Written by: Crypto Salad
The year 2025 can be termed 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 'Regulations') 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 circle, and Crypto Salad has received a lot of related inquiries. We find that everyone is generally concerned about what practical benefits this legislation will bring and what impact it will have on the Web3 ecosystem; they also hope to understand whether, as participants in the industry chain, it is necessary to engage in stablecoin construction and from which angles they should attempt to enter; if they intend to issue compliant stablecoins as licensed institutions, how to apply for relevant licenses...
Prior to this, Crypto Salad has provided detailed interpretations of the definitions, characteristics, functions, and other core concepts of stablecoins, see: (Web3 Lawyer Interpretation: Are Stablecoins Always Stable? Why are Stablecoins So Important?); it has also explored the regulatory focus of stablecoins and conducted an in-depth comparison of the stablecoin regulatory frameworks in the United States and Hong Kong, see: (Web3 Lawyer In-Depth Interpretation: What is the Regulatory Focus of Stablecoins? How do the Regulatory Frameworks for Stablecoins in the US and Hong Kong Differ?).
In this article, Crypto Salad will not elaborate too much on the connotation and value of stablecoins themselves, but will focus on the new (Regulations) in Hong Kong, 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 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 Renminbi?
(Regulations) What does it ultimately mean for the industry? Is the financial market landscape in Hong Kong about to change dramatically?
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1. Interpretation of the Hong Kong (Stablecoin Regulations) regulatory framework
1. What type of stablecoin is regulated in Hong Kong?
The essence of stablecoins is a type of cryptocurrency designed to achieve price stability through specific mechanisms, such as pegging to reserve assets. (Regulations) provide a clear definition of stablecoins: a form of digital value protected by encryption, characterized by the following features:
Its value expressed as a unit of account or form of economic storage;
Used for payment, debt settlement, or investment;
Can be transferred, stored, or traded electronically;
Operates on a distributed ledger or similar technological foundation;
Its value seemingly pegged to a specific asset or asset combination.
At the same time, the (Regulations) specifically exclude some forms of digital value that are not within its regulatory scope, such as digital currencies issued by central banks and related banks, points in limited-use token systems, assets considered as securities or futures contracts (such as security tokens), amounts regulated by the (Payment Systems and Stored Value Facilities Ordinance), and traditional bank deposits, etc.
However, the (Regulations) do not regulate all stablecoins; they limit the 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 (Regulations) as stablecoins that are entirely pegged to one or more official currencies, units of account specified by the Monetary Authority, or forms of economic value storage, or a combination of the above to maintain their stable value. This essentially 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 on the payment function for regulation because fiat stablecoins, based on their high collateralization with fiat currencies, high value stability, and lower degree of decentralization, have the best chance of being considered 'quasi-currency' in the financial transaction market. When stablecoins become a common payment tool and expand their usage scale, any occurrence of runs or decoupling will inevitably impact the entire financial ecosystem; thus, the demand and requirements for stablecoin regulation are very high. Additionally, the (Regulations) explicitly prohibit licensees from paying interest on their issued designated stablecoins, 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 not included in this first round of regulatory targets.
2. What activities related to stablecoins are restricted?
Once the (Regulations) are passed, anyone conducting or indicating they are conducting regulated stablecoin activities must hold a license. One of the core regulatory focuses of the (Regulations) is to define which activities fall under 'regulated stablecoin activities', with Article 5 providing a clear scope of restricted activities at this stage:
Issuing designated stablecoins in Hong Kong;
Issuing designated stablecoins pegged to the Hong Kong dollar outside of Hong Kong (regardless of the reference ratio);
The Financial Regulator, after consulting the Secretary for Financial Services and the Treasury, announces designated activities;
Actively promote themselves to the public as conducting or seeming to conduct the above activities.
In addition, Section 2 of the (Regulations) specifies other regulatory areas for designated stablecoins:
Offers or indicating one’s offer to provide designated stablecoins:
To advertise regulated stablecoin activities and the above offers;
To entice others to enter into agreements aimed at acquiring, disposing of, subscribing to, or underwriting designated stablecoins, involving or making fraudulent or deceptive activities.
