SHANGHAI, July 10 (Reuters) - An industry body in China

warned against illegal fundraising risks involving stablecoins

amid a market frenzy over cryptocurrencies and digital assets.

The Beijing Internet Finance Association said in a statement

late on Wednesday that some unscrupulous institutions and

individuals have been luring investors into stablecoin and other

crypto schemes that promise high returns under the guise of

financial innovation.

"High returns and high risks go hand in hand," the

association said, urging investors to be vigilant and to stay

away from unauthorised crypto projects.

Stablecoins are digital tokens pegged to liquid assets such

as the U.S. dollar and have the potential to disrupt traditional

payment systems, according to some analysts.

China's Hong Kong, the United States and some other regions

and countries are racing each other to set up regulatory

frameworks for stablecoins, competing for a greater reach in

global digital finance and trade.

Reflecting rapidly growing investor interest, an index

tracking stablecoin concept stocks in China has surged 88% over

the past three months, while a gauge of stablecoin-related

shares in Hong Kong has more than doubled.

The Beijing Internet Finance Association said some

investment schemes are attracting investors with buzzwords such

as "stablecoins", "decentralized finance (DeFi)", and "Web 3.0",

paying early investors with money taken from new joiners as in

traditional Ponzi schemes.

"These activities can easily evolve into crimes such as

illegal fundraising, financial fraud, pyramid schemes, and money

laundering, which would severely disrupt economic and financial

order, and endanger public interest and social trust," the

association said.

China banned crypto trading in 2021 due to concerns over

financial stability.

Chinese tech giants JD.com ( JD ) and Ant Group

have said they would apply to issue stablecoins in

Hong Kong, where stablecoin legislation is scheduled to take

effect on August 1 as part of the city's push to become a

digital asset hub.