Hong Kong's strict KYC regulations on stablecoins and its impact:

🔎 1. Hong Kong's new regulations on stablecoins – What's special about it?

In 2025, the Hong Kong Securities and Futures Commission (SFC) officially introduced a legal framework for stablecoin issuers and service providers. The new regulations include:

🔐 Mandatory implementation of KYC (Know Your Customer)

• All stablecoin users in Hong Kong must fully verify their identity before they can purchase, hold, or trade.

• Both issuers and platforms providing stablecoin services (wallets, DEX exchanges, payment gateways) must store and share customer information when requested.

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📉 2. Negative impact: Reduces security and privacy

This regulation raises concerns in the community because:

• Loss of anonymity: One of the reasons stablecoins are favored is the privacy in transactions, especially on decentralized wallets.

• Difficult to reach global users: Users from other countries may not comply with or agree to the cumbersome KYC process.

• In contrast to the DeFi philosophy: DeFi is built on financial freedom, but strict KYC goes against that.

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🌐 3. Impact on the adoption of stablecoins in Hong Kong

While KYC helps the government control the flow of money & prevent money laundering, it:

• Decentralized stablecoins (e.g., DAI, LUSD) may be banned from use or not officially recognized.

• Individual or business users can move to other jurisdictions like Singapore or Dubai – where policies are more open.

• New stablecoin projects like RLUSD (Ripple), USDT (Tether), or USDC (Circle) must ensure proper KYC integration if they want to operate legally in Hong Kong.