Overall, the (Regulations) focus on the issuance, distribution, and retail aspects of stablecoins, with a series of restrictions on acts such as 'offers' and 'advertisements' to confine stablecoins to the category of 'payment instruments' and not to be packaged as speculative investment products. Issuers, platform operators, wallet service providers, and other roles are included in the regulatory framework to ensure that the entire ecosystem of stablecoins is under regulation.
From a jurisdictional perspective, the Hong Kong government regulates not only stablecoins issued within Hong Kong but also those pegged to the Hong Kong dollar issued outside of Hong Kong. Even if the issuance does not occur locally, as long as the issued stablecoins are linked to the Hong Kong dollar, regardless of the reference ratio, they will be considered 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 'pegged 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 issuing, managing, or distributing designated stablecoins within Hong Kong or recognized institutions incorporated outside Hong Kong must submit a formal license application to the Financial Regulator. The regulations do not set multiple different licenses but rather base it on a unified license, adding differentiated conditions upon granting 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 Regulator and waiting for their decision. The main focus of the Financial Regulator's review is whether the applicant meets the 'minimum standards' specified in (Appendix 2), with specific conditions as follows:
(1) Sufficient financial resources and liquid assets
Applicants need to pay no less than 25 million Hong Kong dollars or an equivalent amount in other currencies as capital; or possess financial resources valued at no less than 25 million Hong Kong dollars, subject to the approval of the Financial Regulator.
(2) Allocate corresponding reserve assets
To safeguard the credibility and redemption capability of stablecoins, when licensees allocate reserve assets corresponding to stablecoins, they must adhere to the following conditions:
Asset isolation: The reserve asset portfolio must be separated from other reserve assets held by the licensee, unaffected by the licensee's other debts or operational status. Furthermore, reserve assets should also be independent of the licensee's other company assets to ensure legal and financial isolation.
Redemption guarantee: The market value of the reserve assets must be no less than the total face value of unredeemed stablecoins in the market, ensuring full coverage and immediate redeemability.
Pegged Hong Kong dollar assets: Unless prior written approval is obtained from the Financial Regulator, reserve assets must directly reference the same reference assets pegged to the designated stablecoins.
The reserve asset portfolio must possess high quality and high liquidity, and have minimal investment risk.
Licensees must establish risk management and internal audit systems.
Licensees must disclose the following information to the public:
The management policy for its reserve assets;
The risks that this strategy may entail and the assessment methods;
The composition and market value of its reserve assets;
The regular independent audits of its reserve assets and the results of those audits.
Licensees must establish sound management systems.
(3) Establishing a redemption mechanism
Licensees must provide redemption rights to each holder of their issued designated stablecoins and must not impose excessively stringent conditions to restrict the redemption of designated stablecoins. Redemption actions must also not incur related fees.
(4) Appropriate candidates
Appropriate candidates refer to the licensee's CEO, directors, stablecoin managers, or controlling persons. Licensees must establish and implement sound and appropriate management systems to ensure the Financial Regulator clearly identifies 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 aspect 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 their licensed stablecoin activities, including: security measures and internal risk control, effective methods for detecting fraud and attempted fraud.
(7) Measures to combat money laundering and terrorist financing
Licensees must establish and implement sound and appropriate management 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 carry out licensed stablecoin activities; any activities outside the scope of licensed stablecoins must obtain the consent of the Financial Regulator.
(9) Information disclosure requirements
Licensees must publish white papers for each type of designated stablecoin they issue to provide comprehensive and transparent information about that type of designated stablecoin. Additionally, licensees must provide information about their complaint handling and compensation mechanisms to holders of the stablecoins they issue.
(10) Recovery plans and orderly scaling down
Licensees must set up and implement sound and appropriate control systems to make adequate plans to support the critical functions that can restore stablecoin activities promptly in the event of significant operational disruptions.
Clearly, the Hong Kong government maintains consistently high standards and strict requirements for applicants seeking licenses for stablecoins. Institutions intending to apply for a stablecoin license must recognize that this is not merely an application process for a piece of paper, but a comprehensive test of the company's capital strength, compliance capability, and risk management system.
4. What compliance obligations do licensees have?
Once a license is obtained, the licensee must fulfill 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 Hong Kong dollars, and the licensee must pay the initial license fee within 14 days after the effective date specified in the written notice of approval from the Financial Regulator; thereafter, the same annual fee must be paid before this date each year.
