Web3 Lawyer's In-depth Analysis of Hong Kong's Stablecoin Regulation: A Comprehensive View from License Application to Market Transformation

Author | Guo Fangxin, Sha Jun

Original Title: A Comprehensive Interpretation of the Web3 Lawyer's "Stablecoin Regulations": From Regulatory Framework to Market Implications, How is Hong Kong Doing It?

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 (hereinafter referred to as 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 made a detailed interpretation of the definition, characteristics, role and other core concepts of stablecoins, see: "Web3 Lawyer's Interpretation: Are Stablecoins Necessarily Stable?" Why are stablecoins important? 》； At the same time, it also discusses the regulatory focus of stablecoins, and makes an in-depth comparison of the respective regulatory frameworks of stablecoins in the United States and Hong Kong. What are the differences between the regulatory frameworks for stablecoins in the US and Hong Kong? 》。

In this article, the crypto salad will no longer elaborate on the connotations and values of stablecoins themselves, but will focus on the new "Regulation" 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 stablecoins on cross-border payments with the Chinese Yuan?
• What does the passage of the "Regulations" actually mean for the industry? Is there going to be a major upheaval in Hong Kong's financial market landscape?

……

▍Interpretation of Hong Kong's Stablecoin Regulatory Framework

1. Which stablecoin is regulated in Hong Kong?

The essence of stablecoins is a type of cryptocurrency that achieves price stability through specific mechanisms, such as pegging to reserve assets. The regulation clearly defines stablecoins as a digitally protected form of value that has the following characteristics:

• Its value is expressed as a unit of account or a form of economic storage;
• Used for payment, debt settlement, or investment;
• Can be transferred, stored, or traded electronically;
• Operates on a distributed account or similar technological basis;
• Its value is superficially anchored to a certain 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 are used as limited-purpose tokens, assets that are classified as securities or futures contracts (e.g., security tokens), stored value amounts regulated by the "Payment Systems and Stored Value Payment Instruments Regulations," and traditional bank deposits, among others.

However, the Ordinance does not regulate all stablecoins, and it limits the scope of regulation to "specified stablecoins" operating in Hong Kong. A specified stablecoin is a term unique to the Hong Kong Government and, as defined in section 4 of the Ordinance, refers to 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 two to maintain its stable value. In fact, it is commonly known as a fiat-pegged stablecoin (hereinafter referred to as a "fiat 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.

2. What activities of stablecoins are restricted?

After the regulation is passed, anyone who engages in or represents themselves as engaging in regulated stablecoin activities must hold a license. One of the core regulatory aspects of the regulation is to define which activities fall under "regulated stablecoin activities," with Article 5 providing a clear scope of restricted activities at this stage:

(1) Issuing designated stablecoins in Hong Kong;

(2) Issuing a designated stablecoin 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, announced the specified activities.

(4) Actively promote oneself to the public as engaging or appearing to engage in the above activities.

In addition, Part 2 of the Regulations also specifies other regulatory areas concerning designated stablecoins:

• Offer or show your offer indicating stablecoin:
• Advertise regulated stablecoin activities and the above offers;
• refers to trading in stablecoins or inducing others to enter into agreements aimed at acquiring, disposing of, subscribing for, or underwriting specified stablecoins, involving or constituting fraudulent or deceptive activities.

Generally speaking, the "Regulations" focus on the issuance, distribution and retail of stablecoins, and a series of restrictions on "offer" and "advertising" are all aimed at restricting stablecoins to the category of "payment instruments", rather than being packaged as investment products that can be speculated. Issuers, platform operators, wallet service providers and other roles are included in the regulatory system to ensure that the entire chain of the 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 great importance that Hong Kong attaches to monetary sovereignty and financial stability, and prevents unauthorized digital assets from misleading the public in the market in the name of "pegging to the Hong Kong dollar".

3. How to apply for a stablecoin license?

The licensing system is the core regulatory mechanism established by the Regulations. Any company that issues, manages, or distributes designated stablecoins within Hong Kong or any recognized institution incorporated outside Hong Kong must submit a formal license application to the Financial Commissioner. The Regulations do not set multiple types of licenses; instead, they are based on a unified license, with differentiated conditions attached at the time of issuance based on the specific business and risk characteristics of the applicant.

The approval process for the license is relatively simple, directly submitting the application to the financial management officer and waiting 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, with the specific conditions as follows:

(1) Have sufficient financial resources and liquid assets

The applicant needs to pay not less than 25 million HKD or an equivalent amount in other currencies as capital; or hold financial resources valued at no less than 25 million HKD, approved by the Financial Management Commissioner.

