Original title: Web3 Lawyer's Comprehensive Interpretation of the (Stablecoin Regulation): From Regulatory Framework to Market Significance, How Is Hong Kong Doing?
Original authors: Guo Fangxin, Sha Jun, Crypto Salad
The year 2025 is poised to be the year of 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 announced the release of the (Stablecoin Regulation) on May 29, 2025, which will take effect on August 1. This event has sparked a wave of excitement both inside and outside the circle, and Crypto Salad has received a large number of related inquiries. We find that people are generally concerned about what tangible benefits this bill can bring and what impact it will have on the Web3 community; they also want to understand whether, as participants in the upstream and downstream of the industry chain, they need to engage in stablecoin construction and from which angles they should try to enter; if they intend to issue compliant stablecoins as licensed institutions, how should they apply for relevant licenses…
Prior to this, Crypto Salad had provided a detailed interpretation of the definitions, characteristics, and roles of stablecoins, see: (Web3 Lawyer Interpretation: Are Stablecoins Always Stable? Why Are Stablecoins So Important?); at the same time, it also discussed the regulatory focuses of stablecoins and conducted an in-depth comparison of the stablecoin regulatory frameworks in the United States and Hong Kong, see: (Web3 Lawyer In-Depth Interpretation: What Are the Regulatory Focuses of Stablecoins? How Do the Stablecoin Regulatory Frameworks of the U.S. and Hong Kong Differ?).
In this article, Crypto Salad will not dwell too much on the connotations and values of stablecoins themselves but will focus on Hong Kong's new (Regulation), providing a more detailed analysis to seek answers to the following questions:
· What minimum requirements must be met to apply for a stablecoin license?
· What can one do 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? Will Hong Kong's financial market landscape undergo a major transformation?
I. Interpretation of Hong Kong's (Stablecoin Regulation) framework
1. Which stablecoins are regulated in Hong Kong?
The essence of stablecoins is a type of crypto asset that achieves price stability through specific mechanisms, such as pegging reserve assets. The (Regulation) provides a clear definition of stablecoins: stablecoins are a digitally protected form of value with the following characteristics:
· Its value is expressed as a unit of calculation or economic storage form;
· For payment, debt settlement, or investment;
· Can be transferred, stored, or traded electronically;
· Operating on distributed accounts or similar technological foundations;
· Its value is ostensibly pegged to a specific asset or asset portfolio.
At the same time, the (Regulation) specifically excludes some forms of digital value not within its regulatory scope, such as digital currencies issued by central banks and related banks, as limited-use tokens in points systems, assets deemed as securities or futures contracts (e.g., security tokens), 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 the scope of regulation to 'specified stablecoins' operating in Hong Kong. Specified 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 calculation specified by the Monetary Authority, or forms of economic value storage, or a combination of the two, 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 has chosen to focus its regulation on payment functions, as fiat stablecoins, based on their high collateralization rates with fiat currencies, high value stability, and low levels 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 decoupling will inevitably affect the entire financial ecosystem. Therefore, the demand and requirements for stablecoin regulation are very high. In addition, the (Regulation) explicitly restricts licensees from paying interest on the specified stablecoins they issue, reducing the likelihood of being regarded as savings-type financial products. Other non-payment uses and unstable stablecoins, such as algorithmic stablecoins, are also not included in this first round of regulatory targets.
2. What activities of stablecoins are restricted?
After the (Regulation) is passed, anyone engaging in or indicating they are 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," and Article 5 provides a clear scope of restricted activities at this stage:
（1）Issuing specified stablecoins in Hong Kong;
（2）Issuing specified stablecoins pegged to the Hong Kong dollar outside Hong Kong (regardless of reference ratio);
（3）The Financial Management Commissioner, after consulting the Secretary for Financial Services and the Treasury, announces the specified activities;
（4）Actively promote to the public that they are engaged in or seemingly engaged in the above activities.
In addition, Article 2 of the (Regulation) also details other regulatory scopes for specified stablecoins:
Offer or indicate an offer to provide specified stablecoins:
· Advertise for regulated stablecoin activities and the aforementioned offers;
· Engaging in or committing fraud or deceptive activities related to the trading of specified stablecoins or to induce others to enter into agreements aimed at acquiring, disposing of, subscribing for, or underwriting specified stablecoins.