(2) Public display of license number
Licensees must publicly state the license number on any materials related to licensed stablecoin activities, as well as on user-facing application interfaces.
(3) Ongoing compliance with minimum standards
Any licensee that fails to maintain the 'minimum standards' or believes they are highly likely to fail to fulfill obligations, lack the ability to repay debts, or are about to cease payments, must promptly and proactively report to the Financial Regulator and provide all relevant facts, circumstances, and information; otherwise, they may face serious criminal charges.
(4) Obligation to report changes in information
Changes in address, business nature, shareholding structure, and other relevant matters must be reported promptly; otherwise, penalties such as fines may be faced.
It is worth mentioning that obtaining a license is not a 'one-time' affair; according to Article 19 of the (Regulations), the Financial Regulator may still temporarily add or modify the licensing conditions based on changes in market risk or regulatory assessment results. Licensees must provide written statements within the time frame set by the regulator to explain how they will meet the added or modified conditions.
It can be seen that the (Regulations) impose high requirements on the financial strength of licensees, making them more suitable for companies with abundant funds and larger asset volumes to strategically undertake medium- to long-term layouts. For medium-sized enterprises, if they wish to invest major resources into stablecoin issuance projects, it is recommended to thoroughly assess feasibility and sustainability before making decisions. This is because it not only requires a paid-in capital of no less than 25 million Hong Kong dollars or equivalent assets as a threshold but also needs to be equipped with equivalent high-quality reserve assets and bear various compliance, auditing, and system maintenance costs during the stablecoin operation process, which are not to be underestimated in long-term investments.
5. How are the cancellation, revocation, and suspension mechanisms for licenses stipulated?
If the licensee no longer meets regulatory requirements, the (Regulations) also grant the Financial Regulator considerable intervention authority:
Temporary License Revocation: If the Financial Regulator believes that there are valid reasons for revoking a license as specified in (Appendix 4), they may issue a written notice to the relevant licensee to revoke the license for up to 6 months. During the temporary revocation period, the licensee may not engage in related business activities, and violators will face fines and imprisonment.
Voluntary License Revocation: The reasons for license revocation are detailed in (Appendix 4), which includes circumstances such as the licensee's bankruptcy, false declaration of information, violation of license conditions, or effectively ceasing business activities, among others.
6. What protections do the (Regulations) provide for stablecoin users?
(Regulations) are not merely regulatory tools for issuers and practitioners but also establish a legal protection mechanism for end users of stablecoins. The Hong Kong government has established multiple core arrangements aimed at user protection in the (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 behaviors of licensees
Article 10 of the (Regulations) explicitly prohibits any unlicensed person from advertising stablecoin activities or offers to the public. Whether offline promotion, online social media marketing, or promotion through third-party platforms, all fall within the regulatory scope.
Article 12 further stipulates: Any actions enticing others to acquire designated stablecoins that involve false statements, concealing risks, exaggerating returns, or other deceptive representations will constitute a criminal offense. Even if the inducement does not ultimately result in a transaction, it may still be legally accountable.
User rights protection mechanism
What stablecoin holders are most concerned about is the security of stablecoin value and redemption guarantees. The (Regulations) establish a relatively robust protection mechanism in this regard.
(Regulations) require licensees to have sufficient reserve assets to support the value of their issued stablecoins. These assets must genuinely exist, have high liquidity, and be promptly redeemable when users initiate redemption requests. Additionally, the issuer should have an auditing mechanism where qualified third parties regularly review the matching degree between reserve assets and the total issuance of stablecoins to prevent empty fund pools or fund mismatches. Under normal operating conditions, licensees must not unreasonably suspend redemptions, delay processing, or set harsh redemption thresholds. If redemption difficulties arise, they must immediately report to the Financial Regulator.
Overall, the (Regulations) provide a systematic and in-depth framework for compliance in the stablecoin industry and user protection mechanisms. For a vast number 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 (Regulations), 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 extensive are the Monetary Authority's regulatory powers?
