Thoughts on Hong Kong's Stablecoin Regulation and Future Development: Expanding Use Cases for HKD and Offshore RMB Stablecoins
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Thoughts on Hong Kong's Stablecoin Regulation and Future Development: Expanding Use Cases for HKD and Offshore RMB Stablecoins
This article will focus on the characteristics and advantages of Hong Kong's latest stablecoin regulatory framework, as well as potential challenges and opportunities for future development.
Navigating Web3 tides with focused insightsAuthor: Jiang Zhaosheng, Senior Researcher at OKLink Institute
Recently, Hong Kong's Financial Services and the Treasury Bureau (FSTB) and the Monetary Authority (HKMA) jointly released a consultation conclusion on legislative proposals for regulating stablecoins, stating that they will finalize the proposed legislation based on market feedback and submit a bill to the Legislative Council as soon as possible. As a result, Hong Kong is set to become one of the first jurisdictions globally to impose regulation on stablecoin issuers.
Stablecoins are not only a key segment of the virtual asset and Web3 markets but are increasingly becoming widely accepted payment instruments due to their price stability and transactional convenience—serving as the most important "bridge" connecting traditional finance with the crypto economy. As global Web3 compliance efforts accelerate, countries are actively advancing domestic stablecoin regulations and development strategies, potentially reshaping the competitive landscape of the stablecoin market. Against this backdrop, this article examines the characteristics and advantages of Hong Kong’s emerging stablecoin regulatory framework, along with its potential challenges and opportunities moving forward.
Hong Kong’s Stablecoin Regulation Is Relatively Friendly Toward International Issuers
In the recently published consultation conclusion, the HKMA responded to previously controversial or ambiguously worded issues, providing clearer guidance on core aspects such as stablecoin stabilization mechanisms, reserve asset composition and investment restrictions, redemption requirements, and limitations on business activities. Compared to regulatory frameworks in regions like the EU, Japan, and Singapore, while certain aspects of Hong Kong’s proposed regime—such as financial resource requirements—are stricter, it maintains significant flexibility and openness. This balance aims to ensure effective investor protection while offering ample room for innovation by potential issuers.
Under the proposed framework, how welcoming Hong Kong will be to international issuers like USDT/USDC has become a hot topic. The global stablecoin market cap has continued rising, recently surpassing $160 billion, with USDT and USDC alone accounting for over 90% of the total. The vast majority of crypto transactions rely on these two stablecoins, underscoring their critical importance. Excluding such major international players from Hong Kong’s regulatory regime could significantly impact the local virtual asset industry.
However, based on the consultation document, the author believes that Hong Kong’s upcoming stablecoin regulatory framework is relatively accommodating toward international issuers, introducing more open and flexible measures than initially expected, thereby reducing potential burdens on foreign participants. For instance, the framework does not restrict the types of fiat currencies that can back stablecoins and remains open to holding reserve assets overseas. These provisions reflect Hong Kong’s recognition of the inherently global nature of stablecoins and its willingness to attract established international issuers to apply for licenses in Hong Kong. Considering Hong Kong’s supportive and consistent policies toward virtual assets, as well as its pivotal role in global financial markets, the author believes a Hong Kong-issued stablecoin license would hold considerable appeal for many international firms.
Small and Medium-Sized Institutions May Struggle to Directly Participate in Stablecoin Issuance
Beyond mature international issuers like USDT and USDC, local institutional participation is essential for the development of Hong Kong’s stablecoin market. Judging from the capital, technical, and operational capability requirements outlined in the consultation conclusion, the primary participants in Hong Kong’s stablecoin market are likely to be banks and large technology or financial institutions. It is unlikely that small and medium-sized enterprises (SMEs) will directly engage in stablecoin issuance. This trend is already evident in the list of participants selected for the HKMA’s stablecoin “sandbox” pilot program.
Although the consultation adjusted financial resource requirements—for example, lowering the minimum paid-up capital threshold from “2% of outstanding stablecoin value or HK$25 million” to “1% or HK$25 million”—this still poses significant financial pressure for many smaller institutions. Additionally, stablecoin issuers must maintain full reserves at all times, placing higher demands on corporate liquidity and cash flow management.
To meet strict licensing conditions and ongoing compliance obligations, firms may also need substantial upgrades to existing systems and risk control processes, ensuring sufficient technological capabilities to prevent and respond to potential technical and security risks during issuance and operations. It is therefore foreseeable that despite high interest in fiat-backed stablecoins and broad participation in earlier consultations, the number of entities actually applying for licenses and launching stablecoins will remain limited.
Among potential issuers, commercial banks deserve particular attention. Unlike today’s non-bank-dominated stablecoin applications focused largely within the virtual asset space, stablecoins issued by commercial banks could explore broader integrated use cases, expanding stablecoin utility across wider digital ecosystems—an evolution crucial to the overall stablecoin infrastructure. For banks themselves, compared to other virtual asset or Web3 initiatives, stablecoins represent the most natural extension of core banking functions, with a clear path to implementation.
Fiat on- and off-ramps are among the most valuable and strategically important segments in the crypto ecosystem, and stablecoins currently serve as essential infrastructure for building these channels. Bank-issued stablecoins can not only provide compliant settlement services for licensed virtual asset firms but also gradually offer stablecoin solutions to individual customers. Even if widespread adoption is delayed due to short-term compliance costs, launching stablecoins can generate significant brand visibility and create opportunities to improve customer profiles. Moreover, stablecoin issuance itself has proven to be highly profitable.
Use Cases Are the Biggest Challenge for Hong Kong to Build Stablecoin Advantages
Beyond compliance costs and technical hurdles, the greatest challenge for issuers after obtaining a license and launching a stablecoin will be identifying viable use cases. Stablecoins must circulate actively to deliver value and become foundational infrastructure for Hong Kong’s virtual asset and Web3 industries. Without sufficient real-world applications, merely replicating existing dollar-pegged stablecoin business models will make it difficult for Hong Kong to gain a competitive edge. Looking at Hong Kong’s current trajectory in virtual assets and Web3, tokenization of real-world assets (RWA) represents a key area where Hong Kong-based stablecoins can excel. Cross-border trade and payment services across the Greater Bay Area and beyond will also be critical battlegrounds for Hong Kong-issued stablecoins.
Furthermore, although the consultation conclusion does not restrict the fiat currencies that stablecoins issued in Hong Kong can peg to, launching USD-pegged stablecoins locally offers limited strategic value. The author believes local issuers should primarily focus on issuing stablecoins denominated in Hong Kong dollars (HKD) and offshore renminbi (CNH), promoting payment and settlement ecosystems based on these currencies. This approach would help retain capital, traffic, and talent generated by Web3 innovation within Hong Kong.
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