank is the first licensed bank in Hong Kong to provide fiat currency reserve custody services for stablecoin issuers, holding Hong Kong dollar deposits for issuers (such as Circle) to ensure a 1:1 peg.
• • Collaborating with the first batch of institutions in the Hong Kong Monetary Authority's stablecoin sandbox (Yuan Coin Technology, JD Coin Chain) to provide underlying clearing support for the compliant stablecoin HKDR, which is set to be launched by the end of 2025.

2. Web3 Enterprise Banking Services

• • Providing fiat-crypto clearing and settlement, account management, and cross-border payment services for over 200 Web3 enterprises (including licensed exchanges such as HashKey, OSL, etc.).
• • Covering clients across the entire industry chain: custodians, market makers, fund companies, and virtual asset trading platforms (VATP), forming a B-end ecological network.

3. Retail Cryptocurrency Trading

• • In December 2024, cryptocurrency trading services aimed at Hong Kong residents will be launched (supporting mainstream currencies such as BTC / ETH), with the number of users exceeding 850,000 (including over 100,000 mainland visitors to Hong Kong), and revenue growth exceeding 50%.

4. Indirect Participation in Stablecoin Issuance

• • Through ZhongAn Digital Asset Group holding 8.7% of Yuan Coin Technology, the latter plans to issue the Hong Kong dollar stablecoin HKDR, entering the $250 billion stablecoin market.

The crypto profits of ZhongAn Online mainly rely on the interest rate spread from banking services and transaction circulation sharing:

1. Stablecoin Reserve Interest Rate Yield

• • The fiat reserves of the custodial issuer (such as the Hong Kong dollar deposits of Yuan Coin Technology) are used to obtain funds at a low cost and invest in high-yield assets (such as U.S. Treasury bonds), achieving a net interest margin of 2.41% (above the average of the Hong Kong banking industry).
• • It is expected that after the circulation of HKDR, ZA Bank will bring in an incremental deposit of tens of billions of Hong Kong dollars, and the annual interest income could increase by tens of millions of dollars.

2. Transaction and Settlement Fees

• • Cryptocurrency retail trading charges a 0.1% - 0.5% transaction fee (referencing the industry average);
• • Web3 companies' cross-border payment clearing and settlement fees (such as stablecoin minting/redeeming, fiat currency deposits and withdrawals) have not disclosed their rates but contribute to non-interest income.

3. Ecological Collaborative Value

• • Attract Web3 enterprises to open accounts and deposit funds, feeding back into the bank's deposit and loan business, in 2024 ZA Bank's net income increased by 52.6% to 548 million Hong Kong dollars;
• • Insurance business and crypto banking collaboration: Providing customized products such as asset custody insurance and transaction security insurance for crypto institutions.

(1) The core value of the cryptocurrency market

• Promote the compliance of stablecoins: As the first reserve bank, provide a fiat-backed trust foundation for Hong Kong stablecoins, challenging the monopoly position of USDT/ USDC;
• Lower the entry threshold for institutions: Address the pain point of "difficulty in opening bank accounts" for Web3 enterprises, and promote the compliant flow of funds (such as fiat currency inflows and outflows for funds);
• Connecting traditional finance with the crypto ecosystem: Establishing a Hong Kong dollar-stablecoin-cryptocurrency exchange channel through ZA Bank to enhance Hong Kong's status as a crypto hub. (2) Strategic significance for ZhongAn itself
• Profit structure upgrade: The cryptocurrency business drives ZA Bank to achieve monthly profitability in July 2024 (the first digital bank in Hong Kong), with net interest margin expanding to 2.41%;
• Valuation re-evaluation catalyst: DBS Bank gives ZA Bank a separate valuation of $2 billion (accounting for 39% of the market value of Zhong'an), with the cryptocurrency layout becoming the core of the valuation premium.

1. Stablecoin (with HKDR as the core)

• Mechanism: ZA Bank's reserve custody grants HKDR high credit endorsement. If promoted by the Hong Kong government (such as utility payments), it may divert USDT's market share in Asia;
• Current association: Yuan Coin Technology plans to issue HKDR by the end of 2025, with the initial scale undisclosed, but referencing the status of the Hong Kong stablecoin sandbox, the potential circulation could reach the level of 1 billion Hong Kong dollars.

2. Bitcoin ( BTC ) / Ethereum ( ETH )

• Mechanism: Retail trading services directly enhance BTC / ETH liquidity, with mainland visitors to Hong Kong (accounting for 12% of users) becoming an incremental source; Web3 enterprise services promote institutional capital (such as funds) allocation to mainstream cryptocurrencies, reducing market volatility.
• Indirect impact: Stablecoin liquidation relies on public chains such as ETH. If HKDR chooses to issue on Ethereum, it will increase the on-chain demand for ETH.

3. Hong Kong Local Crypto Ecological Tokens

• Positive for tokens of cooperative trading platforms such as HashKey (HSK) and OSL, as the clearing and settlement services enhance their capital efficiency.