Web3 Lawyer's Full Interpretation of the "Stablecoin Regulations": From Regulatory Framework to Market Implications, How is Hong Kong Actually Doing It?
The year 2025 can be regarded as the year of stablecoins. On May 21, Hong Kong successfully completed the second and third readings of the "Stablecoin Regulation Draft," which was officially passed by the Legislative Council, and subsequently released the "Stablecoin Regulation" (hereinafter referred to as "the Regulation") on May 29, 2025, announcing that it will officially come into effect on August 1. This event has triggered a wave of excitement both inside and outside the circle, and Crypto Salad has received a large number of related inquiries. We found that people are generally concerned about what practical favourable information this bill can bring and what impact it will have on the Web3 community; they also hope to understand whether, as participants in the upstream and downstream of the industry chain, it is necessary to engage in stablecoin construction and from which perspectives they should try to enter; if they intend to issue compliant stablecoins as licensed institutions, how should they apply for the relevant licenses...
Prior to this, Crypto Salad has provided a detailed interpretation of the core concepts such as the definition, characteristics, and functions of stablecoins. For more information, see: "Web3 Lawyer Interpretation: Are Stablecoins Really Stable? Why Are Stablecoins So Important?"; At the same time, it also explored the regulatory focus of stablecoins and conducted an in-depth comparison of the stablecoin regulatory frameworks in the United States and Hong Kong. For more information, see: "Web3 Lawyer In-Depth Interpretation: What Are the Key Points of Stablecoin Regulation? How Do the Stablecoin Regulatory Frameworks in the United States and Hong Kong Differ?".
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 analysis to seek answers to the following questions:
What are the minimum requirements to apply for a stablecoin license?
What can you do with a stablecoin license?
How are the reserve asset management and redemption mechanisms specifically defined?
What is the impact of stablecoin on cross-border payments with the Renminbi?
What does the passage of the "Regulations" actually mean for the industry? Is there going to be a major shift in Hong Kong's financial market landscape?
......
1. Interpretation of the Hong Kong "Stablecoin Ordinance" Regulatory Framework
1. Which stablecoin is regulated in Hong Kong?
The essence of a stablecoin is a type of encryption asset that achieves price stability through specific mechanisms, such as anchoring reserve assets. The "Regulations" provide a clear definition of stablecoins: A stablecoin is a digital form of value protected by encryption, with the following characteristics:
Its value is expressed as a unit of computation or a form of economic storage;
Used for payment, debt settlement, or investment;
Can be transferred, stored, or traded electronically;
Operating on a distributed account or similar technological basis;
Its value is ostensibly anchored to a particular asset or asset portfolio.
At the same time, * the "Regulations" specifically exclude certain forms of digital value that are not within its regulatory scope, such as digital currencies issued by central banks and related banks, point systems that serve as limited-use tokens, assets regarded as securities or futures contracts (such as security tokens), stored value amounts regulated by the "Payment Systems and Stored Value Payment Instruments Regulations", and traditional bank deposits, etc. *
However, the "Regulations" do not regulate all stablecoins, but limit the regulatory targets to the "designated stablecoins" operating in Hong Kong. Designated stablecoins are a term unique to the Hong Kong government, defined in Article 4 of the "Regulations" as stablecoins that are fully pegged to one or more official currencies, calculation units specified by the Monetary Authority, or a combination of the two, in order to maintain their stable value. This is essentially what we commonly refer to as fiat-backed stablecoins (hereinafter referred to as "fiat stablecoins").
It can be seen that the Hong Kong government has chosen to focus regulatory efforts on payment functions, because fiat-backed stablecoins have a high collateralization rate with fiat currency, high value stability, and a lower degree of decentralization, making them the most likely to be treated as "quasi-currency" circulating in the financial trading market. Once stablecoins become a common payment tool and expand their usage scale, any occurrence of a run or decoupling will inevitably impact the entire financial ecosystem, hence the demand and requirements for stablecoin regulation are very high. In addition, the regulations explicitly restrict license holders from paying interest on the specified stablecoins they issue, reducing the likelihood of them being viewed as savings-type financial products. Other non-payment uses and stablecoin types with insufficient stability, such as algorithmic stablecoins, are also not included in this first round of regulatory targets.
2. Which activities of stablecoins are restricted?
After the passage of the "Regulations", anyone who engages in or indicates that they engage in regulated stablecoin activities must hold a license. One of the regulatory cores of the "Regulations" is to define which activities fall under "regulated stablecoin activities". Article 5 clearly outlines the currently restricted activities:
(1) Issuance of specified stablecoin in Hong Kong;
(2) Issuance of designated stablecoins pegged to the Hong Kong dollar outside of Hong Kong (regardless of the reference ratio);
(3) The financial management officer, after consulting the Secretary for Financial Services and the Treasury, announces the specified activities;
(4) Actively promote to the public the carrying out or seeming to carry out the above activities.
