Author | Aki Chen 吴说区块链
This article is organized with the participation of GPT, intended for information sharing only and does not constitute any investment advice. Readers are urged to strictly adhere to the laws and regulations of their location and refrain from participating in illegal financial activities.
Introduction
On August 1, 2025, the Hong Kong (Stablecoin Regulation) officially takes effect, clearly stipulating that any institution issuing or providing fiat-backed stablecoins to local retail in Hong Kong must apply for a license issued by the Monetary Authority, strictly adhering to reserve mechanisms, AML/KYC obligations, and requirements for transparency. The Hong Kong Monetary Authority has also announced the initiation of stablecoin license applications, with the first round of applications closing on September 30, and the first batch of licenses expected to be issued in early 2026. This series of actions is viewed by the industry as an 'important milestone in the global compliance of stablecoins', but due to its stringent KYC requirements and high barriers to entry, it is comparable to the strictest stablecoin legislation globally, sparking fierce controversy among Web3 projects and communities. Meanwhile, the US SEC has launched the Project Crypto plan, proposing an 'innovation exemption' that contrasts sharply with Hong Kong.
Overview of the core regulations for stablecoins
According to the new regulations, all activities of issuing, circulating, or providing fiat-backed stablecoins to local retail users within Hong Kong must obtain a special license issued by the Monetary Authority. Core requirements include:
Capital requirements: Minimum paid-in capital of HKD 25 million;
Reserve mechanism: 100% backed by high-quality liquid assets (cash, short-term government bonds), must achieve custodial isolation and prohibit re-pledging;
Redemption mechanism: Users must be able to redeem at par value within 1 day;
Real-name system (KYC): All user identities must be retained for more than 5 years, and clear prohibitions against DeFi scenarios and access to anonymous wallets;
Prohibition of promotion: Unlicensed stablecoins must not market to the public, violators may face fines and criminal liability.
Among all regulatory provisions, KYC real-name verification requirements have become the focal point of the biggest controversy in the Web3 community. According to the Monetary Authority's requirements, stablecoin issuers must not only verify user identification information, retain data records for more than 5 years, but also must not provide services to anonymous users, and initially, identity verification is required for every compliant stablecoin holder in Hong Kong. In response, a member of the Hong Kong Legislative Council stated that the Hong Kong Monetary Authority will indeed implement KYC rules, but specific implementation methods are not yet determined, and real-name systems are one of the options. The Assistant Director of the Hong Kong Monetary Authority (Regulation and Anti-Money Laundering), Chen Jinghong, also pointed out that this arrangement is stricter than the 'white list' mechanism proposed in the earlier anti-money laundering consultation document. However, he finally also stated that with the gradual maturity of relevant technologies, there may be a possibility of moderately relaxing regulations in the future.
This means that Hong Kong's stablecoins may initially lack the ability to interact directly with DeFi protocols, with decentralized wallets and permissionless addresses being isolated from the compliance system. Such interactions will also be legally regarded as 'unauthorized use'. It can be seen that compared to the scalability and freedom of on-chain protocols, Hong Kong regulators focus more on controlling the regulatory power over the circulation of stablecoins. This initiative and attitude have also been viewed by some operators as a cold shower on the application of stablecoins in open financial scenarios on-chain. This creates a huge divergence from existing mainstream stablecoins (such as USDT, USDC), which allow free transfers between wallets and seamless integration with DeFi protocols, inevitably affecting user experience and adoption.
Worsening the situation is that according to the Hong Kong Monetary Authority (Stablecoin Issuer Regulatory Framework) regulations, when offering specified stablecoins, license holders must comply with the laws and regulatory requirements of the relevant jurisdictions. This provision emphasizes the need not only to ensure compliance in issuance but also to establish a comprehensive institutional safeguard mechanism covering cross-border operations, identifying restricted areas, and proactively blocking access.