(2) Configure the corresponding reserve assets

To ensure the credibility and redeemability of stablecoins, licensees must follow 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 other debts or business conditions. In addition, the reserve assets should also be independent of the licensee's other company assets to ensure legal and financial separation;
• Redemption Guarantee: The market value of the reserve assets is no less than the total par value of the unredeemed 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 Management Commissioner, reserve assets must directly reference the same underlying asset to which the specified stablecoin is pegged;
• The reserve asset portfolio must possess high quality and high liquidity, and have the lowest investment risk;
• Licensees must establish risk management and internal audit systems;
• License holders must disclose the following information to the public:

1. Management policies for its reserve assets;
2. Risks that this strategy may bring and assessment methods;
3. The composition and market value of its reserve assets;
4. The periodic independent audit of its reserve assets and the results of the audit.

• License holders must establish a sound regulatory system.

(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) Suitable candidates

Appropriate candidates refer to the licensed person's chief executive officer, directors, stablecoin managers, or controlling persons. The licensed person must establish and implement sound and appropriate control systems to ensure that the financial management commissioner clearly identifies each controlling person of the licensed entity.

(5) Management's request

Managers need to have the corresponding professional knowledge and experience, and licensed individuals also need to manage accordingly.

(6) Prudential and Risk Management

Licensees must establish and implement sound and appropriate risk management policies and procedures to manage the risks arising from the licensee's stablecoin activities, including: security measures and internal controls, effective methods for detecting fraud and attempted fraud.

(7) Measures to combat money laundering and terrorist financing.

License holders must establish and implement sound and appropriate control systems to prevent and combat any 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 stablecoins must obtain the consent of the financial management commissioner.

(9) Information Disclosure Requirements

The licensee shall publish a white paper for each type of specified stablecoin it issues, providing comprehensive and transparent information about that type of specified stablecoin. Additionally, the licensee shall provide information to the holders of the stablecoins it issues regarding its complaint handling and compensation mechanisms.

(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 ability to promptly restore critical functions of stablecoin activities 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 a process of applying for a license, but a comprehensive test of the company's capital strength, compliance capabilities, and risk management system.

4. What compliance obligations does the licensee have?

Once a 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 license fee is 113,020 HKD. License holders must pay the initial license fee within 14 days after the effective date specified in the written notice issued by the Financial Management Commissioner granting the application, and thereafter must pay the same annual fee before this date each year.

(2) Public display license number

License holders must publicly disclose their license number on any materials related to licensed stablecoin activities and on user-facing application interfaces.

(3) Continuously meet the minimum standards

Any licensed person who fails to maintain the "minimum standards", or who believes they have a significant likelihood of being unable to fulfill obligations, unable to pay debts, or 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 condemnation.

(4) Obligation to Report Changes in Information

Changes related to the address, business nature, shareholding 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 effort." According to Article 19 of the Regulations, the Financial Management Commissioner may still temporarily add or modify licensing conditions based on changes in market risks or regulatory assessment results. License holders must provide a written statement to the Commissioner within the time frame set by him to explain the conditions that have been added or modified.

It can be seen that the regulations have higher capital strength requirements for license holders, making it more suitable for companies with abundant funds and larger asset volumes to strategically plan for medium to long-term layouts. For medium-sized enterprises, if they wish to invest their main resources into stablecoin issuance projects, it is recommended to fully assess feasibility and sustainability before making a decision. This is because they not only need to provide a minimum paid-in capital of HKD 25 million or equivalent assets as a threshold, but also need to have equivalent high-quality reserve assets, while bearing various compliance, auditing, and system maintenance costs during the stablecoin operation process, making long-term investment not to be underestimated.

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

If the licensee no longer meets the regulatory requirements, the regulations also grant the financial management commissioner considerable intervention authority:

• Suspension of licence: The Monetary Authority may, if it considers that there is a genuine reason for revocation of a licence as specified in Schedule 4 above, may suspend the licence for a period not exceeding 6 months by giving written notice to the licensee. During the suspension period, the licensee shall not carry on the relevant business activities and will be liable to a fine and imprisonment.
• Voluntary License Revocation: The reasons for revoking the license are detailed in "Schedule 4," which includes bankruptcy of the licensee, false declaration of information, violation of license conditions, or substantial cessation of business activities, among others.

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

The "Regulations" are not merely a regulatory tool aimed at issuers and industry institutions, but also aim to 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." Crypto Salad outlines 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 licensees

Article 10 of the Regulations explicitly prohibits any unlicensed individuals from advertising to the public regarding stablecoin activities or offers. Whether it is offline promotion, online social media marketing, or promotion through third-party platforms, all fall under regulatory scope.