In addition, Section 2 of the Regulations also specifies the other regulatory scope for designated stablecoins:
Offer or display your offer to specify the stablecoin:
Advertise regulated stablecoin activities and the aforementioned offers;
refers to trading of stablecoins or inducing others to enter into agreements aimed at acquiring, disposing of, subscribing to, or underwriting specified 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 aimed at categorizing stablecoins strictly as "payment tools", preventing them from being packaged as speculative investment products. Issuers, platform operators, wallet service providers, and other roles are all included in the regulatory framework to ensure that the entire chain of the stablecoin ecosystem is under control.
From a jurisdictional perspective, the Hong Kong government not only regulates the issuance of stablecoins within Hong Kong but also includes the issuance of stablecoins pegged to the Hong Kong dollar outside of Hong Kong in its regulatory framework. Even if the issuance does not occur locally in Hong Kong, as long as the stablecoin issued is linked to the Hong Kong dollar, and regardless of the reference ratio, it will be considered as having potential local financial influence and will be subject to regulation. This arrangement reflects Hong Kong's high regard for monetary sovereignty and financial stability, preventing unauthorized digital assets from misleading the public for profit in the market under the guise of "pegging to the Hong Kong dollar."
3. How to apply for a stablecoin license?
The licensing regime is the core regulatory mechanism established under the Ordinance. **Any company that issues, manages, distributes specified stablecoins in Hong Kong, or an authorized institution incorporated outside Hong Kong, must submit a formal licence application to the Monetary Authority. **The Ordinance does not set up a variety of different licences, but is based on a unified licence, with differentiated conditions attached to the grant of licences according to the specific business and risk characteristics of the applicant.
The approval process for the license is relatively simple; it is directly submitted to the financial management officer for application, and then we wait for their decision. The main focus of the financial management officer's review is whether the applicant meets the "minimum standards" specified in "Schedule 2". The specific conditions are as follows:
(1) Have sufficient financial resources and liquid assets
Applicants are required to contribute a share capital of no less than 25 million HKD or an equivalent amount in other currencies; or hold other financial resources valued at 25 million HKD or more, subject to approval by the Financial Management Commissioner.
(2) Configure the corresponding reserve assets
To ensure the credibility and redemption ability of stablecoins, licensed entities must comply with the following conditions when allocating reserve assets corresponding to stablecoins:
Asset Isolation: The reserve asset portfolio is separated from other reserve asset portfolios held by the licensee, and is not affected by the licensee's own other debts or operational status. In addition, the reserve assets should also be independent of the licensee's other company assets, ensuring legal and financial separation;
Redemption Guarantee: The market value of the reserve assets is not less than the total nominal value of the outstanding stablecoins in the market, ensuring full coverage and redeemable at any time;
Pegged to HKD Assets: Unless prior written approval is obtained from the Financial Secretary, the reserve assets must directly reference the same reference assets to which the specified stablecoin is pegged;
The reserve asset portfolio must have high quality and high liquidity, and have the lowest investment risk;
License holders must establish risk management and internal audit systems;
License holders must disclose the following information to the public:
Management policies of its reserve assets;
The risks that this strategy may bring and the assessment methods;
The composition and market value of its reserve assets;
Regular independent audits of its reserve assets and the results of those audits.
Licensees must have a sound regulatory system.
(3) Establish a Redemption Mechanism
Licensees must provide each holder of the issued designated stablecoin with redemption rights and must not impose excessively stringent conditions to restrict the redemption of the designated stablecoin. Redemption actions must also not incur any associated fees.
(4) Suitable Candidates
An appropriate candidate refers to the chief executive officer, director, stablecoin manager, or controller of a licensee. The licensee must establish and implement sound and appropriate management systems to ensure that the financial management commissioner clearly identifies each controller of the licensee.
(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 attempts at fraud.
(7) Measures to combat money laundering and terrorist financing
Licensees must establish and implement sound and appropriate control systems to prevent and combat potential money laundering or terrorist financing related to their licensed stablecoin activities.
(8) Business Activity Requirements
License holders must have dedicated and sufficient resources to conduct licensed stablecoin activities. Any activities outside of licensed stablecoin activities must obtain the consent of the financial management commissioner.