Specifically includes the following three obligations:
1. Prohibition of services to specific regions
License holders must ensure that they do not issue or offer actions in jurisdictions where trading stablecoins is prohibited. Regulatory recommendations are to be achieved through multi-dimensional measures, including: verifying user identity documents (such as ID cards or passports) to identify nationality or residence; determining the user's actual geographical location through IP address or GPS positioning technology; implementing technical barriers to access activities from restricted areas to prevent downloading, registration, or purchasing actions. This requirement essentially asks license holders to act as 'geographical risk firewalls', cutting off potential access paths to restricted areas from the source of issuance, to prevent violations of foreign laws or triggering cross-border regulatory disputes.
3.5.3 also clearly states that license holders need to check whether users are using virtual private networks to determine if their location prohibits using stablecoins; even if they are using a VPN, it would still be considered a violation if stablecoins are not allowed in their location. This significantly raises the user threshold, requiring each user to submit identification, making the process cumbersome and erasing the 'open wallet for use' experience. At the same time, it may make it difficult for global users to access, as non-local users in Hong Kong may, in practice, not be able to use stablecoins issued in Hong Kong unless explicitly included in the policy scope. Transfers are also strictly restricted, as stablecoin license holders will be regarded as financial institutions and must comply with FATF's requirements regarding funds transfer rules; before transferring, they must ensure that both the recipient and the initiator have completed KYC and provided relevant information, otherwise platforms or contracts may block transaction execution.
This requirement from Hong Kong regulators essentially transforms 'stablecoins' into controlled circulating electronic currency or bank token forms of electronic certificates, characterized no longer as decentralized assets universally applicable on-chain, but rather: a digital tool with real-name binding, geographic restrictions, and regulatory attributes.
2. Overseas marketing and operations must be fully compliant
In addition to the obligation to block jurisdictions where trading is prohibited, the regulations also require license holders to ensure that all business operations and marketing activities (such as advertising, collaboration channels, application deployment, etc.) comply with the applicable regulations of the target market. This means:
Marketing content must not be pushed to unauthorized regions;
Assess whether overseas partners have compliance qualifications;
Handle website language versions, terms of service, etc., with caution to avoid constituting a legal fact of 'actual provision of services'.
3. Continuous monitoring and dynamic adjustment mechanisms
Regulators further require license holders to establish continuous monitoring mechanisms, closely watch policy changes in various countries/regions, and timely adjust their business strategies and technical measures. For example: if a country introduces a new stablecoin ban, the issuer should immediately terminate related services; if supervisory standards are raised (such as requiring additional licenses or real-name requirements), the KYC processes and compliance review systems should be updated accordingly.
In this regard, Dr. Xiao Feng, Chairman and CEO of HashKey Group, previously stated that in traditional finance, anti-money laundering mechanisms heavily rely on identity-based information retrieval and account information linking, but in practice, this system faces serious bottlenecks across multiple banks, regions, and jurisdictions. In contrast, the on-chain tracking and address labeling mechanisms developed by the crypto industry in recent years provide an alternative approach for anti-money laundering. In blockchain systems, every transaction is public and transparent, and the historical flow of funds for any address can be traced throughout the process. From the minting of tokens, the first circulation, cross-chain transfers to final ownership, on-chain information possesses characteristics of immutability, global readability, and real-time synchronization, improving the efficiency and accuracy of money laundering path identification.
Industry impact analysis: Responses from project parties, users, and market chains
According to on-site investigations by Techub News reporters, on the first day of the Hong Kong (Stablecoin Regulation) officially taking effect on August 1, some cryptocurrency OTC offline stores, including One Satoshi, temporarily closed due to concerns about violating regulatory red lines. At the same time, some OTC stores chose to continue normal operations, leading to divergent understanding of the new regulations' applicability range within the industry. Responses from the Hong Kong Web3 industry varied after the regulation was issued. Some said 'finally there is regulation', but others frankly stated, 'this is not the kind of regulation we want.' Real-name systems, licensing, high barriers—one restriction after another kept many native projects outside. Particularly, stablecoins are not allowed to directly connect to DeFi, with anonymous wallets and open contracts excluded from compliance, which essentially makes it clear: Hong Kong stablecoins will not support free circulation on-chain.
