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Web3 Lawyer's Full Interpretation of the Stablecoin Regulations: From Regulatory Framework to Market Significance, How is Hong Kong Doing It?
Written by: encryption salad
2025 can be described as the first year of stablecoins. On 21 May, Hong Kong completed the second and third readings of the Stablecoin Bill, which was formally passed by the Legislative Council, and then promulgated the Stablecoin Ordinance (the "Ordinance") on 29 May 2025 and announced that it will come into effect on 1 August. The incident sparked a craze inside and outside the circle, and the crypto salad also received a lot of related inquiries. We found that there is a general concern about what practical benefits this bill will bring and what impact it will have on the Web3 community; I also hope to understand whether it is necessary for me, as a participant in the upstream and downstream of the industrial chain, to devote myself to the construction of stablecoins, and from what angles I should try to cut in; If I intend to issue compliant stablecoins as a licensed institution, how should I apply for the relevant licenses......
Prior to this, Crypto Salad has given a detailed interpretation of the definition, characteristics, and role of stablecoins, as detailed in "Web3 Lawyer Interpretation: Are Stablecoins Necessarily Stable?" Why are stablecoins important? 》； At the same time, the regulatory focus of stablecoins is also discussed, and the regulatory frameworks of stablecoins in the United States and Hong Kong are compared in depth. What are the differences between the regulatory frameworks for stablecoins in the US and Hong Kong? 》。
In this article, the encryption salad will no longer elaborate on the connotation and value of stablecoins themselves, but will focus on the new "Regulations" in Hong Kong, providing a more detailed overview to explore the answers to the following questions:
What are the minimum requirements to apply for a stablecoin license?
What can you do with a stablecoin license?
What are the specific provisions for reserve asset management and redemption mechanisms?
What impact do stablecoins have on cross-border payments with the Chinese Yuan?
What does the "Regulation" actually mean for the industry? Is there going to be a major change in the financial market landscape in Hong Kong?
......
Interpretation of the Regulatory Framework for Stablecoin Ordinance in Hong Kong
Which stablecoin is regulated in Hong Kong?
The essence of stablecoins is a type of encryption asset that achieves price stability through specific mechanisms, such as anchoring to reserve assets. The regulations provide a clear definition of stablecoins: a stablecoin is a digitally protected form of value that possesses the following characteristics:
Its value is expressed as a unit of computation or a form of economic storage;
for payment, debt settlement, or investment;
can be transferred, stored or traded electronically;
run on a distributed account or similar technical basis;
Its value is superficially anchored to a certain asset or asset portfolio.
At the same time, the Ordinance specifically excludes some forms of digital value that are not within its regulatory scope, such as digital currencies issued by central banks and relevant banks, points systems as limited-use tokens, assets that are considered securities or futures contracts (e.g. security tokens), stored amounts regulated under the Payment Systems and Stored Value Facilities Ordinance, and traditional bank deposits.
However, the Ordinance does not regulate all stablecoins, and it restricts the scope of regulation to "specified stablecoins" operating in Hong Kong. A specified stablecoin is a term unique to the Hong Kong Government that, as defined in section 4 of the Ordinance, means a stablecoin that makes full reference to one or more official currencies, units of calculation or forms of storage of economic value specified in the HKMA's announcement, or a combination of the above, in order to maintain its stable value. In fact, it is commonly known as a fiat currency pegged stablecoin (hereinafter referred to as "fiat currency stablecoin").
It can be seen that the Hong Kong government has chosen to focus on the payment function, because fiat currency stablecoins are the most likely to be used as "quasi-currency" in the financial trading market due to their high collateral ratio with fiat currencies, high value stability and low degree of decentralization. When stablecoins become a common payment tool and expand the scale of use, once a run or de-anchoring occurs, it will inevitably affect the entire financial ecosystem, so the demand and requirements for stablecoin regulation are very high. In addition, the Ordinance expressly restricts licensees from paying interest on specified stablecoins issued by them, thereby reducing the inevitability of them being regarded as savings financial products. Other stablecoins that are not stable enough for payment purposes, such as algorithmic stablecoins, are also excluded from the first round of regulation.