(9) Information Disclosure Requirements
Licensees must publish a white paper for each type of specified stablecoin they issue, providing comprehensive and transparent information regarding that type of specified stablecoin. Furthermore, licensees must provide information to the holders of the stablecoins they issue about the complaint handling and compensation mechanisms of the licensee.
(10) Recovery Plan and Orderly Scale Reduction
License holders must establish and implement a sound and appropriate control system to make suitable plans that support the critical functions necessary to restore stablecoin activities promptly in the event of significant operational disruptions.
It is evident that the Hong Kong government maintains a consistent high standard and strict requirements for stablecoin license applicants. 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 ability, and risk control system.
4. What compliance obligations do licensees have?
Once the license is obtained, the licensee must undergo 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 license fee is 113,020 HKD. Licensees must pay the initial license fee within 14 days after the effective date specified in the written notice issued by the Financial Management Commissioner approving the application, and must pay the same amount of annual fee before this date each subsequent year.
(2) Public Display License Number
Licensees must publicly state the license number on any relevant materials related to licensed stablecoin activities, as well as on user-facing application interfaces.
(3) Continuously meet minimum standards
Any licensee that fails to maintain the "minimum standards" or believes that it is highly likely to be unable to fulfill its obligations, is insolvent, or is about to suspend payments must promptly and proactively report to the financial management commissioner and provide all relevant facts, circumstances, and information; otherwise, it may face severe penalties.
(4) Obligation to Report Changes in Information
Changes related to address, business nature, equity structure, etc. must be reported promptly, otherwise, penalties such as fines may be imposed.
It is worth mentioning that obtaining a license is not a "one-time effort". According to Article 19 of the regulations, the financial management commissioner may still temporarily add or modify the licensing conditions based on changes in market risk or the results of regulatory assessments. The license holder must provide a written statement to the commissioner within the time frame set by the commissioner to explain the conditions that have been added or modified.
It can be seen that the Regulations require a high level of financial strength from license holders, making it more suitable for enterprises with abundant funds and large asset volumes to strategically lay out mid- to long-term plans. For medium-sized enterprises, if they wish to invest their main resources in stablecoin issuance projects, it is recommended to fully assess feasibility and sustainability before making decisions. This is because not only is a minimum paid-in capital of 25 million Hong Kong dollars or equivalent assets required as a threshold, but they must also be equipped with equivalent high-quality reserve assets and bear various compliance, auditing, and system maintenance costs during the operation of the stablecoin, making long-term investment significant.
5. How are the mechanisms for the cancellation, revocation, and suspension of licenses regulated?
If the licensee no longer meets regulatory requirements, the regulations also grant the financial management commissioner considerable intervention authority:
Temporary License Revocation: If the Financial Supervisory Commissioner believes that a reason for the revocation of a license specified in the above "Schedule 4" is genuinely present, they can issue a written notice to the relevant licensee, revoking the license for a period not exceeding 6 months. During the period of temporary revocation, the licensee is prohibited from engaging in related business activities; violators will face fines and imprisonment.
Proactive License Revocation: The reasons for revoking the license are detailed in "Schedule 4," which includes reasons such as the licensee's bankruptcy, false declaration of information, violation of license conditions, or effectively ceasing business activities, among others.
6. What protections does the Regulation provide for stablecoin users?
The "Regulations" are not only a regulatory tool aimed at issuers and industry institutions but also build a legal protection mechanism for the end users of stablecoins. The Hong Kong government has established several core arrangements for user protection in the "Regulations". The encryption law sets out the two most important sections in this article to help users fully understand their rights and potential risks.
Strictly regulate the promotional and marketing activities of licensed individuals
Article 10 of the Regulations explicitly prohibits any unlicensed individuals from advertising to the public regarding activities or offers related to stablecoins. Whether through offline promotion, online social media marketing, or promotion via third-party platforms, all fall 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, exaggeration of returns, or other deceptive statements, will constitute a criminal offense. Even if the inducement does not ultimately lead to a transaction being concluded, legal accountability may still apply.
User Rights Protection Mechanism
Stablecoin holders are primarily concerned with the value security and payment guarantee of stablecoins. The "Regulations" have established a relatively robust protection mechanism for this point.
The regulations require license holders to have sufficient reserve assets to support the value of the stablecoins they issue. These assets must exist in reality, have high liquidity, and be able to be redeemed promptly when users initiate redemption requests. In addition, issuers should have an auditing mechanism in place, with qualified third parties regularly reviewing the matching degree between reserve assets and the total issuance of stablecoins, to prevent a void in the fund pool or misallocation of funds. Under normal operating conditions, license holders must not suspend redemptions, delay processing, or set harsh redemption thresholds without reason. If redemption difficulties occur, they must immediately report to the financial management commissioner.