Overall, the (Regulation) focuses on the issuance, distribution, and retail aspects of stablecoins. A series of restrictions on behaviors such as 'offers' and 'advertising' are intended to confine stablecoins to the category of 'payment tools' and not allow them to be packaged as tradable investment products. Issuers, platform operators, wallet service providers, and other roles are all included in the regulatory system to ensure that the entire chain of the stablecoin ecosystem is under control.
From a jurisdictional perspective, the Hong Kong government regulates not only stablecoins issued within Hong Kong but also includes the issuance of Hong Kong dollar-pegged stablecoins issued outside of Hong Kong under regulation. 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 deemed to have potential local financial influence and 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 in the market under the guise of 'pegging to the Hong Kong dollar' for profit.
3. How to apply for a stablecoin license?
The licensing system is the core regulatory mechanism established by the (Regulation). Any company or recognized institution established outside Hong Kong that issues, manages, or distributes specified stablecoins within Hong Kong must submit a formal license application to the Financial Management Commissioner. The regulation does not set multiple different licenses but is based on a unified license, with differentiated conditions attached at the time of issuing the license based on the specific business and risk characteristics of the applicant.
The license approval process is relatively simple, directly applying to the Financial Management Commissioner and waiting for their determination. The main focus of the Financial Management Commissioner'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 need to pay a capital of no less than 25 million Hong Kong dollars or the equivalent amount in other currencies; or hold financial resources valued at no less than 25 million Hong Kong dollars and obtain the approval of the Financial Management Commissioner.
（2）Allocate corresponding reserve assets
To ensure the credibility and redemption capability of stablecoins, when licensees configure the corresponding reserve assets for stablecoins, they must adhere to the following conditions:
· Asset isolation: The reserve asset portfolio must be separated from the other reserve asset portfolios maintained by the licensee and not affected by the licensee's other debts or business conditions. Furthermore, 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 reserve assets must not be less than the total face value of unredeemed stablecoins in the market, ensuring full coverage and redeemable at any time;
· Pegging to Hong Kong dollar assets: Unless prior written approval from the Financial Management Commissioner is obtained, reserve assets must directly reference the same reference assets pegged to the specified stablecoins;
· The reserve asset portfolio must have high quality and high liquidity, with the minimum investment risk;
· Licensees must establish risk management and internal audit systems;
Licensees must disclose the following information to the public:
· The management policies of its reserve assets;
· The risks and assessment methods that this strategy may bring;
· The composition and market value of its reserve assets;
· Regular independent audits and the results of the audits of its reserve assets.
· Licensees must have sound control systems.
（3）Establish a redemption mechanism
Licensees must provide each holder of the specified stablecoin they issue with redemption rights and must not impose excessively stringent conditions to restrict the redemption of the specified stablecoin. Redemption actions must also not incur related fees.
（4）Appropriate candidates
Appropriate candidates refer to the Chief Executive, directors, stablecoin managers, or controlling persons of the licensee. The licensee must establish and implement sound and appropriate control systems to ensure that the Financial Management Commissioner can clearly identify the identity of each controlling person of the licensee.
（5）Management requirements
Management personnel must possess relevant professional knowledge and experience, and the licensee must also manage this accordingly.
（6）Prudential and risk management
Licensees must establish and implement sound and appropriate risk management policies and procedures to manage risks arising from the licensed stablecoin activities of the licensee, including: security measures and internal controls, 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
Licensees must have dedicated and sufficient resources to engage in licensed stablecoin activities, and any activities outside of licensed stablecoin must obtain the consent of the Financial Management Commissioner.
（9）Information disclosure requirements
Licensees must publish white papers for each type of specified stablecoin they issue, providing comprehensive and transparent information regarding that type of specified stablecoin. Moreover, licensees must provide information on their complaints handling and compensation mechanisms to the holders of the stablecoins they issue.
（10）Recovery plans and orderly scale reduction
Licensees must have and implement a sound and appropriate control system to make appropriate plans to support the key functions that can restore stablecoin activities even in the event of significant operational disruptions. It is evident that the Hong Kong government has maintained consistently high standards and stringent requirements for applicants seeking stablecoin licenses. Institutions intending to apply for stablecoin licenses need 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 management system.
4. What compliance obligations do licensees have?
Once a license is obtained, the licensee must undergo a series of ongoing compliance obligations, and violators may face sanctions, revocation of licenses, or even criminal liability. The main obligations include:
（1）Obligation to pay annual fees
The annual license fee is 113,020 Hong Kong dollars. Licensees must pay the initial license fee within 14 days of the effective date specified in the written notice issued by the Financial Management Commissioner granting the application, and thereafter must pay the same amount of annual fee before this date each year.
