Hong Kong's Stablecoin Regulation launched, are USDT and USDC illegal?

Hong Kong's (Stablecoin Regulation) launched in August, Tether and Circle are currently still in the 'transition period'. If they do not apply for local licenses within the next 3 months, they will become non-compliant stablecoins in Hong Kong. (Background: Hong Kong's stablecoin bill released: KYC requirements for holders spark controversy, prohibits DeFi and privacy agreements) (Additional background: Bloomberg Opinion: Hong Kong taxis demonstrate a perfect case of 'stablecoin in daily life') Hong Kong officially implemented the (Stablecoin Regulation) on August 1, drawing regulatory lines for stablecoins in reference to fiat currency. Although USDT and USDC currently hold a 'transitional legal' status, they must cease operations in Hong Kong if they do not obtain licenses in six months. This licensing race could impact the fates of the two major issuers and relates to Hong Kong's ambition to become a global Web3 hub. The Stablecoin Regulation adopts the principle of 'same activity, same risk, same regulation', requiring issuers to obtain licenses before providing services in Hong Kong. The regulation includes a minimum capital threshold of HKD 25 million, full reserves, liquidity management, information disclosure, governance, and anti-money laundering systems, claiming to align with the EU's MiCA and the US's GENIUS Act. The Hong Kong Monetary Authority (HKMA) has explicitly stated that no licenses will be issued before 2025, and all applicants are under observation. However, according to the (transitional provisions for existing stablecoin issuers) announced by HKMA in July, applicants must submit license applications or written statements or written commitments to comply with regulatory stablecoin activities within the 3 months after August, i.e., before October 31. For existing stablecoin issuers operating in Hong Kong before August 1, 2025, HKMA previously indicated a transition period until February 1, 2026, but 'strongly recommends' that applications be submitted for review before October 31, or they will be 'forced to cease operations'. The compliance deadline for USDT and USDC With a large market share, Tether is listed as a transitional stablecoin issuer through its Hong Kong-based Tether Limited. According to JuCoin's statistics on June 12, USDT accounts for 82% of the stablecoin trading volume in Hong Kong. Although Circle has no physical presence in Hong Kong, the global influence of USDC is still seen as potentially meeting transitional qualifications, and company executives have repeatedly publicly affirmed the Hong Kong government's regulatory direction, demonstrating willingness to comply. Both issuers face strict thresholds, such as high legal reserves that must be placed in trusts or regulated banks recognized by Hong Kong authorities, and assets must be held in cash or highly liquid government bonds. Directors and senior executives must have the capacity to perform their duties and pass background checks, and anti-money laundering and counter-terrorism financing procedures must align with local bank standards. Quickly providing documentation, adjusting corporate structures, and internal control systems pose significant challenges for either party. Mandatory KYC for Stablecoins If Tether or Circle fail to submit applications by the end of October, USDT and USDC may be regarded as illegal in Hong Kong. At that time, exchanges and payment service providers are bound to delist the relevant tokens, forcing retail and institutional funds to turn to other compliant products, potentially reshaping the local trading landscape. Due to the Hong Kong government's (Stablecoin Regulation) emphasizing mandatory KYC for users, they cannot be used for DeFi. Will Tether and Circle comply under these conditions in Hong Kong? The author's judgment is that the possibility is extremely low, but with such a large market share, will USDT really be classified as illegally circulating? If the Hong Kong government does indeed issue licenses to operators next year, after the first batch of stablecoins in Hong Kong 'land', it is more likely that USDT will be gradually phased out in an orderly manner. Related reports The rhyming lessons of the internet bubble and cryptocurrency boom USDe and USDS market cap skyrockets! 'Able to stake and arbitrage' against the GENIUS Act ban on interest for stablecoins Kakao Group announces the launch of stablecoins 'against the banking alliance', targeting payment, remittance, and capital markets 'Hong Kong's (Stablecoin Regulation) launched, is USDT and USDC illegal?' This article was first published in BlockTempo (the most influential blockchain news media).