With the passage of the Ordinance, anyone who conducts or represents himself or herself to carry out regulated stablecoin activities will be required to hold a license. One of the core regulatory aspects of the Ordinance is to define what constitutes "regulated stablecoin activity", which sets out the scope of restricted activities at this stage in section 5:
issuance of specified stablecoins in Hong Kong;
Issuing designated stablecoins pegged to the Hong Kong dollar in regions outside of Hong Kong (regardless of the reference ratio);
The Monetary Authority, in consultation with the Financial Secretary, announces the activities specified;
Actively promote oneself to the public to engage in or appear to engage in the above activities.
In addition, Part 2 of the Regulations also details other regulatory areas for specified stablecoins:
Offers or displays an offer indicating stablecoins:
Advertise regulated stablecoin activities and the aforementioned offers;
Refers to trading in stablecoins or to entice others to enter into agreements aimed at acquiring, disposing of, subscribing to, or underwriting agreements specifying stablecoins, involving or constituting fraudulent or deceptive activities.
Overall, the Regulations focus on the issuance, distribution, and retail aspects of stablecoins. A series of restrictions on behaviors such as "offers" and "advertisements" are intended to confine stablecoins to the category of "payment tools" and prevent them from being packaged as tradable investment products. Issuers, platform operators, wallet service providers, and other roles are all included in the regulatory framework to ensure that the entire stablecoin ecosystem is regulated.
From a jurisdictional point of view, the Hong Kong government not only regulates stablecoins issued in Hong Kong, but also supervises the issuance of stablecoins pegged to the Hong Kong dollar outside Hong Kong. Even if the issuance does not take place in Hong Kong, as long as the stablecoin issued is pegged to the Hong Kong dollar, even regardless of the reference ratio, it will be regarded as having potential local financial influence and will be subject to regulation. This arrangement reflects the importance that Hong Kong attaches to monetary sovereignty and financial stability, and prevents unauthorised digital assets from misleading the public into making profits in the market in the name of "pegging to the Hong Kong dollar".
The licensing system is the core regulatory mechanism established by the Regulations. Any company that issues, manages, or distributes specified stablecoins within Hong Kong, or any recognized institution incorporated outside of Hong Kong, must submit a formal license application to the Financial Management Commissioner. The Regulations do not set up multiple different licenses, but rather, based on a unified license, additional differentiated conditions are attached upon the issuance of the license according to the specific business and risk characteristics of the applicant.
The approval process for a licence is relatively simple, with an application made directly to the Monetary Authority and waiting for the Monetary Authority to make a cut. The Monetary Authority's main focus is on whether the applicant meets the "minimum standards" set out in Schedule 2, which are as follows:
(1) Have sufficient financial resources and liquid assets.
The applicant needs to pay an amount of capital not less than 25 million Hong Kong dollars or its equivalent in other currencies; or possess other financial resources valued at no less than 25 million Hong Kong dollars, approved by the Financial Management Commissioner.
(2) Allocate corresponding reserve assets
To ensure the credibility and redemption capability of stablecoins, licensed entities must adhere to the following conditions when allocating reserve assets corresponding to stablecoins:
Asset segregation: The reserve asset portfolio is segregated from the licensee's other reserve asset portfolio, and is not affected by the licensee's own other liabilities or operating conditions. In addition, reserve assets should also be independent of the licensee's other company assets, ensuring legal and financial segregation;
Redemption guarantee: The market value of the reserve assets is not less than the total face value of the unredeemed stablecoins in the market, which is fully covered and can be redeemed at any time;
Pegged to Hong Kong dollar assets: Unless prior written approval is obtained from the Monetary Authority, reserve assets must directly reference the same reference assets pegged to the specified stablecoin;
The reserve asset portfolio must possess high quality and high liquidity, while maintaining the lowest investment risk;
Licensees must establish risk management and internal audit systems;
License holders must disclose the following information to the public:
Management policies for its reserve assets;
The risks associated with this strategy and the assessment methods;
The composition and market value of its reserve assets;
Periodic independent reviews of its reserve assets and the results of the audits.
Licensees must have a robust control system in place.
(3) Establish a redemption mechanism
Licensees are required to provide redemption rights to each holder of the specified stablecoins issued by the licensee without imposing unduly onerous conditions that restrict the redemption of the specified stablecoins. Redemptions are also not subject to fees.