（2）Publicly display license number
Licensees must publicly state the license number on any materials related to licensed stablecoin activities and on user-facing application interfaces.
（3）Continuously meet minimum standards
Any licensee that fails to maintain 'minimum standards,' or believes that they are likely unable to fulfill obligations, are insolvent, or about to suspend payments, must promptly and proactively report to the Financial Management Commissioner and provide all relevant facts, situations, and materials; otherwise, they face serious potential for conviction.
（4）Obligation to report changes in information
Changes related to address, business nature, ownership 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 deal'; according to Article 19 of the (Regulation), the Financial Management Commissioner can still temporarily add or modify licensing conditions based on market risk changes or regulatory assessment results, and licensees must provide written statements to explain the added or modified conditions within the time frame set by the Commissioner.
It can be seen that the (Regulation) imposes high requirements on the financial strength of licensees, making it more suitable for financially robust and larger enterprises to engage in medium- to long-term strategic 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-up capital of no less than 25 million Hong Kong dollars or equivalent assets as a threshold but also need to be equipped with equivalent high-quality reserve assets and bear various compliance, audit, and system maintenance costs during the operation of stablecoins, which requires significant long-term investment.
5. How are the mechanisms for license cancellation, revocation, and suspension stipulated?
If a licensee no longer meets regulatory requirements, the (Regulation) also grants the Financial Management Commissioner considerable intervention authority:
· Temporarily revoke the license: If the Financial Management Commissioner believes that one of the reasons for license revocation specified in (Schedule 4) genuinely exists, they can issue a written notice to the relevant licensee to revoke the license for no more than 6 months. During the temporary revocation period, the licensee is not allowed to engage in related business activities; violators will face fines and imprisonment.
· Voluntarily withdraw a license: Reasons for withdrawing a license are detailed in (Schedule 4), including bankruptcy of the licensee, false reporting of information, violation of license conditions, or effectively ceasing business activities, etc.
6. What protections does the (Regulation) provide for stablecoin users?
(Regulation) is not only a regulatory tool aimed at issuers and practitioners but also establishes a legal protection mechanism for the end users of stablecoins. The Hong Kong government has established multiple core arrangements for user protection in the (Regulation). 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 behaviors of licensees
Article 10 of the (Regulation) explicitly prohibits any unlicensed person from advertising to the public regarding stablecoin activities or offerings. Whether through offline promotion, online social media marketing, or promotion via third-party platforms, all fall within the regulatory scope. Article 12 further stipulates: Any act that induces others to acquire the specified stablecoin, if it involves false representations, concealment of risks, exaggeration of returns, and other deceptive statements, will constitute a criminal offense. Even if such inducement does not ultimately lead to a transaction being completed, it may still be subject to legal liability.
User rights protection mechanism
Stablecoin holders are primarily concerned about the value security and redemption guarantee of stablecoins. The (Regulation) establishes a relatively robust protection mechanism for this point. It requires licensees to have sufficient reserve assets to support the value of the stablecoins they issue. These assets must genuinely exist, possess high liquidity, and be redeemable in a timely manner when users initiate redemption requests. Additionally, issuers should have an auditing mechanism in place for qualified third parties to periodically review the alignment between reserve assets and the total issuance of stablecoins, preventing issues of empty funds or mismatched funds. Under normal operating conditions, licensees must not arbitrarily suspend redemptions, delay processing, or set harsh redemption thresholds. If redemption difficulties arise, they must report immediately to the Financial Management 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 most critical thing is to learn to identify licensed stablecoin issuers and participate rationally in stablecoin trading and holding. 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, and investors should be highly vigilant, avoiding blindly chasing high prices or easily believing unauthorized product promotions.
7. How extensive are the regulatory powers of the Monetary Authority?
Through the above analysis, it is clear that the role of the Financial Management Commissioner is crucial in Hong Kong's stablecoin regulatory framework. This means that the Monetary Authority not only takes on the administrative role of approving licenses but also holds extensive powers in regulation, investigation, and direct intervention. Overall, the Financial Management Commissioner has the authority to approve and issue licenses; daily regulatory authority; and has the power to directly investigate and gather evidence when licensees face significant operational risks.
According to Article 5 of the (Regulation), the Financial Management Commissioner can directly conduct investigations and can direct or appoint investigators to conduct specific investigations. Investigators may request evidence, information, or explanations from the investigated licensees and may apply to the original court. This series of provisions indicates that the Monetary Authority has almost comprehensive regulatory powers over stablecoins, crucially possessing 'quasi-judicial' investigative powers with high deterrent and enforcement capabilities.
