Original Title: "Web3 Lawyer's Comprehensive Interpretation of the 'Stablecoin Regulation': How is Hong Kong Doing from Regulatory Framework to Market Significance?"
Original Authors: Guo Fangxin, Sha Jun, Crypto Salad
The year 2025 can be regarded as the inaugural year for stablecoins. On May 21, Hong Kong 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 would officially take effect on August 1. This event has sparked a wave of excitement both within and outside the industry, and Crypto Salad has received a large number of related inquiries. We found that there is widespread concern about what practical benefits this legislation can bring and what impact it will have on the Web3 community; there is also a desire to understand whether participants in the upstream and downstream of the industry chain should engage in stablecoin development and from which angles they should approach it; if there is an intention to issue compliant stablecoins as a licensed institution, how to apply for the relevant licenses…
Prior to this, Crypto Salad had already provided a detailed interpretation of the core concepts such as the definition, characteristics, and functions of stablecoins, see: "Web3 Lawyer's Interpretation: Are Stablecoins Really Stable? Why Are Stablecoins So Important?"; at the same time, it also discussed the regulatory focus of stablecoins and conducted an in-depth comparison of the stablecoin regulatory frameworks in the United States and Hong Kong, see: "Web3 Lawyer's In-Depth Interpretation: What Are the Key Regulatory Focuses of Stablecoins? How Do the Stablecoin Regulatory Frameworks in the U.S. and Hong Kong Differ?".
In this article, Crypto Salad will not elaborate further on the connotations and values of stablecoins themselves, but will focus on Hong Kong's new "Regulation," providing a more detailed overview to seek answers to the following questions:
- What are the minimum requirements for applying for a stablecoin license?
- What can be done with a stablecoin license?
- How are reserve asset management and redemption mechanisms specifically regulated?
- What impact do stablecoins have on cross-border payments in RMB?
- What does the passage of the "Regulation" mean for the industry? Is there going to be a significant change in Hong Kong's financial market landscape?
I. Interpretation of Hong Kong's "Stablecoin Regulation" Regulatory Framework
1. What type of stablecoin is regulated in Hong Kong?
The essence of a stablecoin is a type of cryptocurrency that achieves price stability through specific mechanisms, such as anchoring to reserve assets. The "Regulation" provides a clear definition of stablecoins: A stablecoin is 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;
- It is used for payment, debt settlement, or investment;
- It can be transferred, stored, or traded electronically;
- It operates on a distributed ledger or similar technological basis;
- Its value is ostensibly anchored to a specific asset or asset combination.
At the same time, the "Regulation" specifically excludes 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 for limited-use tokens, assets considered as securities or futures contracts (such as security tokens), stored value amounts regulated by the "Payment Systems and Stored Value Payment Instruments Regulation," and traditional bank deposits.
However, the "Regulation" does not regulate all stablecoins; it limits its regulatory targets to "designated stablecoins" operating in Hong Kong. Designated stablecoins are a unique term used by the Hong Kong government, defined in Article 4 of the "Regulation" as stablecoins that fully reference one or more official currencies, units of account or forms of economic value specified by the Monetary Authority, or a combination of the above, to maintain their stable value. In practice, this refers to what we commonly call fiat-backed stablecoins (hereinafter referred to as "fiat stablecoins").
It can be seen that the Hong Kong government chooses to focus regulation on payment functions, as fiat stablecoins, based on their high collateralization rates with fiat currencies, high value stability, and lower degrees of decentralization, are the most likely to be treated as "quasi-currencies" circulating in the financial trading market. When stablecoins become a common payment tool and expand their usage scale, any occurrence of a run or de-pegging will inevitably affect the entire financial ecosystem; therefore, the demand and requirements for stablecoin regulation are very high. In addition, the "Regulation" explicitly restricts license holders from paying interest on the designated stablecoins they issue, reducing the likelihood of them being viewed as savings-type financial products. Other non-payment uses and stablecoins with insufficient value stability, such as algorithmic stablecoins, are also not included in this first round of regulatory targets.
2. What activities related to stablecoins are restricted?
After the passage of the "Regulation," anyone engaging in or indicating that they are engaging in regulated stablecoin activities must hold a license. One of the core 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 designated stablecoins pegged to the Hong Kong dollar outside of Hong Kong (regardless of the reference ratio);
(3) Activities designated by the Financial Commissioner after consulting the Secretary for Financial Services and the Treasury;
(4) Actively promoting to the public that one is engaging in or appears to be engaging in the above activities.
In addition, Article 2 of the "Regulation" also details other regulatory scopes for designated stablecoins:
Offering or indicating an offer to provide designated stablecoins:
- Advertising for regulated stablecoin activities and the above offers;
- Engaging in or making fraudulent or deceptive activities related to designated stablecoin transactions or aimed at inducing others to enter into agreements intended to acquire, dispose of, subscribe for, or underwrite designated stablecoins.
