Web3 Lawyer's Full Analysis of the Stablecoin Regulation: From Regulatory Framework to Market Implications — How Is Hong Kong Doing It?
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Web3 Lawyer's Full Analysis of the Stablecoin Regulation: From Regulatory Framework to Market Implications — How Is Hong Kong Doing It?
The Hong Kong government has chosen to focus its regulation on payment functions.
Navigating Web3 tides with focused insightsAuthor: Crypto Salad
2025 can be called the year of stablecoins. On May 21, Hong Kong completed the second and third readings of the Stablecoin Bill in the Legislative Council, officially passing it into law. The Stablecoin Ordinance (hereinafter referred to as the "Ordinance") was then promulgated on May 29, 2025, and announced to take effect on August 1. This development has sparked widespread excitement both within and beyond the crypto community, leading Crypto Salad to receive numerous related inquiries. We've observed that people are generally curious about the tangible benefits this legislation may bring, its potential impact on the Web3 ecosystem, whether participants across the industry chain should engage in stablecoin development, how to get started, and what steps are required to apply for a license if one intends to issue compliant stablecoins as a licensed entity...
Prior to this, Crypto Salad has already provided detailed explanations of core concepts such as the definition, characteristics, and functions of stablecoins—see: Web3 Lawyer Explains: Are Stablecoins Always Stable? Why Are They So Important?. Additionally, we have explored regulatory priorities for stablecoins and conducted an in-depth comparison between U.S. and Hong Kong’s respective regulatory frameworks—see: Web3 Lawyer Deep Dive: Where Is the Focus of Stablecoin Regulation? How Do U.S. and Hong Kong Differ?.
In this article, rather than reiterating the intrinsic value and significance of stablecoins, Crypto Salad will focus specifically on Hong Kong's new Ordinance, offering a more detailed analysis to answer the following questions:
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What are the minimum requirements for applying for a stablecoin license?
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What activities can one conduct with a stablecoin license?
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How are reserve asset management and redemption mechanisms specifically regulated?
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What impact might stablecoins have on cross-border RMB payments?
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What does the passage of the Ordinance mean for the industry? Will Hong Kong’s financial landscape undergo a major transformation?
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I. Interpretation of Hong Kong’s Stablecoin Regulatory Framework
1. Which types of stablecoins does Hong Kong regulate?
At their core, stablecoins are crypto assets whose price stability is achieved through specific mechanisms—such as being backed by reserve assets. The Ordinance provides a clear definition: a stablecoin is a digitally represented value secured by cryptography, possessing the following characteristics:
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Its value is expressed as a unit of account or store of economic value;
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It is used for payment, debt settlement, or investment;
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It can be transferred, stored, or traded electronically;
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It operates on distributed ledger technology or similar systems;
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Its value is ostensibly pegged to one or more assets or a basket of assets.
However, the Ordinance explicitly excludes certain forms of digital value from its scope, including central bank and commercial bank-issued digital currencies, limited-purpose token-based loyalty programs, securities or futures contracts (e.g., security tokens), stored-value facilities regulated under the Payment Systems and Stored Value Facilities Ordinance, and traditional bank deposits.
Moreover, not all stablecoins fall under this regulation. The Ordinance limits its oversight to "specified stablecoins" operating in Hong Kong—a term unique to the Hong Kong government. According to Section 4 of the Ordinance, a specified stablecoin is one whose stable value is fully referenced to one or more official currencies, calculation units or stores of economic value designated by the Monetary Authority (HKMA), or a combination thereof. In practice, these are commonly known as fiat-collateralized stablecoins (hereinafter “fiat-backed stablecoins”).
This indicates that the Hong Kong government has chosen to prioritize payment functionality in its regulatory approach. Fiat-backed stablecoins, due to their high collateralization ratios, strong price stability, and relatively low decentralization, are most likely to circulate in financial markets as quasi-currencies. As stablecoins become common payment tools and scale up, any risk of runs or de-pegging could ripple through the entire financial ecosystem—making robust regulation essential. Additionally, the Ordinance explicitly prohibits licensed issuers from paying interest on their issued specified stablecoins, reducing the likelihood that they will be perceived as savings products. Other non-payment-focused stablecoins with less price stability—such as algorithmic stablecoins—are not included in this initial round of regulation.