Overall, the regulations provide a systematic and in-depth framework for the Compliance of the stablecoin industry and the protection mechanism for users. For the vast number of investors, the most crucial aspect is to learn to identify licensed stablecoin issuers and participate rationally in stablecoin trading and holding activities. With the official implementation of the regulations, those marginal projects and niche stablecoins that do not meet the licensing standards will inevitably face market clearing or even collapse risks. Investors should be highly vigilant and avoid blindly chasing prices or trusting unauthorized product promotions.
7. How broad are the regulatory powers of the Monetary Authority?
From the above analysis, it is clear that the role of the Financial Management Commissioner is crucial in Hong Kong's stablecoin regulatory framework. This indicates that the Monetary Authority not only has an administrative role in license approval but also wields extensive powers for regulation, investigation, and direct intervention. In general, the Financial Management Commissioner has the authority to approve and issue licenses; daily regulatory authority; and the power to directly investigate and collect evidence when a licensee faces significant operational risks.
According to Section 5 of the Regulations, the financial management commissioner may conduct investigations directly and may instruct or appoint investigators to carry out a specific investigation. Investigators may request the investigated licensees to provide evidence, information, or explanations, and investigators 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 being the possession of "quasi-judicial" investigative powers, which carry a high degree of deterrence and enforcement.
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 path for compliance operations, requiring only an assessment of their own capital and a clear understanding of the difficulties and ongoing expenses associated with the license application and subsequent compliance maintenance.
For most project parties that do not intend to directly apply for a license but wish to participate in the stablecoin ecosystem, collaborating with institutions that have obtained or are applying for licenses is the ideal path to enter the market and expand digital financial services. Such cooperation can cover multiple levels, such as providing technical support, custody services, payment integration solutions, cross-border clearing capabilities, or co-building compliant wallets and trading interfaces as ecosystem partners. Especially for companies in the payment, Web3 infrastructure, cross-border e-commerce, and compliant custody sectors, deep collaboration with licensed institutions can ensure that their business operations are compliant while quickly accessing the regulatory-approved stablecoin circulation system.
The regulations stipulate that licensed institutions must disclose licensing information through official and public channels, making it relatively easy for projects to identify "genuine licenses" in this regard. However, when choosing a reliable stablecoin licensing institution as a partner, one should not merely be satisfied with the superficial condition of the other party "having a license"; it is more crucial to comprehensively assess their business strength, compliance level, and cooperation potential.
For example, the security and transparency of the licensed holder's reserve assets are crucial. The ideal partner should have 1:1 full asset coverage and regularly publish reports audited by third parties, clearly stating the types of reserved coins, custodians, and risk status. At the same time, whether there is a stable redemption mechanism is also one of the assessment criteria. Project parties should pay attention to whether it supports unrestricted redemption at any time to avoid future liquidity risks. Finally, project parties should also evaluate the actual influence of the institution in the market, such as whether it has been integrated with mainstream wallets, exchanges, or payment channels, as well as community reputation and other factors.
2. What is the significance of the "Stablecoin Regulation Draft"?
1. Significance at the Policy Level
In the traditional financial system, the right to issue currency, also known as the right to mint, has always been controlled by the state. However, with the advent of the digital currency era, this power is facing challenges. Hong Kong has established a regulatory framework for stablecoins through local laws, which essentially is seizing the "digital minting rights," especially the legal status of stablecoins pegged to the Hong Kong dollar.
2. The Significance for the Web3 World
Although the Hong Kong government has designated stablecoins as payment instruments, 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, forex costs, and sanction evasion are continuously increasing enterprises' interest in on-chain stablecoin tools. According to statistics, stablecoins achieved significant growth in 2024, with remittance volumes surpassing the total of Visa and Mastercard. Compliance has brought scalability and institutional participation, marking the true commercialization starting point of the project.
For native Web3 projects, the biggest impact is not being regulated, but being incorporated into channels that can access larger-scale assets. In the current context where "on-chain liquidity" is increasingly scarce, obtaining a compliance identity means being able to connect with institutional investors, RWA assets, and the traditional financial system, participating in higher quality and more explosive liquidity release.
3. Is it possible for the Renminbi stablecoin to be implemented?
Does the implementation of stablecoin regulation in Hong Kong open up policy imagination for the "Renminbi stablecoin"? Although the Renminbi stablecoin is currently a sensitive topic, its long-term potential cannot be ignored. Crypto Salad believes that if suitable RWA targets (such as energy, minerals, overseas bonds, etc.) can be found in the future to provide stable circulation carriers for the Renminbi stablecoin, its usage logic will be more established. 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, the stablecoin still faces highly complex regulatory challenges in the mainland market. Due to concerns over financial sanctions and reliance on the US dollar system, many enterprises already have a practical need for "non-US dollar settlement tools." However, for regulators, allowing stablecoins means facing:
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 RMB;
......