Overall, the "Regulation" focuses on the issuance, distribution, and retail aspects of stablecoins, with a series of restrictions on behaviors such as "offers" and "advertising," all aimed at confining stablecoins to the category of "payment tools" and 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 stablecoin ecosystem is regulated.
From a jurisdictional perspective, the Hong Kong government regulates not only stablecoins issued within Hong Kong but also includes the issuance of stablecoins pegged to the Hong Kong dollar outside of Hong Kong in its regulatory scope. Even if the issuance does not occur locally in Hong Kong, as long as the issued stablecoins are pegged to the Hong Kong dollar, regardless of the reference ratio, they will be considered to have 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 under the guise 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 "Regulation." Any company issuing, managing, or distributing designated stablecoins within Hong Kong or recognized institutions incorporated outside of Hong Kong must submit a formal license application to the Financial Commissioner. The regulation does not set multiple different licenses but is based on a unified license, with differentiated conditions attached at the time of license issuance based on the specific business and risk characteristics of the applicant.
The license approval process is relatively straightforward, directly applying to the Financial Commissioner and awaiting their decision. The main focus of the Financial Commissioner’s review is whether the applicant meets the "minimum standards" specified in Schedule 2, with the specific conditions as follows:
(1) Sufficient financial resources and liquid assets
The applicant must have a capital of not less than HKD 25 million or an equivalent amount in other currencies; or hold other financial resources valued at no less than HKD 25 million, subject to the approval of the Financial Commissioner.
(2) Allocation of corresponding reserve assets
To ensure the credibility and redemption capability of stablecoins, license holders must adhere to the following conditions when allocating reserve assets corresponding to stablecoins:
· Asset segregation: The reserve asset portfolio must be separated from other reserve asset portfolios held by the license holder, unaffected by the license holder's other debts or operational status. Additionally, the reserve assets should be independent of the license holder's other company assets, ensuring legal and financial segregation;
· Redemption assurance: The market value of the reserve assets must be no less than the total face value of the outstanding stablecoins in the market, ensuring full coverage and immediate redeemability;
· Pegged to Hong Kong dollar assets: Unless prior written approval is obtained from the Financial Commissioner, the reserve assets must directly reference the same reference assets to which the designated stablecoins are pegged;
The reserve asset portfolio must possess high quality and liquidity, with minimal investment risk;
The license holder must establish risk management and internal audit systems;
The license holder must disclose the following information to the public:
Their reserve asset management policies;
The risks and assessment methods that may arise from that strategy;
The composition and market value of their reserve assets;
The results of regular independent audits of their reserve assets.
The license holder must have a sound control system.
(3) Establish a redemption mechanism
The license holder must provide each holder of the designated stablecoins they issue with the right to redeem, and must not impose excessively stringent conditions to restrict the redemption of designated stablecoins. Redemption actions must also not incur related fees.
(4) Fit and proper persons
Fit and proper persons refer to the CEO, directors, stablecoin managers, or controllers of the license holder, who must have and implement sound and appropriate control systems to ensure that the Financial Commissioner clearly identifies each controller of the license holder.
(5) Management requirements
Management personnel must possess relevant professional knowledge and experience, and the license holder must manage this aspect accordingly.
(6) Prudential and risk management
The license holder must establish and implement sound and appropriate risk management policies and procedures to manage the risks arising from the license holder's licensed 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
The license holder 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
The license holder must have dedicated and sufficient resources to conduct licensed stablecoin activities, and any activities outside of licensed stablecoins must obtain the consent of the Financial Commissioner.
(9) Information disclosure requirements
The license holder must publish a white paper for each type of designated stablecoin they issue, providing comprehensive and transparent information about that type of designated stablecoin. The license holder must also provide information to the holders of the stablecoins they issue regarding the complaint handling and compensation mechanisms of the license holder.
(10) Recovery plans and orderly scale-down
The license holder must have and implement sound and appropriate control systems to make appropriate plans to support the ability to restore key functions of stablecoin activities in the event of significant operational disruptions. It is evident that the Hong Kong government maintains consistently high standards and strict requirements for applicants for stablecoin licenses. For institutions intending to apply for a stablecoin license, it is essential to recognize that this is not merely a process of applying for a license but a comprehensive test of the company's capital strength, compliance capabilities, and risk control systems.
4. What compliance obligations do license holders have?
Once a license is obtained, license holders must fulfill a series of ongoing compliance obligations, with violators potentially facing sanctions, license revocation, or even criminal liability. The main obligations include:
(1) Annual fee obligation
The annual fee for the license is HKD 113,020, and the license holder must pay the initial license fee within 14 days of the effective date specified in the written notice of approval issued by the Financial Commissioner, and thereafter must pay the same amount of annual fee before this date each year.