2. Which stablecoin activities are restricted?
After the Ordinance takes effect, anyone conducting or representing themselves as conducting regulated stablecoin activities must hold a license. One of the core elements of the Ordinance is defining what constitutes “regulated stablecoin activities,” which are clearly outlined in Section 5:
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Issuing specified stablecoins in Hong Kong;
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Issuing HKD-pegged specified stablecoins outside Hong Kong (regardless of the peg ratio);
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Any activity designated by the Financial Secretary after consultation with the Financial Management Commissioner;
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Actively promoting oneself as engaging in or appearing to engage in the above activities.
In addition, Part 2 of the Ordinance details other areas of supervision over specified stablecoins:
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Offering or indicating an intention to offer specified stablecoins;
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Advertising for regulated stablecoin activities or such offers;
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Engaging in fraudulent or deceptive acts in connection with transactions involving specified stablecoins, or inducing others to enter agreements to acquire, dispose of, subscribe to, or underwrite them.
Overall, the Ordinance focuses on the issuance, distribution, and retail aspects of stablecoins. A series of restrictions on “offers” and “advertising” aim to ensure stablecoins remain categorized strictly as “payment tools,” preventing them from being marketed as speculative investment products. Issuers, platform operators, wallet providers, and other key players are all brought into the regulatory framework, ensuring full-chain oversight of the stablecoin ecosystem.
From a jurisdictional standpoint, Hong Kong regulates not only locally issued stablecoins but also those issued overseas that are pegged to the Hong Kong dollar. Even if the issuance occurs outside Hong Kong, any stablecoin pegged to the HKD—even partially—is considered to have potential local financial influence and thus falls under regulatory purview. This reflects Hong Kong’s strong emphasis on monetary sovereignty and financial stability, aiming to prevent unauthorized digital assets from misleading the public and profiting under the guise of “pegging to the HKD.”
3. How to apply for a stablecoin license?
The licensing regime is the central regulatory mechanism established by the Ordinance. Any company issuing, managing, or distributing specified stablecoins in Hong Kong, or any recognized institution incorporated outside Hong Kong, must submit a formal license application to the Financial Management Commissioner. The Ordinance does not establish multiple license types; instead, it adopts a unified license model, with differentiated conditions attached based on the applicant’s specific business operations and risk profile.
The application process is straightforward: applicants file directly with the Financial Management Commissioner, who then makes a determination. The primary focus of review is whether the applicant meets the “minimum standards” set out in Schedule 2, which include the following criteria:
(1) Sufficient financial resources and liquid assets
Applicants must either contribute no less than HK$25 million (or equivalent in other currencies) in share capital, or hold other financial resources valued at no less than HK$25 million, subject to approval by the Financial Management Commissioner.
(2) Proper allocation of reserve assets
To safeguard the credibility and redeemability of stablecoins, licensed entities must adhere to strict requirements when allocating reserve assets backing the stablecoins:
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Asset segregation: The reserve asset portfolio must be kept separate from other reserves held by the licensee and insulated from the licensee’s own debts or operational risks. Furthermore, these assets must be legally and financially isolated from the licensee’s general corporate assets;
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Redemption assurance: The market value of the reserve assets must equal or exceed the total face value of outstanding unredeemed stablecoins, ensuring full coverage and immediate redeemability at all times;
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HKD-pegged assets: Unless prior written approval is obtained from the Financial Management Commissioner, reserve assets must directly correspond to the same reference assets to which the specified stablecoin is pegged;
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The reserve portfolio must consist of high-quality, highly liquid assets with minimal investment risk;
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The licensee must establish risk management and internal audit systems;
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The licensee must publicly disclose the following information:
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Reserve asset management policy;
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Risks associated with the strategy and how they are assessed;
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Composition and market value of the reserve assets;
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Results of regular independent audits of the reserve assets.