Therefore, the encryption salad believes that the mainland is unlikely to replicate Hong Kong's approach in the short term, but Hong Kong's "experimental field" experience may provide a blueprint for exploring digital financial strategies on a larger scale in the future.
3. Conclusion
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 an innovation in local financial policy but also a strategic exploration of the entire Web3 ecosystem, RWA, and even the global currency landscape. Although this article provides a detailed interpretation of the key provisions of the "Regulations", we believe that what truly deserves attention is not how a specific provision is stated, but rather the fact that a brand new institutional space is opening up. While global digital currency policies have yet to be unified, Hong Kong has provided a clear roadmap: to legalize, systematize, and industrialize stablecoins. This presents both challenges and opportunities for the entire Web3 world.
This only represents the author's personal views and does not constitute legal advice or opinions on specific matters.
The content is for reference only, not a solicitation or offer. No investment, tax, or legal advice provided. See Disclaimer for more risks disclosure.
Web3 Lawyer's Full Interpretation of the "Stablecoin Regulations": From Regulatory Framework to Market Implications, How is Hong Kong Actually Doing It?
The year 2025 can be regarded as the year of stablecoins. On May 21, Hong Kong successfully completed the second and third readings of the "Stablecoin Regulation Draft," which was officially passed by the Legislative Council, and subsequently released the "Stablecoin Regulation" (hereinafter referred to as "the Regulation") on May 29, 2025, announcing that it will officially come into effect on August 1. This event has triggered a wave of excitement both inside and outside the circle, and Crypto Salad has received a large number of related inquiries. We found that people are generally concerned about what practical favourable information this bill can bring and what impact it will have on the Web3 community; they also hope to understand whether, as participants in the upstream and downstream of the industry chain, it is necessary to engage in stablecoin construction and from which perspectives they should try to enter; if they intend to issue compliant stablecoins as licensed institutions, how should they apply for the relevant licenses...
Prior to this, Crypto Salad has provided a detailed interpretation of the core concepts such as the definition, characteristics, and functions of stablecoins. For more information, see: "Web3 Lawyer Interpretation: Are Stablecoins Really Stable? Why Are Stablecoins So Important?"; At the same time, it also explored the regulatory focus of stablecoins and conducted an in-depth comparison of the stablecoin regulatory frameworks in the United States and Hong Kong. For more information, see: "Web3 Lawyer In-Depth Interpretation: What Are the Key Points of Stablecoin Regulation? How Do the Stablecoin Regulatory Frameworks in the United States and Hong Kong Differ?".
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 analysis to seek answers to the following questions:
......
1. Interpretation of the Hong Kong "Stablecoin Ordinance" Regulatory Framework
1. Which stablecoin is regulated in Hong Kong?
The essence of a stablecoin is a type of encryption asset that achieves price stability through specific mechanisms, such as anchoring reserve assets. The "Regulations" provide a clear definition of stablecoins: A stablecoin is a digital form of value protected by encryption, with the following characteristics:
At the same time, * the "Regulations" specifically exclude certain forms of digital value that are not within its regulatory scope, such as digital currencies issued by central banks and related banks, point systems that serve as limited-use tokens, assets regarded as securities or futures contracts (such as security tokens), stored value amounts regulated by the "Payment Systems and Stored Value Payment Instruments Regulations", and traditional bank deposits, etc. *
However, the "Regulations" do not regulate all stablecoins, but limit the regulatory targets to the "designated stablecoins" operating in Hong Kong. Designated stablecoins are a term unique to the Hong Kong government, defined in Article 4 of the "Regulations" as stablecoins that are fully pegged to one or more official currencies, calculation units specified by the Monetary Authority, or a combination of the two, in order to maintain their stable value. This is essentially what we commonly refer to as fiat-backed stablecoins (hereinafter referred to as "fiat stablecoins").
It can be seen that the Hong Kong government has chosen to focus regulatory efforts on payment functions, because fiat-backed stablecoins have a high collateralization rate with fiat currency, high value stability, and a lower degree of decentralization, making them the most likely to be treated as "quasi-currency" circulating in the financial trading market. Once stablecoins become a common payment tool and expand their usage scale, any occurrence of a run or decoupling will inevitably impact the entire financial ecosystem, hence the demand and requirements for stablecoin regulation are very high. In addition, the regulations explicitly restrict license holders from paying interest on the specified stablecoins they issue, reducing the likelihood of them being viewed as savings-type financial products. Other non-payment uses and stablecoin types with insufficient stability, such as algorithmic stablecoins, are also not included in this first round of regulatory targets.