(2) Public display of license number
License holders must publicly display their license number on any materials related to licensed stablecoin activities, as well as on user-facing application interfaces.
(3) Continuous Compliance with Minimum Standards
Any license holder that fails to maintain the "minimum standards," or believes there is a significant likelihood of being unable to fulfill obligations, being insolvent, or about to suspend payments, must promptly and proactively report to the Financial Commissioner and provide all relevant facts, circumstances, and information; otherwise, they may face serious criminal charges.
(4) Reporting Obligations for Changes in Information
Changes in address, nature of business, ownership structure, and other relevant matters must be reported in a timely manner, or they may face penalties such as fines. It is worth mentioning that obtaining a license is not a "one-time deal." According to Article 19 of the "Regulation," the Financial Commissioner may still impose additional or modified licensing conditions based on changes in market risk or regulatory assessment results. License holders must provide a written statement to the Commissioner within the time frame set by the Commissioner, explaining how they will meet the added or modified conditions.
It can be seen that the "Regulation" imposes high requirements on the financial strength of license holders, making it more suitable for companies with ample funds and larger asset volumes to strategically plan for medium to long-term layouts. For medium-sized enterprises, if they wish to invest major resources into stablecoin issuance projects, it is advisable to fully assess feasibility and sustainability before making decisions. This is because they not only need to have a paid-in capital of no less than HKD 25 million or equivalent assets as a threshold but also need to allocate equivalent high-quality reserve assets and bear various compliance, auditing, and system maintenance costs during the stablecoin operation process, which should not be underestimated in terms of long-term investment.
5. What are the Provisions for License Cancellation, Revocation, and Suspension Mechanisms?
If a license holder no longer meets regulatory requirements, the "Regulation" grants the Financial Commissioner considerable intervention authority:
· Temporary License Suspension: If the Financial Commissioner believes that there is a valid reason for revoking a license as specified in "Schedule 4," they may issue a written notice to the relevant license holder, suspending the license for no more than 6 months. During the suspension period, the license holder may not engage in related business activities, and violators will face fines and imprisonment.
· Voluntary License Revocation: The reasons for revoking a license are detailed in "Schedule 4," which includes bankruptcy of the license holder, false reporting of information, violation of license conditions, or effectively ceasing business activities, among others.
6. What Protections Does the "Regulation" Provide for Stablecoin Users?
The "Regulation" is not only a regulatory tool aimed at issuers and practitioners but also establishes a legal protection mechanism for end users of stablecoins. The Hong Kong government has established several core arrangements for user protection in this "Regulation." Crypto Salad outlines the two most important aspects in this article to help users fully understand their rights and potential risks.
Strict Regulation of License Holder Advertising and Marketing Activities
Article 10 of the "Regulation" explicitly prohibits any unlicensed individuals from advertising stablecoin activities or offers to the public. Whether through offline promotions, online social media marketing, or promotions via third-party platforms, all fall under regulatory scrutiny. Article 12 further stipulates that any behavior inducing others to acquire designated stablecoins, if involving false representations, concealment of risks, or exaggerated returns, will constitute a criminal offense. Even if such inducement does not ultimately lead to a transaction, legal accountability may still apply.
User Rights Protection Mechanism
The primary concern of stablecoin holders is the security of the stablecoin's value and redemption assurance. The "Regulation" establishes a relatively robust protection mechanism regarding this point. The "Regulation" requires license holders to have sufficient reserve assets to support the value of the stablecoins they issue. These assets must genuinely exist, possess high liquidity, and be capable of timely redemption when users initiate redemption requests. Additionally, issuers should have an auditing mechanism in place, with qualified third parties regularly reviewing the matching of reserve assets with the total issuance of stablecoins to prevent issues of empty funds or mismatched assets. Under normal operating conditions, license holders must not unreasonably suspend redemptions, delay processing, or set harsh redemption thresholds. If redemption difficulties arise, they must immediately report to the Financial Commissioner.
Overall, the "Regulation" provides systematic and in-depth provisions for the compliance framework of the stablecoin industry and the user protection mechanism. For a wide range of investors, the key is to learn to identify licensed stablecoin issuers and to participate rationally in stablecoin trading and holding activities. With the formal implementation of the "Regulation," those marginal projects and niche stablecoins that do not meet licensing standards will inevitably face market clearing or even collapse risks. Investors should remain highly vigilant and avoid blindly chasing high prices or trusting unauthorized product promotions.
7. How Broad is the Regulatory Authority of the Monetary Authority?
From the above analysis, it is clear that the role of the Financial Commissioner is crucial in Hong Kong's stablecoin regulatory framework. This indicates that the Monetary Authority not only undertakes the administrative role of approving licenses but also wields extensive regulatory, investigative, and direct intervention powers. In general, the Financial Commissioner has the authority to approve and issue licenses; daily regulatory authority; and the power to directly investigate and gather evidence when significant operational risks arise for license holders.