(4) Fit and proper
Appropriate candidates refer to the licensed person's Chief Executive Officer, Directors, Stablecoin Managers, or Controllers. The licensed person must establish and implement sound and appropriate control systems to ensure that the Financial Management Commissioner clearly identifies each controller of the licensed person.
(5) Management requests
Management personnel must possess the corresponding professional knowledge and experience, and licensed individuals also need to manage this accordingly.
(6) Prudence and Risk Management
Licensees must establish and implement sound and appropriate risk management policies and procedures to manage the risks arising from the licensed stablecoin activities of the licensee, including: security measures and internal risk control, effective methods for detecting fraud and attempted fraud.
(7) Measures to combat money laundering and the financing of terrorism
License holders must establish and implement sound and appropriate control systems to prevent and combat any money laundering or terrorist financing related to their licensed stablecoin activities.
(8) Business Activity Requirements
Licensees must have dedicated and sufficient resources to engage in licensed stablecoin activities. Any activities outside of licensed stablecoins must obtain the consent of the financial management officer.
(9) Information disclosure requirements
Licensees are required to publish a white paper on each type of specified stablecoin issued by the licensee to provide comprehensive and transparent information on that type of specified stablecoin. Licensees are also required to provide information on the complaint-handling and compensation mechanisms of the licensees to the holders of the stablecoins they issue.
(10) Recovery Plan and Orderly Scale Down
Licensees are required to have in place and implement robust and appropriate control systems to make appropriate plans to support critical functions that enable even the resumption of stablecoin activity in the event of significant operational disruptions.
It is evident that the Hong Kong government maintains a consistent high standard and strict requirements for applicants of stablecoin licenses. For institutions intending to apply for a stablecoin license, it is important to recognize that this is not just an application process for a license, but a comprehensive test of the company's capital strength, compliance capability, and risk control system.
Once the license is obtained, the licensee must travel a series of ongoing compliance obligations, and violators may face sanctions, revocation of the license, or even criminal liability.
Main obligations include:
(1) Obligation to pay annual fees
The annual licence fee is HK$113,020 and the licensee is required to pay the initial licence fee within 14 days after receipt of the effective date set out in the written notice of approval of the application from the Monetary Authority, and the same amount is payable annually thereafter by that date.
(2) Publicly displayed license number
License holders must publicly disclose their license number on any materials related to licensed stablecoin activities, as well as on user-facing application interfaces.
(3) Continuously meet the minimum standards
Any licensee that fails to maintain the "minimum standards", or believes there is a significant possibility that they will be unable to fulfill their obligations, are insolvent, or are about to suspend payments, must promptly and proactively report to the Financial Management Commissioner and provide all relevant facts, circumstances, and information; otherwise, they may face serious criminal charges.
(4) Obligation to Report Changes in Information
Changes related to address, business nature, equity structure, etc. must be reported in a timely manner, otherwise penalties such as fines may be imposed.
It is worth mentioning that obtaining a license is not a "one-time thing". According to Article 19 of the Regulations, the Financial Commissioner can still temporarily add or modify the licensing conditions based on changes in market risks or regulatory assessment results. The licensee must provide a written statement to the Commissioner within the time limit set by the Commissioner, explaining the conditions that have been added or modified.
It can be seen that the "Regulations" have higher requirements for the financial strength of licensees, and are more suitable for enterprises with abundant funds and large assets to carry out medium and long-term layout from the strategic level. For medium-sized enterprises, if they want to invest their main resources in stablecoin issuance projects, it is recommended to fully evaluate the feasibility and sustainability before making a decision. Because it is not only necessary to pay in no less than HK$25 million of equity capital or equivalent assets as a threshold, but also to be equipped with high-quality reserve assets of equivalent value, and bear various compliance, audit and system maintenance costs in the process of stablecoin operation, the long-term investment should not be underestimated.
If the licensee no longer meets regulatory requirements, the regulations also grant the financial management commissioner considerable intervention authority:
Temporary License Suspension: If the Financial Management Commissioner believes that there are valid reasons for the revocation of a license as specified in Appendix 4, they may issue a written notice to the relevant license holder, suspending the license for no more than 6 months. During the suspension period, the license holder is prohibited from engaging in relevant business activities, and violations will result in fines and imprisonment.