For some teams that originally hoped to make Hong Kong a base for Web3, this is clearly a setback. If you want to issue tokens, you must apply for a license; if you want to create a wallet, you must ensure that each address is verified—this departs from the traditional notion of 'Web3', resembling more like 'Web2.5', or 'licensed chain finance'. The more realistic issue is that this regulation excludes some small and medium-sized entrepreneurs; although the Hong Kong Monetary Authority claims to welcome innovation, it appears to be more welcoming to banks and giants, with only invited institutions or platforms being eligible to apply for a license. The entire system design seems more aimed at allowing 'orthodox forces' to dominate the development of stablecoins, leaving individuals and small projects to either watch and wait or exit. If the previous Hong Kong Web3 ecosystem was characterized by wild growth, now it is a complete 'order reconstruction'. However, in the pursuit of compliance and financial stability, Hong Kong may also be losing the freedom that initially attracted developers.
Comparison with regulatory frameworks in other regions
Compared to the 'innovation exemption' proposed by the recently launched Project Crypto on the other side of the ocean, Hong Kong's stablecoin new regulations are characterized by clear regulation, strong KYC real-name systems, and significant anti-money laundering efforts.
It can be seen that Hong Kong's current strategy leans toward building 'quasi-sovereign settlement tools', emphasizing regulatory dominance and financial security, while shielding core capabilities typical of Web3 such as permissionless structures, contract calls, and decentralized wallets outside the regulatory system. This presupposes that stablecoins 'can only serve regulated financial institutions' rather than being used as neutral infrastructure for the on-chain ecosystem.
In contrast, although the EU MiCA also emphasizes KYC, it allows for some flexibility—such as exemptions for low-value transactions or accepting anonymous wallets; while Singapore's DTSP is closer to a 'layered sandbox' approach, welcoming DeFi projects with risk control capabilities to gradually test the waters. In the US, although regulation has long lagged, after the signing of the (GENIUS Act), release of the (PWG report), and initiation of the 'Project Crypto' plan, there have been strong signals of a shift toward on-chain system modernization while balancing financial innovation. The current SEC Chairman has emphasized in public speeches: 'We introduce regulation to regulate, not to cut corners.'
This comparison reveals the core differences: Hong Kong bets on stablecoin compliance infrastructure, the US turns to on-chain system modernization, the EU seeks universal standards, and Singapore maintains openness in financial experimentation. Hong Kong's current approach is more suitable for serving offshore settlement for 'licensed chain finance', while its compatibility and attractiveness are relatively limited for the Web3 path that emphasizes open ecosystems and anonymous circulation.
Conclusion: Can compliance and openness be balanced? Hong Kong is still testing the boundaries.
Regulation must advance but should also leave room for flexibility. As a financial center in Asia, Hong Kong is not only a testing ground for technology and systems but also bears the responsibility of establishing a model for the region and even the world. However, while promoting KYC real-name, anti-money laundering, and traceability mechanisms, how to avoid completely erasing the space for on-chain privacy, and how to retain a certain degree of openness and scalability while ensuring financial security, is the real long-term challenge of this legislation. As Dr. Xiao Feng said, the reason blockchain can develop is that its fundamental characteristic is permissionlessness. Anyone can freely join or exit the network, while the current emphasis on real-name systems and approval mechanisms in Hong Kong's stablecoin regulation somewhat deviates from this permissionless open logic.
Stablecoins are essentially a type of institutional innovation tool that connects on-chain and off-chain, bridging traditional and future finance. Overly 'paternalistic' regulation not only struggles to integrate into the current DeFi ecosystem but may also risk losing Hong Kong's key position in the global digital financial order reshaping. In the next phase of implementation and interpretation, how Hong Kong finds a balance between regulatory rigidity and technical flexibility is worthy of continued attention from all sectors.
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