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The licensee must maintain sound governance controls.
(3) Establishment of a redemption mechanism
Licensees must provide each holder of their issued specified stablecoins with the right to redemption, without imposing excessively restrictive conditions. No fees may be charged for redemption.
(4) Fit and proper persons
A “fit and proper person” refers to the CEO, directors, stablecoin managers, or controllers of the licensee. The licensee must implement sound governance systems to ensure the Financial Management Commissioner can clearly identify every controller.
(5) Management requirements
Managers must possess relevant professional knowledge and experience, and the licensee must manage accordingly.
(6) Prudential and risk management
The licensee must establish and implement sound and appropriate risk management policies and procedures to address risks arising from licensed stablecoin activities, including security measures, internal controls, and effective methods for detecting fraud or attempted fraud.
(7) Anti-money laundering and counter-terrorist financing (AML/CFT)
The licensee must establish and implement sound and appropriate control systems to prevent and combat money laundering or terrorist financing related to its licensed stablecoin activities.
(8) Business activity requirements
The licensee must have dedicated and sufficient resources to carry out licensed stablecoin activities. Any activity beyond licensed scope requires prior approval from the Financial Management Commissioner.
(9) Disclosure obligations
The licensee must publish a white paper for each type of specified stablecoin issued, providing comprehensive and transparent information. It must also inform stablecoin holders about its complaint handling and compensation mechanisms.
(10) Recovery planning and orderly wind-down
The licensee must establish and implement sound and appropriate control systems to develop contingency plans enabling critical stablecoin functions to resume promptly in the event of significant operational disruptions.
Clearly, the Hong Kong government maintains consistently high standards for stablecoin license applicants. For institutions considering applying, this process should not be seen merely as obtaining a license, but as a comprehensive test of capital strength, compliance capability, and risk control systems.
4. What ongoing compliance obligations do licensees have?
Once licensed, entities must fulfill a series of continuous compliance obligations; failure to do so may result in sanctions, license revocation, or even criminal liability.
Main obligations include:
(1) Annual fee payment
The annual license fee is HK$113,020. The licensee must pay the first fee within 14 days of the effective date stated in the Financial Management Commissioner’s written notification of approval, and thereafter annually before that anniversary date.
(2) Public display of license number
The licensee must prominently display its license number on all materials containing information about licensed stablecoin activities and on user-facing application interfaces.
(3) Ongoing compliance with minimum standards
If a licensee fails to maintain the “minimum standards,” or believes it may soon become insolvent, unable to meet obligations, or cease payments, it must promptly and proactively report to the Financial Management Commissioner with all relevant facts, circumstances, and data—failure to do so may lead to criminal prosecution.
(4) Reporting obligation for material changes
Changes to address, business nature, equity structure, and other key information must be reported promptly; otherwise, penalties such as fines may apply.
Notably, obtaining a license is not “set-and-forget.” Under Section 19 of the Ordinance, the Financial Management Commissioner retains the authority to temporarily impose, modify, or add licensing conditions based on evolving market risks or regulatory assessments. Licensees must submit written representations within a specified timeframe explaining how they will comply with any new or modified conditions.
It is evident that the Ordinance imposes substantial capital requirements, making it more suitable for well-capitalized, large-scale enterprises planning strategic, long-term involvement. Medium-sized companies considering major investments in stablecoin projects should carefully assess feasibility and sustainability beforehand—not only because of the HK$25 million paid-in capital (or equivalent) threshold, but also due to the need for commensurate high-quality reserve assets and ongoing compliance, audit, and system maintenance costs, which represent significant long-term commitments.
5. How are license cancellation, revocation, and suspension governed?
If a licensee no longer meets regulatory requirements, the Ordinance grants the Financial Management Commissioner broad intervention powers:
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Temporary suspension: If the Commissioner believes any grounds listed in Schedule 4 for license revocation exist, they may issue a written notice suspending the license for up to six months. During suspension, the licensee may not conduct related business activities, or face fines and imprisonment.