Voluntary revocation of a licence: The grounds for revocation are set out in detail in Schedule 4, including bankruptcy of the licensee, false declaration of information, breach of licence conditions or substantial cessation of business activities, etc.
The "Regulations" are not merely a regulatory tool aimed at issuers and practitioners; they also establish a legal protection mechanism for the end users of stablecoins. The Hong Kong government has established several core arrangements for user protection in these "Regulations". Encryption Law outlines the two most important aspects in this article, helping users fully understand their rights and potential risks.
Strictly regulate the promotional and marketing activities of license holders.
Section 10 of the Ordinance expressly prohibits any unlicensed person from advertising to the public in relation to stablecoin activities or offers. Whether it is offline publicity, online social media marketing, or promotion through third-party platforms, it is all within the scope of regulation.
Article 12 further stipulates: Any act of inducing others to acquire specified stablecoins, if it involves false representations, concealment of risks, exaggerated returns, or other deceptive statements, will constitute a criminal offense. Even if the inducement does not ultimately lead to a transaction being completed, it may still be subject to legal accountability.
User Rights Protection Mechanism
Stablecoin holders are most concerned about the value security and redemption guarantee of stablecoins, and the Regulations have established a relatively robust protection mechanism for this point.
The Ordinance requires licensees to have sufficient reserve assets to support the value of the stablecoins they issue. These assets must be real, highly liquid, and able to be redeemed in a timely manner when a user initiates a redemption request. In addition, the issuer should have an audit mechanism in place for a qualified third party to regularly review the matching between the reserve assets and the total issuance of stablecoins to prevent the void of the fund pool or the mismatch of funds. Under normal operating conditions, licensees are not allowed to suspend payments, delay processing or impose onerous redemption thresholds without reason. In case of payment difficulties, they should be reported to the Monetary Authority immediately.
Overall, the Regulations provide systematic and in-depth provisions on the compliance framework and user protection mechanism for the stablecoin industry. For the majority of investors, the most important thing is to learn to identify licensed stablecoin issuers and rationally participate in stablecoin trading and holding. With the formal implementation of the Regulations, those marginal projects and niche stablecoins that do not meet the licensing standards will inevitably face the risk of market liquidation or even collapse, and investors should be highly vigilant and do not blindly chase high or believe in unauthorized product promotions.
7.How broad is the HKMA's supervisory authority?
From the above analysis, it is clear that the role of the Financial Management Commissioner is crucial within the regulatory framework for stablecoins in Hong Kong. This signifies that the Monetary Authority not only bears the administrative role of licensing approval but also wields extensive powers of regulation, investigation, and direct intervention. Overall, the Financial Management Commissioner possesses the authority for approval and licensing; day-to-day regulatory authority; and in cases where licensees face significant operational risks, the power to investigate directly and collect evidence.
According to Section 5 of the Regulations, the financial management commissioner may conduct investigations directly and may instruct or designate investigators to carry out a specific investigation. Investigators may request evidence, information, or explanations from the licensed persons under investigation, and they may apply to the original court.
This series of regulations indicates that the Monetary Authority has almost comprehensive regulatory authority over stablecoins, with the key having "quasi-judicial" investigative powers, which have a high deterrent and enforcement capability.
encryption salad summary:
For project parties intending to participate in the Hong Kong stablecoin market as licensed entities, the "Regulations" provide a clear framework and pathway for compliant operations, requiring only an assessment of their own capital and a clear understanding of the difficulty and ongoing expenses associated with the license application and subsequent compliance maintenance.
For most project parties who do not plan to apply for a license directly, but want to participate in the stablecoin ecosystem, cooperating with institutions that have been licensed or are applying for licenses is an ideal path to enter the market and expand their digital financial business. This type of cooperation can cover multiple levels, such as providing technical support, custody services, payment integration solutions, cross-border clearing capabilities, or building compliant wallets and transaction interfaces as ecosystem partners. In particular, enterprises in the fields of payment, Web3 infrastructure, cross-border e-commerce, and compliance custody can ensure the compliance of their business through in-depth collaboration with licensed institutions, and at the same time quickly cut into the stablecoin circulation system recognized by the regulator.
The regulations stipulate that licensed institutions must disclose licensing information through official and public channels, making it relatively easy for project parties to identify "genuine licensing" in this regard. However, choosing a reliable stablecoin licensed institution as a partner should not be limited to the superficial condition of "having a license"; it is more critical to comprehensively assess its business strength, compliance level, and collaboration potential.
