Implementation Guide for Smart Contracts Aimed at Stablecoin Issuers in Hong Kong

With the formal passage of the “Stablecoin Regulation”, the Hong Kong Monetary Authority issued the “Draft Regulatory Guidelines for Licensed Stablecoin Issuers (” on May 26, 2025, aimed at ensuring the stability, safety, and compliance of the local stablecoin ecosystem. The guidelines outline the regulatory requirements and operational standards that licensed stablecoin issuers must continuously adhere to.

Recently, more and more institutions have been consulting security experts on the compliance implementation of smart contracts. To assist issuers in better understanding and deploying compliant smart contract systems, we are specially releasing this “Smart Contract Implementation Guide for Stablecoin Issuers in Hong Kong,” to provide clear technical pathways and practical recommendations, supporting the healthy development of the stablecoin ecosystem in Hong Kong.

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Part One Infrastructure and Compliance Strategy

This section aims to lay the foundation for the high-level architecture of the stablecoin system, with these architectural decisions being driven entirely by the fundamental requirements of the Hong Kong Monetary Authority framework. The choices made here will determine the entire implementation path, ensuring that compliance is deeply embedded in the technology stack from the very beginning of the design.

) 1. Choice of underlying distributed ledger

License holders must assess the robustness of the underlying distributed ledger technology ###DLT( they are using. This assessment covers security infrastructure, resilience against common attacks ) such as 51% attacks (, transaction finality guarantees, and the reliability of consensus algorithms.

This is not a simple technical preference choice, but a core compliance task. The selection of the underlying blockchain must undergo formal due diligence, and the entire evaluation process needs to be documented in detail to provide sufficient justification during regulatory review. The selection process of the underlying ledger effectively sets the tone for the security and stability of the entire stablecoin system.

The Hong Kong Monetary Authority’s emphasis on the robustness of the ledger is essentially a warning to issuers to avoid adopting emerging blockchains that are untested in the market, overly centralized, or of questionable security. The responsibility for proving their safety and stability falls entirely on the issuers. If issuers choose a chain whose security has not been widely verified, they must design and implement additional compensatory controls.

Implementation Guidelines:

• Prioritize mature public chains: It is recommended to prioritize mature public blockchains with high security, such as Ethereum and Arbitrum. These networks possess inherent advantages due to their proven resilience, large network of validating nodes, and ongoing public oversight. Their high attack costs ) and economic security ( can directly address regulatory concerns regarding resistance to 51% attacks and ensuring transaction finality.

• Rigorous evaluation of alternatives: If considering the adoption of a consortium chain or other types of distributed ledger, a rigorous and quantifiable comparative analysis must be conducted, such as an independent security audit, to demonstrate that its security standards are not lower than, or even superior to, mainstream public chains.

• Risk Assessment Document: The assessment report must comprehensively cover its ability to withstand common attacks, the type of consensus algorithm, and the risks associated with code defects, vulnerabilities, exploits, and other threats, as well as a detailed analysis of how these risks may potentially impact the issuance, redemption, and daily operations of the stablecoin. This document is a key document to demonstrate the prudence of the technology selection to regulatory authorities.

) 2. Core Token Standards and Regulatory Function Expansion

The regulatory documents do not specify a particular token standard ### such as ERC-20 (. However, the documents mandate the implementation of a series of core management functions, including minting )mint(, burning )burn(, upgrading )upgrade(, pausing )pause(, resuming )resume(, freezing )freeze(, blacklisting )blacklist(, whitelisting )whitelist(, and other operations.

The Hong Kong Monetary Authority has effectively defined a “regulatory-enhanced” token standard that functions far beyond the ERC-20 standard. This standard not only requires basic token circulation functions but also emphasizes operational security, controllable permissions, and traceable risks. To maximize security while meeting compliance requirements, the most efficient and safest development path is to use a widely audited, community-recognized standard library and expand functionalities based on it.

Implementation Guide:

• Basic Standard: Uses ERC-20 as the basic standard to ensure the fungibility of the tokens and interoperability within a broader ecosystem.

• Function extension: The following functional modules must be integrated to meet regulatory requirements:

  • Pausable: Used to implement a global pause and resume function for all token activities, which is a core tool for responding to major security incidents.

  • Mintable: Used to implement that licensed issuers must mint new tokens through a controlled process and ensure that the issuance of tokens strictly corresponds to sufficient fiat reserve assets.

  • Burnable: Provides the function to burn tokens. In the specific implementation, this function will be strictly controlled by permissions, rather than allowing any user to burn at will.

  • Freezable: Used to pause the token transfer function of specific accounts ) in case of suspicious transactions (.

  • Whitelist: Used to implement additional security measures, only allowing addresses that have passed due diligence and approval to participate in core operations ) such as receiving newly issued tokens (.

  • Blacklist: Used to implement transaction bans on addresses involved in illegal activities ) such as money laundering and fraud (, prohibiting them from sending/receiving tokens. Blacklist management needs to be linked with the AML/CFT system for real-time monitoring of suspicious transactions.