• Article 12 further stipulates: Any act that induces others to acquire specified stablecoins, if it involves deceptive statements such as false representations, concealment of risks, or exaggerated returns, will constitute a criminal offense. Even if such inducement does not ultimately lead to a transaction being completed, legal accountability may still be pursued.
• User Rights Protection Mechanism

The main concern of stablecoin holders is the value security and redemption guarantee of stablecoins. The regulations establish a relatively robust protection mechanism for this point.

The regulations require licensed entities to maintain sufficient reserve assets to support the value of the stablecoins they issue. These assets must exist in reality, possess high liquidity, and be capable of timely redemption when users initiate a redemption request. In addition, issuers should establish an auditing mechanism, with qualified third parties regularly reviewing the matching of reserve assets to the total issuance of stablecoins, to prevent scenarios of empty funds or mismatched funds. Under normal operating conditions, licensed entities must not suspend redemptions without reason, delay processing, or set harsh redemption thresholds. In the event of redemption difficulties, they must immediately report to the financial management commissioner.

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 are the regulatory powers of the Monetary Authority?

From the above analysis, it is evident that the role of the Financial Management Commissioner is crucial within the regulatory framework of stablecoins in Hong Kong. This indicates that the Monetary Authority not only undertakes an administrative role in licensing approval but also possesses extensive powers for regulation, investigation, and direct intervention. Overall, the Financial Management Commissioner has the authority to approve and issue licenses; routine supervision powers; and the power to directly investigate and collect evidence when there are significant operational risks associated with license holders.

According to Section 5 of the Regulations, the Financial Management Commissioner may conduct investigations directly and may direct or appoint investigators to carry out a specific investigation. Investigators may request the licensee under investigation to provide evidence, information, or explanations, 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 feature being the "quasi-judicial" investigative powers, which possess a high level of deterrence and enforcement.

Crypto 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 compliant operations, requiring only an assessment of their own capital and a clear understanding of the difficulty and ongoing expenses related to 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 on both official and public channels, making it relatively easy for project parties to identify a "genuine license." However, when choosing a reliable stablecoin licensed institution as a partner, it is not enough to simply be satisfied with the superficial condition of the other party "having a license"; it is more critical to comprehensively assess their business strength, compliance level, and cooperation potential.

For example, the security and transparency of a licensee's reserve assets is paramount, and an ideal partner should have full asset coverage on a 1:1 basis and publish regular third-party audited reports clarifying the currency, custodian and risk profile of the reserves. At the same time, whether it has a stable redemption mechanism is also one of the judging criteria, and the project team should pay attention to whether it supports barrier-free redemption at any time to avoid liquidity risks in the future. Finally, the project team should also examine the actual influence of the institution in the market, such as whether it has been connected to mainstream wallets, exchanges or payment channels, community reputation, and other factors.

▍What is the significance of the "Stablecoin Regulation Draft"?

1. The 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, essentially seizing the "digital minting rights," particularly the legal status of stablecoins pegged to the Hong Kong dollar.

2. The Significance of the Web3 World

Although the Hong Kong government has designated stablecoins as payment tools, in the context of Web3, stablecoins are still a key link connecting on-chain and off-chain, as well as traditional assets and crypto assets. The institutionalization of stablecoins is crucial for driving the end-to-end closed loop of RWA. In this system, perhaps the role of stablecoins goes far beyond payment settlement: whether they can encompass the entire process from asset generation, subscription, holding to 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 funding layer" of RWA, reducing reliance on traditional fiat systems and enhancing 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 continually increasing enterprises' interest in on-chain stablecoin tools. According to statistics, stablecoins achieved significant growth in 2024, with remittance volumes exceeding 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 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 release.

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

Has the implementation of Hong Kong's stablecoin regulation opened up the policy imagination space for "RMB stablecoin"? While RMB stablecoins are still a sensitive topic, their long-term potential cannot be overlooked. Crypto Salad believes that if a suitable RWA target (such as energy, minerals, overseas bonds, etc.) can be found in the future to provide a stable circulation carrier for RMB stablecoins, its use logic will be more valid. Hong Kong may become a "policy buffer" between the RMB stablecoin and the international Web3 market.

Despite Hong Kong being the first to legislate, stablecoins still face highly complex regulatory challenges in the mainland market. Due to concerns over financial sanctions and dependence on the US dollar system, many enterprises already have a practical need for using "non-US dollar settlement tools." However, for regulators, allowing stablecoins means having to face:

• The controllability of capital flow and cross-border settlement;
• Pressure of 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, Crypto 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.

▍Conclusion

With the official 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 monetary landscape. Although this article has provided a detailed interpretation of the key provisions of the "Regulations" by Crypto Salad, we believe that what is truly worth noting is not how a specific provision is stipulated, but rather the realization that a whole new institutional space is opening 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 presents both a challenge and an opportunity for the entire Web3 world.

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