For example, the security and transparency of the assets held by the licensee are crucial. The ideal partner should have a 1:1 full asset coverage and regularly publish reports audited by third parties, clearly stating the reserve currencies, custodians, and risk status. At the same time, whether there is a stable redemption mechanism is also one of the criteria for judgment. The project party should pay attention to whether it supports seamless redemption at any time to avoid future liquidity risks. Lastly, the project party should also examine the actual influence of the institution in the market, such as whether it has connected to mainstream wallets, exchanges, or payment channels, community reputation, and other factors.
What is the significance of the "Stablecoin Regulation Draft"?
The significance at the policy level
In the traditional financial system, the right to issue money, also known as the right to mint money, has always been controlled by the state. But in the age of digital currencies, that power is being challenged. Hong Kong's establishment of a stablecoin regulatory system through local law is essentially a preemption of the "digital coinage", especially the legal status of the stablecoin pegged to the Hong Kong dollar.
Although the Hong Kong government has designated stablecoins as payment tools, in the context of Web3, stablecoins are still a key link between traditional assets and crypto assets on and off the chain. The institutionalization of stablecoins is the key to driving the end-to-end closed loop of RWA. Under this system, perhaps the role of stablecoins is far more than payment and settlement: whether it can run through the whole process of asset generation, subscription, holding and circulation and exchange in the future is a question worth looking forward to. With the establishment of a compliance framework, stablecoins are expected to become the "native capital layer" of RWA, reducing dependence on traditional fiat currency systems and improving on-chain financial efficiency and transparency.
In terms of use cases, international trade remains the largest potential market for stablecoins. Real-world issues such as cross-border settlement efficiency, foreign exchange costs, and sanctions evasion are continuously increasing companies' interest in on-chain stablecoin tools. According to statistics, stablecoins experienced significant growth in 2024, with remittance volumes surpassing the combined total of Visa and Mastercard. Compliance has brought scalability and institutional participation, marking the true commercialization starting point for projects.
For native Web3 projects, the biggest impact is not being regulated, but rather being integrated into channels that can access larger-scale assets. In the current context where "on-chain liquidity" is becoming increasingly scarce, obtaining a compliant identity means being able to connect with institutional investors, RWA assets, and the traditional financial system, participating in higher quality and more explosive liquidity releases.
Does the implementation of stablecoin regulation in Hong Kong open up policy imagination space for "Renminbi stablecoin"? Although the Renminbi stablecoin is currently a sensitive topic, its long-term potential cannot be ignored. Encryption Salad believes that if suitable RWA targets (such as energy, minerals, overseas bonds, etc.) can be found in the future to provide a stable circulating medium for the Renminbi stablecoin, its usage logic will be more justified. Hong Kong may become a "policy buffer zone" between the Renminbi stablecoin and the international Web3 market.
Despite Hong Kong being the first to legislate, stablecoins still face highly complex regulatory challenges when looking at the mainland market. Due to concerns over financial sanctions and reliance on the dollar system, many enterprises already have a practical need for using "non-dollar settlement tools." However, for regulators, allowing stablecoins means facing:
The controllability of capital flow and cross-border settlement;
Pressure from foreign exchange controls and financial stability;
Control over data and financial information security issues;
How to interact and misalign with the existing system of digital renminbi;
......
Therefore, the encryption salad believes that the mainland is unlikely to replicate Hong Kong's practices in the short term, but Hong Kong's "experimental field" experience may provide a blueprint for broader digital financial strategy exploration in the future.
With the formal implementation of the "Regulations", Hong Kong has undoubtedly taken a key step in the global stablecoin regulatory race. This is not only a local financial policy innovation but also a strategic exploration of the entire Web3 ecosystem, RWA, and even the global currency landscape. Although in this article, the encryption salad has provided a detailed interpretation of the key provisions of the "Regulations", we believe that what truly deserves attention is not how a certain provision is stipulated, but the fact that a whole new institutional space is being opened up. In the absence of a unified global digital currency policy, Hong Kong has provided a clear roadmap: to legalize, systematize, and industrialize stablecoins. This is both a challenge and an opportunity for the entire Web3 world.