A New Era of Stablecoin Development: Interpretation of Hong Kong's "Stablecoin Regulation"

The year 2025 will be a key year for the development of stablecoins. At the end of May, Hong Kong officially passed the "Stablecoin Ordinance" and announced that it will come into effect on August 1. This bill has attracted widespread attention both inside and outside the industry, as people generally want to understand what practical benefits it can bring to the industry and what impact it will have on the Web3 ecosystem. As participants in the industry chain, is it necessary to engage in the construction of stablecoins? How to apply for relevant licenses?

This article will focus on the new "Regulations", providing a detailed analysis and discussing the following issues:

• What are the minimum requirements for applying for a stablecoin license?
• What businesses can be conducted with a stablecoin license?
• How are the reserve asset management and redemption mechanisms regulated?
• What impact do stablecoins have on cross-border payments with the RMB?
• What does the "Regulations" mean for the industry? Will there be significant changes in the financial landscape of Hong Kong?

I. Interpretation of the Regulatory Framework of Hong Kong's Stablecoin Ordinance

1. Which stablecoin is regulated in Hong Kong?

The "Regulations" define the regulated entities as "designated stablecoins" operating in Hong Kong. Designated stablecoins refer to stablecoins that are fully pegged to one or more official currencies, specified units of account, or forms of storage of economic value, or a combination thereof, to maintain a stable value. This is essentially what is commonly referred to as fiat-backed stablecoins.

It can be seen that the regulatory focus is on stablecoins with payment functions. Fiat stablecoins, due to their high collateralization rates, high value stability, and lower levels of decentralization, are most likely to become "quasi-currencies" in the financial trading market. Once a run or de-pegging occurs, it will affect the entire financial ecosystem. The regulations also clearly restrict licensed entities from paying interest on designated stablecoins issued, in order to reduce the likelihood of them being viewed as savings-type financial products.

2. Which activities of stablecoins are restricted?

The regulations stipulate that anyone engaging in or indicating they are engaging in regulated stablecoin activities must hold a license. The restricted activities include:

• Issue specified stablecoin in Hong Kong
• Issuing designated stablecoins pegged to the Hong Kong dollar outside of Hong Kong
• Other activities designated by the financial management officer
• Actively promote the above activities to the public

In addition, restrictions have been imposed on activities such as provision, advertising, and fraud. Overall, the regulation focuses on supervising the issuance, distribution, and retail aspects of stablecoins to ensure that the entire ecosystem of stablecoins is regulated.

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 anchored to the Hong Kong dollar from overseas in its regulation. This reflects a high regard for monetary sovereignty and financial stability.

3. How to apply for a stablecoin license?

Companies that issue, manage, and distribute specified stablecoins within Hong Kong, or recognized institutions incorporated outside of Hong Kong, must submit a licensing application to the Financial Commissioner. The main focus of the review is whether the applicant meets the "minimum standards":

• Have sufficient financial resources and liquid assets
• Configure the corresponding reserve assets
• Establish a redemption mechanism
• The management team possesses expertise and experience.
• Establish a risk management and internal audit system
• Measures to combat money laundering and terrorist financing
• Information disclosure requirements
• Recovery plan and orderly scaling down

It is evident that the Hong Kong government maintains consistently high standards and strict requirements for stablecoin license applicants. Applicants must recognize that this is not just a process of applying for a license, but a comprehensive test of the company's capital strength, compliance capability, and risk control system.

4. What compliance obligations do licensees have?

After obtaining the license, the licensee must fulfill a series of ongoing compliance obligations, which mainly include:

• Pay annual fee
• Public display of license number
• Continuously meet the minimum standards
• Data Change Report

It is worth noting that obtaining a license is not a "one-time deal". The financial regulatory commissioner may temporarily add or modify licensing conditions based on changes in market risk or results of regulatory assessments.

The regulations impose high requirements on the financial strength of license holders, making it more suitable for companies with abundant funds and large asset volumes to make strategic arrangements. For medium-sized enterprises, it is advisable to fully assess feasibility and sustainability before making decisions.

5. How are the mechanisms for the cancellation, revocation, and suspension of licenses regulated?

If the licensee no longer meets regulatory requirements, the financial regulator has the right to:

• Temporarily revoke the license, for a period not exceeding 6 months
• Proactive revocation of the license, reasons include the license holder's bankruptcy, false declaration of information, violation of license conditions, etc.

6. What protections does the regulation provide for stablecoin users?

The "Regulations" establish a legal protection mechanism for stablecoin end users, mainly including:

• Strictly regulate the promotional and marketing activities of licensed operators
• User rights protection mechanisms, such as requiring license holders to have sufficient reserve assets, and setting up auditing mechanisms, etc.

For investors, the key is to learn to identify licensed stablecoin issuers and participate rationally in stablecoin trading and holding. One should be wary of fringe projects that do not meet licensing standards, avoiding blind chasing of high prices or trusting unauthorized product promotions.

How broad are the regulatory powers of the Monetary Authority?

The financial management officer plays an important role in the stablecoin regulatory framework in Hong Kong, possessing extensive regulatory, investigative, and direct intervention powers:

• Approval and Licensing Authority
• Daily regulatory authority
• When the licensee faces significant operational risks, there is the authority to conduct direct investigations and collect evidence.

This indicates that the Monetary Authority has comprehensive regulatory authority over stablecoins, especially with the "quasi-judicial" investigation power and strong enforcement.

2. The Significance of the "Stablecoin Regulation Draft"

1. The significance at the policy level

Hong Kong has established a stablecoin regulatory system through local laws, effectively seizing the "digital currency issuance rights", especially the legal status of stablecoins pegged to the Hong Kong dollar.

2. The Significance of the Web3 World

The institutionalization of stablecoins is expected to promote an end-to-end closed loop for RWA, becoming the "native capital layer" of RWA and reducing reliance on traditional fiat currency systems.

For native Web3 projects, the biggest impact is being incorporated into channels that can access larger-scale assets. Obtaining a compliant identity means being able to connect with institutional investors, RWA assets, and the traditional financial system, participating in higher-quality liquidity releases.

3. Is it possible for the Renminbi stablecoin to be implemented?

The implementation of stablecoin regulation in Hong Kong has opened up policy imagination for the renminbi stablecoin. In the future, if suitable RWA targets can be found, the usage logic of the renminbi stablecoin will become more established. Hong Kong may become a "policy buffer zone" between the renminbi stablecoin and the international Web3 market.

However, the mainland market's stablecoins still face complex regulatory challenges. In the short term, it is unlikely that the mainland will replicate Hong Kong's approach, but Hong Kong's "testing ground" experience may provide a blueprint for exploring broader digital financial strategies in the future.

3. Conclusion

The formal implementation of the "Regulations" marks a crucial step for Hong Kong in the global stablecoin regulatory competition. 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 monetary landscape. What is truly worth noting is 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.