2. Which activities of stablecoins are restricted?
After the passage of the "Regulations", anyone who engages in or indicates that they engage in regulated stablecoin activities must hold a license. One of the regulatory cores of the "Regulations" is to define which activities fall under "regulated stablecoin activities". Article 5 clearly outlines the currently restricted activities:
(1) Issuance of specified stablecoin in Hong Kong;
(2) Issuance of designated stablecoins pegged to the Hong Kong dollar outside of Hong Kong (regardless of the reference ratio);
(3) The financial management officer, after consulting the Secretary for Financial Services and the Treasury, announces the specified activities;
(4) Actively promote to the public the carrying out or seeming to carry out the above activities.
In addition, Section 2 of the Regulations also specifies the other regulatory scope for designated stablecoins:
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 aimed at categorizing stablecoins strictly as "payment tools", preventing them from being packaged as speculative investment products. Issuers, platform operators, wallet service providers, and other roles are all included in the regulatory framework to ensure that the entire chain of the stablecoin ecosystem is under control.
From a jurisdictional perspective, the Hong Kong government not only regulates the issuance of stablecoins within Hong Kong but also includes the issuance of stablecoins pegged to the Hong Kong dollar outside of Hong Kong in its regulatory framework. Even if the issuance does not occur locally in Hong Kong, as long as the stablecoin issued is linked to the Hong Kong dollar, and regardless of the reference ratio, it will be considered as having potential local financial influence and will be subject to regulation. This arrangement reflects Hong Kong's high regard for monetary sovereignty and financial stability, preventing unauthorized digital assets from misleading the public for profit in the market under the guise of "pegging to the Hong Kong dollar."
3. How to apply for a stablecoin license?
The licensing regime is the core regulatory mechanism established under the Ordinance. **Any company that issues, manages, distributes specified stablecoins in Hong Kong, or an authorized institution incorporated outside Hong Kong, must submit a formal licence application to the Monetary Authority. **The Ordinance does not set up a variety of different licences, but is based on a unified licence, with differentiated conditions attached to the grant of licences according to the specific business and risk characteristics of the applicant.
The approval process for the license is relatively simple; it is directly submitted to the financial management officer for application, and then we wait for their decision. The main focus of the financial management officer's review is whether the applicant meets the "minimum standards" specified in "Schedule 2". The specific conditions are as follows:
(1) Have sufficient financial resources and liquid assets
Applicants are required to contribute a share capital of no less than 25 million HKD or an equivalent amount in other currencies; or hold other financial resources valued at 25 million HKD or more, subject to approval by the Financial Management Commissioner.
(2) Configure the corresponding reserve assets
To ensure the credibility and redemption ability of stablecoins, licensed entities must comply with the following conditions when allocating reserve assets corresponding to stablecoins:
(3) Establish a Redemption Mechanism
Licensees must provide each holder of the issued designated stablecoin with redemption rights and must not impose excessively stringent conditions to restrict the redemption of the designated stablecoin. Redemption actions must also not incur any associated fees.
(4) Suitable Candidates
An appropriate candidate refers to the chief executive officer, director, stablecoin manager, or controller of a licensee. The licensee must establish and implement sound and appropriate management systems to ensure that the financial management commissioner clearly identifies each controller of the licensee.
(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 attempts at fraud.
(7) Measures to combat money laundering and terrorist financing
Licensees must establish and implement sound and appropriate control systems to prevent and combat potential money laundering or terrorist financing related to their licensed stablecoin activities.
(8) Business Activity Requirements
License holders must have dedicated and sufficient resources to conduct licensed stablecoin activities. Any activities outside of licensed stablecoin activities must obtain the consent of the financial management commissioner.
(9) Information Disclosure Requirements
Licensees must publish a white paper for each type of specified stablecoin they issue, providing comprehensive and transparent information regarding that type of specified stablecoin. Furthermore, licensees must provide information to the holders of the stablecoins they issue about the complaint handling and compensation mechanisms of the licensee.
(10) Recovery Plan and Orderly Scale Reduction
License holders must establish and implement a sound and appropriate control system to make suitable plans that support the critical functions necessary to restore stablecoin activities promptly in the event of significant operational disruptions.
It is evident that the Hong Kong government maintains a consistent high standard and strict requirements for stablecoin license applicants. 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 ability, and risk control system.