From the above analysis, it is clear that the role of the Financial Regulator is crucial in Hong Kong's stablecoin regulatory framework. This indicates that the Monetary Authority not only assumes an administrative role in license approval but also possesses extensive regulatory, investigative, and direct intervention powers. Overall, the Financial Regulator has the authority to approve and issue licenses; daily regulatory powers; and has the power to directly investigate and collect evidence when a licensee faces significant operational risks.
According to Section 5 of the (Regulations), the Financial Regulator can conduct direct investigations and may instruct or designate investigators to conduct a specific investigation. Investigators may request the investigated licensee to provide evidence, information, or explanations and may apply to the original court.
This series of regulations indicates that the Monetary Authority has almost comprehensive regulatory authority over stablecoins, particularly possessing 'quasi-judicial' investigative powers, which have 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; they only need to assess their capital and have a clear understanding of the difficulty and continuous expenditure involved in 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 institutions or those applying for licenses is an ideal path 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 co-building compliant wallets and trading interfaces as ecosystem partners. Especially for enterprises in the payment, Web3 infrastructure, cross-border e-commerce, and compliant custody sectors, deep cooperation with licensed institutions can ensure that their business complies with regulations while quickly integrating into the recognized stablecoin circulation system.
(Regulations) stipulate that licensed institutions must disclose licensing information on both official and public channels, so in this regard, project parties can easily identify 'genuine licenses'. However, choosing a trustworthy stablecoin licensing institution as a partner should not rely solely on the surface condition of 'having a license'; more crucially, a comprehensive assessment of its business strength, compliance level, and cooperation potential is essential.
For example, the safety 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 that clearly outline the types of reserves, custodians, and risk status. Additionally, whether there is a stable redemption mechanism is also one of the criteria, and project parties should focus on whether it supports unobstructed redemption at any time to avoid liquidity risks in the future. Finally, project parties should also assess the actual influence of the institution in the market, such as whether it has connected with mainstream wallets, exchanges, or payment channels, community reputation, and other factors.
2. What significance does the (Stablecoin Regulation Draft) hold?
1. The significance at the policy level
In the traditional financial system, the authority to issue currency, also known as the minting power, has always been in the hands of the state. However, in the era of digital currency, this power is facing challenges. Hong Kong has established a stablecoin regulatory system through local laws, essentially seizing the 'digital minting rights', especially 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 still serve as a crucial link between on-chain and off-chain, traditional assets and crypto assets. The institutionalization of stablecoins is key to promoting the end-to-end closed loop of RWA. Within this system, stablecoins may play a role far beyond payment settlement: whether they can span the entire process of asset generation, subscription, holding, and circulation exchange is a question worth anticipating. With the establishment of a compliant 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 usage scenarios, 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 exceeding the combined total of Visa and Mastercard. Compliance brings scale and institutional involvement, marking the true commercialization starting point for projects.
For native Web3 projects, the biggest impact is not being regulated, but being incorporated into a channel that can access larger-scale assets. In the current context of increasingly scarce 'on-chain liquidity', gaining 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 it possible for Renminbi stablecoins to be implemented?
Does the implementation of stablecoin regulation in Hong Kong open up policy imagination for 'Renminbi stablecoins'? Although Renminbi 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 circulation carriers for Renminbi stablecoins, their usage logic will be more valid. Hong Kong may become a 'policy buffer zone' between Renminbi 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 about financial sanctions and dependence on the dollar system, many enterprises already have practical needs for using 'non-dollar settlement tools'. However, for regulators, relaxing stablecoin regulations means facing:
The controllability of capital flow and cross-border settlement;
Pressure from foreign exchange controls and financial stability;
Control over data and financial information security issues;
How to interact and misalign with the existing digital Renminbi system;
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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 'testing ground' experience may provide a blueprint for broader digital financial strategic explorations in the future.
3. Conclusion
With the formal implementation of the (Regulations), Hong Kong has undoubtedly taken a critical step in the global regulatory competition for stablecoins. 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 in this article, Crypto Salad has provided detailed interpretations of the key provisions of the (Regulations), we believe that what truly deserves attention is not how a particular provision is stipulated, but rather the emergence of a completely new institutional space. In the absence of unified global digital currency policies, Hong Kong has laid out a clear roadmap: to legalize, systematize, and industrialize stablecoins. This presents both challenges and opportunities for the entire Web3 world.