Crypto Salad Summary:
For parties intending to participate in the Hong Kong stablecoin market as licensees, the (Regulation) provides a clear framework and path for compliance operation, requiring only an assessment of their own capital and a clear understanding of the difficulty and ongoing expenditures related to the license application 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 or license-applying institutions is the ideal way to enter the market and expand digital financial business. Such cooperation can cover multiple levels, such as providing technical support, custody services, payment integration solutions, cross-border clearing capabilities, or jointly building compliant wallets and trading interfaces as ecosystem partners. Especially for enterprises in payment, Web3 infrastructure, cross-border e-commerce, and compliance custody, deep collaboration with licensed institutions can ensure their business complies with regulations while quickly entering the regulatory-recognized stablecoin circulation system.
(Regulation) stipulates that licensed institutions must disclose licensing information in both official and public channels. Therefore, in this regard, project parties can easily identify 'genuine licenses.' However, choosing a trustworthy licensed stablecoin institution as a partner should not only settle for the superficial condition of 'having a license,' but it is more critical to comprehensively assess their business strength, compliance level, and cooperation potential.
For example, the security and transparency of the licensee's reserve assets are crucial. An ideal partner should have a 1:1 full asset coverage and regularly publish reports audited by third parties, clearly stating the types of reserves, custodial institutions, and risk status. At the same time, whether there is a stable redemption mechanism is also one of the criteria. Project parties should pay attention to whether it supports seamless redemption at any time to avoid future liquidity risks. Finally, project parties should also consider the actual influence of the institution in the market, such as whether it has been integrated into mainstream wallets, exchanges, or payment channels, community reputation, and other factors.
II. What is the significance of the (Stablecoin Regulation Draft)?
1. The significance at the policy level
In the traditional financial system, the power of currency issuance, 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. Hong Kong has established a regulatory framework for stablecoins through local laws, essentially seizing the 'digital minting power,' especially the legal status of Hong Kong dollar-pegged stablecoins.
2. Significance for the Web3 world
Although the Hong Kong government has defined stablecoins as payment tools, in the context of Web3, stablecoins remain the key link connecting on-chain and off-chain, traditional assets and crypto assets. The institutionalization of stablecoins is a key driver of the end-to-end closed loop at the RWA end. Within this system, the role of stablecoins may extend beyond payment settlement: whether they can permeate the entire process from asset generation, subscription, holding to circulation and exchange is a question worth looking forward to. With the establishment of the compliance framework, stablecoins are expected to become the 'native capital layer' of RWA, reducing dependence on traditional fiat systems and enhancing on-chain financial efficiency and transparency.
In terms of usage scenarios, 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 continuously driving enterprises' interest in on-chain stablecoin tools. According to statistics, stablecoins experienced significant growth in 2024, with remittance volumes surpassing the combined totals of Visa and Mastercard. Compliance brings scale and institutional participation, marking the true commercialization starting point.
For native Web3 projects, the biggest 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 status means being able to connect with institutional investors, RWA assets, and the traditional financial system, participating in higher quality and more explosive liquidity releases.
3. Is there a possibility of RMB stablecoins being implemented?
Does the implementation of Hong Kong's stablecoin regulation open up policy imagination space for 'RMB stablecoins'? Although RMB stablecoins are still a sensitive topic, their 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 circulating carriers for RMB stablecoins, their use logic will be more established. Hong Kong may become a 'policy buffer zone' between RMB stablecoins and the international Web3 market.
Although Hong Kong is the first to legislate, looking at the mainland market, stablecoins still face highly complex regulatory challenges. Due to concerns over financial sanctions and reliance on the dollar system, many enterprises have a real need to use 'non-dollar settlement tools.' However, for regulators, allowing stablecoins means facing:
· Controllability of capital flows and cross-border settlements;
· Pressure from foreign exchange controls and financial stability;
· Control over data and financial information security issues;
· How to interact and misalign with the existing digital renminbi system;
Therefore, Crypto Salad believes that it is unlikely for the mainland to replicate Hong Kong's approach in the short term. However, the 'experimental field' experience of Hong Kong may provide a blueprint for broader digital financial strategic 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. While this article provides a detailed interpretation of the key provisions of the (Regulation), we believe that what is truly worth paying attention to is not how each 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.