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Revocation: Grounds for revocation are detailed in Schedule 4 and include bankruptcy, submission of false information, violation of license conditions, or cessation of business operations.
6. What protections does the Ordinance offer users?
The Ordinance is not merely a regulatory tool for issuers and operators—it also establishes a legal protection framework for end-users. The Hong Kong government has embedded several core user protection mechanisms within the Ordinance. Below, Crypto Salad highlights the two most important areas to help users understand their rights and risks.
Strict regulation of marketing and promotional activities
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Section 10 explicitly prohibits unlicensed parties from issuing advertisements to the public regarding stablecoin activities or offerings. Whether offline promotions, online social media campaigns, or third-party platform marketing, all fall under regulatory scrutiny.
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Section 12 further stipulates that any act inducing others to acquire specified stablecoins involving false statements, risk concealment, or exaggerated returns constitutes a criminal offense—even if no transaction ultimately occurs.
User rights protection mechanisms
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Stablecoin holders are primarily concerned with value security and redemption assurance—the Ordinance establishes robust safeguards for these concerns.
The Ordinance requires licensees to maintain adequate reserve assets to back the value of issued stablecoins. These assets must be real, highly liquid, and immediately available upon user redemption requests. Moreover, issuers must establish audit mechanisms whereby qualified third parties regularly verify the alignment between reserve assets and total stablecoin supply, preventing empty pools or misallocated funds. Under normal operations, licensees may not unreasonably suspend redemptions, delay processing, or impose harsh withdrawal thresholds. In case of redemption difficulties, immediate reporting to the Financial Management Commissioner is mandatory.
Overall, the Ordinance provides systematic and thorough regulations covering both industry compliance and user protection. For investors, the key takeaway is learning to identify licensed stablecoin issuers and participate rationally in stablecoin trading and holding. With the Ordinance taking effect, non-compliant marginal projects and niche stablecoins will likely face market elimination or collapse. Investors should remain vigilant and avoid blindly chasing hype or trusting unauthorized product claims.
7. How broad are the HKMA’s supervisory powers?
From the above analysis, it is clear that the role of the Financial Management Commissioner is pivotal in Hong Kong’s stablecoin regulatory architecture. This means the HKMA holds not just administrative authority for licensing, but also extensive powers for supervision, investigation, and direct intervention. In summary, the Financial Management Commissioner possesses licensing authority, day-to-day supervisory powers, and direct investigative authority when licensees face significant operational risks.
Under Part 5 of the Ordinance, the Financial Management Commissioner may initiate investigations directly or appoint investigators for specific cases. Investigators may require licensees to provide evidence, data, or explanations, and may apply to the Court of First Instance for assistance.
These provisions indicate that the HKMA enjoys nearly comprehensive regulatory authority over stablecoins, including quasi-judicial investigative powers with strong deterrent and enforcement capabilities.
Crypto Salad Summary:
For projects intending to operate as licensed participants in Hong Kong’s stablecoin market, the Ordinance provides a clear compliance roadmap. Entities need only assess their capital base and fully understand the difficulty and ongoing costs associated with license application and compliance.
For most projects not planning to apply for a license directly but still wishing to participate in the stablecoin ecosystem, partnering with licensed or license-applying institutions is an ideal path to enter the market and expand digital finance operations. Such collaborations can span multiple levels—including technical support, custody services, payment integration, cross-border clearing, or co-building compliant wallets and trading interfaces. Especially for businesses in payments, Web3 infrastructure, cross-border e-commerce, and compliant custody, deep collaboration with licensed entities enables compliant market entry and rapid access to a regulator-approved stablecoin circulation network.
The Ordinance mandates that licensed institutions disclose permit information via official and public channels, making it relatively easy for partners to verify genuine licensing status. However, selecting a reliable stablecoin licensee as a partner should not stop at confirming “possession of a license”; it is crucial to comprehensively evaluate their business strength, compliance level, and partnership potential.