4. What compliance obligations do licensees have?
Once the license is obtained, the licensee must undergo 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 license fee is 113,020 HKD. Licensees must pay the initial license fee within 14 days after the effective date specified in the written notice issued by the Financial Management Commissioner approving the application, and must pay the same amount of annual fee before this date each subsequent year.
(2) Public Display License Number
Licensees must publicly state the license number on any relevant materials related to licensed stablecoin activities, as well as on user-facing application interfaces.
(3) Continuously meet minimum standards
Any licensee that fails to maintain the "minimum standards" or believes that it is highly likely to be unable to fulfill its obligations, is insolvent, or is about to suspend payments must promptly and proactively report to the financial management commissioner and provide all relevant facts, circumstances, and information; otherwise, it may face severe penalties.
(4) Obligation to Report Changes in Information
Changes related to address, business nature, equity structure, etc. must be reported promptly, otherwise, penalties such as fines may be imposed.
It is worth mentioning that obtaining a license is not a "one-time effort". According to Article 19 of the regulations, the financial management commissioner may still temporarily add or modify the licensing conditions based on changes in market risk or the results of regulatory assessments. The license holder must provide a written statement to the commissioner within the time frame set by the commissioner to explain the conditions that have been added or modified.
It can be seen that the Regulations require a high level of financial strength from license holders, making it more suitable for enterprises with abundant funds and large asset volumes to strategically lay out mid- to long-term plans. For medium-sized enterprises, if they wish to invest their main resources in stablecoin issuance projects, it is recommended to fully assess feasibility and sustainability before making decisions. This is because not only is a minimum paid-in capital of 25 million Hong Kong dollars or equivalent assets required as a threshold, but they must also be equipped with equivalent high-quality reserve assets and bear various compliance, auditing, and system maintenance costs during the operation of the stablecoin, making long-term investment significant.
5. How are the mechanisms for the cancellation, revocation, and suspension of licenses regulated?
If the licensee no longer meets regulatory requirements, the regulations also grant the financial management commissioner considerable intervention authority:
6. What protections does the Regulation provide for stablecoin users?
The "Regulations" are not only a regulatory tool aimed at issuers and industry institutions but also build a legal protection mechanism for the end users of stablecoins. The Hong Kong government has established several core arrangements for user protection in the "Regulations". The encryption law sets out the two most important sections in this article to help users fully understand their rights and potential risks.
Article 10 of the Regulations explicitly prohibits any unlicensed individuals from advertising to the public regarding activities or offers related to stablecoins. Whether through offline promotion, online social media marketing, or promotion via third-party platforms, all fall 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, exaggeration of returns, or other deceptive statements, will constitute a criminal offense. Even if the inducement does not ultimately lead to a transaction being concluded, legal accountability may still apply.
Stablecoin holders are primarily concerned with the value security and payment guarantee of stablecoins. The "Regulations" have established a relatively robust protection mechanism for this point.
The regulations require license holders to have sufficient reserve assets to support the value of the stablecoins they issue. These assets must exist in reality, have high liquidity, and be able to be redeemed promptly when users initiate redemption requests. In addition, issuers should have an auditing mechanism in place, with qualified third parties regularly reviewing the matching degree between reserve assets and the total issuance of stablecoins, to prevent a void in the fund pool or misallocation of funds. Under normal operating conditions, license holders must not suspend redemptions, delay processing, or set harsh redemption thresholds without reason. If redemption difficulties occur, they must immediately report to the financial management commissioner.
Overall, the regulations provide a systematic and in-depth framework for the Compliance of the stablecoin industry and the protection mechanism for users. For the vast number of investors, the most crucial aspect is to learn to identify licensed stablecoin issuers and participate rationally in stablecoin trading and holding activities. With the official implementation of the regulations, those marginal projects and niche stablecoins that do not meet the licensing standards will inevitably face market clearing or even collapse risks. Investors should be highly vigilant and avoid blindly chasing prices or trusting unauthorized product promotions.
7. How broad are the regulatory powers of the Monetary Authority?
From the above analysis, it is clear that the role of the Financial Management Commissioner is crucial in Hong Kong's stablecoin regulatory framework. This indicates that the Monetary Authority not only has an administrative role in license approval but also wields extensive powers for regulation, investigation, and direct intervention. In general, the Financial Management Commissioner has the authority to approve and issue licenses; daily regulatory authority; and the power to directly investigate and collect evidence when a licensee faces significant operational risks.