According to Section 5 of the "Regulation," the Financial Commissioner can conduct investigations directly and may instruct or appoint investigators to conduct specific investigations. Investigators may request evidence, information, or explanations from the investigated license holders and may apply to the original court. This series of provisions indicates that the Monetary Authority has almost comprehensive regulatory authority over stablecoins, with the key feature being the "quasi-judicial" investigative power, which possesses high deterrent and enforcement capabilities.
Crypto Salad Summary:
For project parties intending to participate in the Hong Kong stablecoin market as licensed entities, the "Regulation" provides a clear framework and path for compliant operations, requiring only an assessment of their own capital and a clear understanding of the difficulties and ongoing expenditures associated with license applications and subsequent compliance maintenance.
For most project parties that do not intend to apply for a license directly but wish to participate in the stablecoin ecosystem, collaborating with licensed institutions or those applying for licenses is an ideal path to enter the market and expand digital financial services. Such collaborations 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 payment, Web3 infrastructure, cross-border e-commerce, and compliant custody directions, deep collaboration with licensed institutions can ensure that their business complies with regulations while quickly entering the stablecoin circulation system recognized by regulators.
The "Regulation" stipulates that licensed institutions must disclose licensing information on official and public channels, making it relatively easy for project parties to identify "genuine licenses." However, choosing a trustworthy licensed stablecoin institution as a partner should not merely satisfy the superficial condition of "having a license." More importantly, it is crucial to comprehensively assess their business strength, compliance level, and cooperation potential.
For example, the security and transparency of the reserve assets of the license holder are critical. An ideal partner should have 1:1 asset coverage and regularly publish reports audited by third parties, clearly stating the types of reserves, custodians, and risk status. Additionally, whether they have a stable redemption mechanism is also a criterion for judgment; project parties should pay attention to whether they support seamless redemption at any time to avoid future liquidity risks. Finally, project parties should also examine the actual influence of the institution in the market, such as whether they have connected with mainstream wallets, exchanges, or payment channels, and factors like community reputation.
II. 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, entering the era of digital currency, this power is facing challenges. By establishing a stablecoin regulatory system through local laws, Hong Kong is essentially seizing the "digital minting rights," particularly the legal status of stablecoins pegged to the Hong Kong dollar.
2. Significance for the Web3 World
Although the Hong Kong government has defined stablecoins as payment tools, in the context of Web3, stablecoins are still a key link connecting on-chain and off-chain, traditional assets and crypto assets. The institutionalization of stablecoins is crucial for promoting an end-to-end closed loop of RWA (Real World Assets). Within this system, the role of stablecoins may extend beyond payment settlements: whether they can span the entire process of asset generation, subscription, holding, and circulation exchange in the future is a question worth anticipating. 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 evasion of sanctions are continuously increasing enterprises' interest in on-chain stablecoin tools. Statistics show that stablecoins achieved significant growth in 2024, with remittance volumes surpassing the combined total of Visa and Mastercard. Compliance brings scalability and institutional participation, marking the true starting point for project commercialization.
For native Web3 projects, the greatest impact is not being regulated but being included in channels that can access larger-scale assets. In the current context of increasingly scarce "on-chain liquidity," obtaining a compliant identity means being able to connect with institutional investors, RWA assets, and traditional financial systems, participating in higher quality and more explosive liquidity releases.
3. Is a RMB Stablecoin Possible?
Does the implementation of stablecoin regulation in Hong Kong open up policy imagination for a "RMB stablecoin"? Although the RMB 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 RMB stablecoins, the logic of their use will become more established. Hong Kong may become a "policy buffer zone" between RMB stablecoins and the international Web3 market.
Although Hong Kong has taken the lead in legislation, looking at the mainland market, stablecoins still face highly complex regulatory challenges. Due to concerns about financial sanctions and dependence on the dollar system, many enterprises already have a practical need to use "non-dollar settlement tools." However, for regulators, relaxing stablecoin regulations means facing:
- The controllability of capital flows and cross-border settlements;
- The pressure of foreign exchange controls and financial stability;
- The control over data and financial information security issues;
- How to interact and misalign with the existing digital RMB system;
Therefore, Crypto Salad believes that it is unlikely for the mainland to replicate Hong Kong's approach in the short term, but Hong Kong's "experimental field" experience may provide a blueprint for broader digital financial strategy exploration in the future.
III. Conclusion
With the formal implementation of the "Regulation," 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 Crypto Salad has provided a detailed interpretation of the key provisions of the "Regulation" in this article, we believe that what truly deserves attention is not how a specific provision is stipulated, but rather the realization that a brand 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 challenges and opportunities for the entire Web3 world.
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