  • AccessControl: This is the foundation for implementing a fine-grained, role-based permission management system. All management functions must go through this module for permission control to meet the requirements of separation of duties.

) 3. Main compliance models: choice between blacklists and whitelists.

Regarding continuous monitoring, the consultation document on anti-money laundering/counter-terrorist financing ### AML/CFT ( proposed various measures, including “blacklisting wallet addresses identified as subject to sanctions or associated with illegal activities,” or implementing stricter “whitelisting for wallet addresses of stablecoin holders, or adopting a closed-loop model.”

This is the most critical decision point in the entire system architecture, and it directly determines the openness, practicality, and complexity of compliant operations of the stablecoin.

• Blacklist mode: a “default open” mode. All addresses can trade freely by default, and only those addresses that are explicitly identified and added to the on-chain blacklist will be restricted.

• Whitelist mode: A “default off” closed-loop model. Any address cannot hold or receive tokens unless it has undergone explicit due diligence and approval by the issuer and has been added to the on-chain whitelist.

Although the whitelist model provides AML) anti-money laundering ( control capabilities, a strict whitelist system for a stablecoin designed for widespread use means that the stablecoin can only circulate among pre-approved participants, making it more like a closed banking ledger system rather than a flexible digital currency.

Therefore, the blacklist model, which is also explicitly mentioned by regulators, combined with the powerful off-chain analysis tools required by regulators, constitutes a more balanced solution. It meets regulatory requirements while retaining the practicality of the assets.

In design, the system can be built to be upgradable or to implement both modes simultaneously, so that it can smoothly transition or switch to a whitelist mode in the future when regulations tighten or business models change.

Implementation Guide:

• Blacklist mode ) default recommended plan (:

  • Advantages: It has higher practicality and can seamlessly interoperate with the vast decentralized finance )DeFi( ecosystem, providing users with a lower barrier to entry and a smoother experience.

  • Disadvantages: Compliance heavily relies on strong, real-time off-chain monitoring and analysis capabilities to promptly identify and block illegal addresses.

  • Implementation method: In the transfer function of the smart contracts, add a logic check to ensure that the sender )from( and receiver )to( addresses are not recorded in the blacklist.

• Whitelist Mode

  • Advantages: Provides the highest level of AML/CFT controls, achieving prevention before the fact rather than remediation afterwards.

  • Disadvantages: Greatly limits the universality and adoption rate of stablecoins, brings tremendous operational costs for managing the whitelist, and may make it difficult to become a widely accepted medium of exchange.

  • Implementation method: In the transfer function of the smart contracts, add logic checks requiring that both the sender )from( and the receiver )to( addresses must exist in the whitelist. It is recommended to develop a dedicated Web user backend system for operations to increase convenience.

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Part Two Smart Contracts Implementation

This section provides a detailed blueprint for the core functions of smart contracts, transforming complex regulatory requirements into specific code-level logic, security patterns, and operational protocols.

) 1. Design a refined access control system

The design of high-risk operations must “prevent any single party from being able to unilaterally execute related operations ###, for example, through a multi-signature protocol (.” The responsibilities of different operations should be adequately separated.

This means that a robust role-based access control system ) RBAC ( is mandatory. Any form of a single “owner” or “administrator” private key is non-compliant.

Implementation Guide:

A clear set of roles must be defined and assigned to different entities or employees controlled by multi-signature wallets to achieve segregation of duties and minimize the risk of single points of failure or collusion. Each role should be limited to specific functions, all operations require multi-signature authorization, and ensure that no single employee holds multiple high-risk roles simultaneously. All operations must be logged and subject to annual third-party audits, with permission allocation supervised by administrators or the board.

• MINTER_ROLE: Responsible for handling the minting of stablecoin )mint( operations, including creating token units upon receiving valid issuance requests and ensuring that the minting matches the corresponding increase in the reserve asset pool.

• BURNER_ROLE: Responsible for handling the issuance of stablecoin ) burn ( operations, including destroying token units after receiving valid redemption requests.

• PAUSER_ROLE: Responsible for pausing the operations of the stablecoin ), such as temporarily stopping transfers, issuance, or redemption when an abnormal event, such as a security threat, is detected.

• RESUME_ROLE: Responsible for restoring the operations of the (resume) stablecoin, such as re-enabling transfers, minting, or redemption after resolving the pause event.

• FREEZER_ROLE: Responsible for freezing (freeze) and unfreezing (remove freeze) specific wallets or tokens, such as temporarily freezing assets when suspicious activities ( like money laundering risks ) are detected.

• WHITELISTER_ROLE: Responsible for managing the whitelist (whitelist), including adding or removing allowed wallet addresses, such as restricting issuance to whitelist addresses.

• BLACKLISTER_ROLE: Responsible for managing the blacklist (blacklist) and removing the blacklist (remove blacklist), such as blacklisting suspicious wallets to prevent transfers.

• UPGRADER_ROLE: If using an upgradeable model, responsible for upgrading (upgrade) smart contracts, such as updating contract code to fix vulnerabilities or add features.

Role-Based Access Control Matrix ( RBAC Matrix ):