According to Section 5 of the Regulations, the financial management commissioner may conduct investigations directly and may instruct or appoint investigators to carry out a specific investigation. Investigators may request the investigated licensees to provide evidence, information, or explanations, and investigators 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 being the possession of "quasi-judicial" investigative powers, which carry a high degree of deterrence and enforcement.
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 path for compliance operations, requiring only an assessment of their own capital and a clear understanding of the difficulties and ongoing expenses associated with the license application and subsequent compliance maintenance.
For most project parties that do not intend to directly apply for a license but wish to participate in the stablecoin ecosystem, collaborating with institutions that have obtained or are applying for licenses is the ideal path to enter the market and expand digital financial services. Such cooperation can cover multiple levels, such as providing technical support, custody services, payment integration solutions, cross-border clearing capabilities, or co-building compliant wallets and trading interfaces as ecosystem partners. Especially for companies in the payment, Web3 infrastructure, cross-border e-commerce, and compliant custody sectors, deep collaboration with licensed institutions can ensure that their business operations are compliant while quickly accessing the regulatory-approved stablecoin circulation system.
The regulations stipulate that licensed institutions must disclose licensing information through official and public channels, making it relatively easy for projects to identify "genuine licenses" in this regard. However, when choosing a reliable stablecoin licensing institution as a partner, one should not merely be satisfied with the superficial condition of the other party "having a license"; it is more crucial to comprehensively assess their business strength, compliance level, and cooperation potential.
For example, the security and transparency of the licensed holder's reserve assets are crucial. The ideal partner should have 1:1 full asset coverage and regularly publish reports audited by third parties, clearly stating the types of reserved coins, custodians, and risk status. At the same time, whether there is a stable redemption mechanism is also one of the assessment criteria. Project parties should pay attention to whether it supports unrestricted redemption at any time to avoid future liquidity risks. Finally, project parties should also evaluate the actual influence of the institution in the market, such as whether it has been integrated with mainstream wallets, exchanges, or payment channels, as well as community reputation and other factors.
2. What is the significance of the "Stablecoin Regulation Draft"?
1. Significance at the Policy Level
In the traditional financial system, the right to issue currency, also known as the right to mint, has always been controlled by the state. However, with the advent of the digital currency era, this power is facing challenges. Hong Kong has established a regulatory framework for stablecoins through local laws, which essentially is seizing the "digital minting rights," especially the legal status of stablecoins pegged to the Hong Kong dollar.
2. The Significance for the Web3 World
Although the Hong Kong government has designated stablecoins as payment instruments, 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, forex costs, and sanction evasion are continuously increasing enterprises' interest in on-chain stablecoin tools. According to statistics, stablecoins achieved significant growth in 2024, with remittance volumes surpassing the total of Visa and Mastercard. Compliance has brought scalability and institutional participation, marking the true commercialization starting point of the project.
For native Web3 projects, the biggest impact is not being regulated, but being incorporated into channels that can access larger-scale assets. In the current context where "on-chain liquidity" is increasingly scarce, obtaining a compliance identity means being able to connect with institutional investors, RWA assets, and the traditional financial system, participating in higher quality and more explosive liquidity release.
3. Is it possible for the Renminbi stablecoin to be implemented?
Does the implementation of stablecoin regulation in Hong Kong open up policy imagination for the "Renminbi stablecoin"? Although the Renminbi stablecoin is currently a sensitive topic, its long-term potential cannot be ignored. Crypto Salad believes that if suitable RWA targets (such as energy, minerals, overseas bonds, etc.) can be found in the future to provide stable circulation carriers for the Renminbi stablecoin, its usage logic will be more established. 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, the stablecoin still faces highly complex regulatory challenges in the mainland market. Due to concerns over financial sanctions and reliance on the US dollar system, many enterprises already have a practical need for "non-US dollar settlement tools." However, for regulators, allowing stablecoins means facing:
Therefore, the encryption salad believes that the mainland is unlikely to replicate Hong Kong's approach in the short term, but Hong Kong's "experimental field" experience may provide a blueprint for exploring digital financial strategies on a larger scale in the future.
3. Conclusion
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 an innovation in local financial policy but also a strategic exploration of the entire Web3 ecosystem, RWA, and even the global currency landscape. Although this article provides a detailed interpretation of the key provisions of the "Regulations", we believe that what truly deserves attention is not how a specific provision is stated, but rather the fact that a brand new institutional space is opening up. While global digital currency policies have yet to be unified, Hong Kong has provided a clear roadmap: to legalize, systematize, and industrialize stablecoins. This presents both challenges and opportunities for the entire Web3 world.
This only represents the author's personal views and does not constitute legal advice or opinions on specific matters.