For example, the safety and transparency of a licensee’s reserve assets are paramount. Ideal partners should maintain 1:1 asset backing and regularly publish third-party audited reports disclosing currency composition, custodians, and risk profiles. The existence of a reliable redemption mechanism is another key criterion—partners should support seamless, barrier-free redemptions to avoid future liquidity risks. Finally, project teams should assess the institution’s actual market influence, such as integration with mainstream wallets, exchanges, or payment gateways, as well as community reputation.
II. What Is the Significance of the Stablecoin Bill?
1. Policy implications
In traditional finance, the power to issue currency—also known as seigniorage—has always been held by the state. But in the era of digital currencies, this monopoly is being challenged. By establishing a local legal framework for stablecoin regulation, Hong Kong is effectively seizing the initiative in “digital seigniorage,” particularly affirming the legitimacy of HKD-pegged stablecoins.
2. Implications for the Web3 world
Although the Hong Kong government defines stablecoins primarily as payment instruments, in the Web3 context, they serve as vital bridges connecting on-chain and off-chain worlds, and linking traditional and crypto assets. The institutionalization of stablecoins is key to achieving end-to-end closure in the RWA space. Within this framework, the role of stablecoins may extend far beyond mere settlement—could they one day facilitate the entire lifecycle of asset creation, subscription, holding, and exchange? With a compliant framework in place, stablecoins could emerge as the “native funding layer” for RWAs, reducing reliance on legacy fiat systems and enhancing on-chain financial efficiency and transparency.
In terms of use cases, international trade remains the largest growth frontier for stablecoins. Real-world issues like cross-border settlement speed, foreign exchange costs, and sanction avoidance continue to drive enterprise interest in on-chain stablecoin tools. Statistics show that in 2024, stablecoin transaction volumes surpassed the combined totals of Visa and Mastercard. Compliance paves the way for scalability and institutional participation—marking the true beginning of commercial viability.
For native Web3 projects, the biggest impact is not being regulated—but being integrated into channels that grant access to larger pools of capital. At a time when “on-chain liquidity” is increasingly scarce, gaining compliant status means connecting with institutional investors, RWA assets, and traditional financial systems—unlocking higher-quality, explosive liquidity events.
3. Could a Chinese yuan stablecoin become a reality?
Does Hong Kong’s stablecoin regulation open up policy possibilities for a “RMB stablecoin”? While currently sensitive, its long-term potential cannot be ignored. Crypto Salad believes that if suitable RWA assets (e.g., energy, minerals, overseas bonds) can be identified to serve as stable circulation vehicles, the logic for a yuan-backed stablecoin becomes stronger. Hong Kong could potentially act as a “policy buffer zone” between a future RMB stablecoin and the global Web3 market.
Despite Hong Kong’s pioneering legislation, mainland China still faces complex regulatory challenges. Concerns over financial sanctions and dependence on the dollar system have led many enterprises to seek “non-dollar settlement tools.” However, for regulators, allowing stablecoins raises major concerns:
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Controllability of capital flows and cross-border settlements;
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Pressure on foreign exchange controls and financial stability;
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Data sovereignty and financial information security;
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Interaction and differentiation with the existing Digital RMB system;
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Therefore, Crypto Salad believes that mainland China is unlikely to replicate Hong Kong’s approach in the short term. However, Hong Kong’s “testbed” experience may one day inform broader national digital finance strategies.
III. Conclusion
With the formal implementation of the Ordinance, Hong Kong has taken a crucial step forward in the global race to regulate stablecoins. This is not merely a local financial reform, but a strategic probe into the future of the entire Web3 ecosystem, RWAs, and even the global monetary order. While Crypto Salad has provided a detailed breakdown of the Ordinance's key provisions, we believe the real story lies not in individual clauses—but in the emergence of an entirely new institutional space. At a time when global digital currency policies remain fragmented, Hong Kong has presented a clear roadmap: legalize, systematize, and industrialize stablecoins. For the Web3 world, this represents not just a challenge—but a historic opportunity.
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