Regulatory turmoil: Hong Kong issues strictest stablecoin regulations, US seeks to build on-chain financial markets

On August 1, the highly anticipated Hong Kong Stablecoin Ordinance was finally officially implemented.

Amidst the market's heated speculation, regulators have unsurprisingly poured cold water on stablecoins. Hong Kong's stablecoin regulations, judging solely by their content, are quite restrictive, with the stringent real-name verification requirements earning them the title of "the world's strictest stablecoin law." Coincidentally, just a month ago, Singapore, a frequent competitor to Hong Kong, also garnered widespread attention for enacting the "world's strictest new crypto regulations."

In contrast, just one day before the implementation of the Hong Kong Stablecoin Ordinance, the U.S. Securities and Exchange Commission released a new plan called "Project Crypto", which passionately depicted the future encryption blueprint of the United States and sent out a strong positive signal.

The regulatory situation on both sides of the ocean is like heaven and hell, and the differentiation of the encryption landscape has also begun to accelerate from this moment.

On August 1, Hong Kong's "Stablecoin Ordinance" officially came into effect. This milestone event is not only a major step forward in Hong Kong's virtual currency field, but also marks the implementation of the world's first comprehensive regulatory framework for fiat stablecoins, which has extremely far-reaching implications.

A review of the regulations reveals that any institution issuing a fiat-denominated stablecoin in Hong Kong, or issuing a stablecoin pegged to the Hong Kong dollar overseas, must be licensed, and the entity's paid-in capital must be at least HK$25 million. Regarding reserve assets, the regulations mandate full reserves, meaning issuers must allocate 100% of their reserve assets in highly liquid assets such as cash and short-term government bonds. These assets must be independently held in custody at a licensed bank. Each type of stablecoin must maintain a separate reserve asset portfolio, ensuring segregation from other reserve asset portfolios. Anti-money laundering is also a top priority. Issuers must establish a comprehensive anti-money laundering mechanism, publish daily audit reports on their reserve assets, and prohibit the payment of interest to prevent disguised deposit-taking. Regarding redemptions, users can unconditionally redeem fiat currency at par value, and issuers must process redemption requests within one business day.

In terms of overall requirements, the draft of the Ordinance in June does not differ significantly, but the implementation details can only be described as stringent. On July 29th, the eve of the Ordinance's formal entry into force, the Hong Kong Monetary Authority released a series of supporting regulatory documents for the new Ordinance, including the consultation summary and the "Guidelines on the Supervision of Licensed Stablecoin Issuers"; the consultation summary and the "Guidelines on Combating Money Laundering and Terrorist Financing (Applicable to Licensed Stablecoin Issuers)"; the "Summary Explanation of the Licensing Regime for Stablecoin Issuers" related to the licensing system and application procedures; and the "Summary Explanation of the Transitional Provisions for Existing Stablecoin Issuers."

According to the requirements, the HKMA will accept the first round of applications for stablecoin issuer licenses between August 1 and September 30, 2025, and will provide a six-month transition period for companies. The simultaneous advancement of innovation and legalization reflects the Hong Kong government's consistent attitude of inclusiveness and prudence. However, the market is in an uproar over the KYC clause.

In the "Guidelines on Combating Money Laundering and Terrorist Financing (Applicable to Licensed Stablecoin Issuers)", the HKMA requires licensed stablecoin issuers to take effective measures to identify and verify the identities of stablecoin holders. Customers must undergo a complete customer due diligence (CDD) procedure and conduct regular reviews (such as name, date of birth, identification document number, etc., which must be retained for at least 5 years). Non-customer holders generally do not need to have their identities verified directly. However, when monitoring discovers wallet addresses associated with illegal activities, sanctions lists or suspicious sources, and the licensee cannot prove that its risk mitigation measures (such as blockchain analysis tools) are sufficient to prevent ML/TF risks, the licensee must conduct further investigations and verify the identities of the relevant holders.

In short, to address anti-money laundering risks, stablecoin issuers must not only verify user identities and retain real-name data for at least five years, but also refrain from providing services to anonymous users. Initially, they also have an obligation to verify the identity of every stablecoin holder. The HKMA has also explained this. Executive Director (Regulation and Anti-Money Laundering) Chan King-hong noted that, given that the HKMA has not been convinced that current industry-wide ongoing monitoring tools are effective in mitigating money laundering risks, and given that international organizations such as the Bank for International Settlements emphasize the importance of preventing money laundering using stablecoins, the HKMA will adopt a "risk-based but cautious" supervisory approach.

However, from a practical perspective, especially in cross-border payments involving physical entities, it is nearly impossible to verify the identities of anonymous holders in offshore accounts in real time, let alone cover every holder in a large-scale payment system. Practically speaking, this move essentially excludes all applicants other than banking institutions. Notably, under this regulation, Hong Kong's stablecoins essentially say goodbye to interacting with DeFi protocols. After all, existing interactive wallets are anonymous, significantly reducing their competitiveness compared to publicly available USDT and USDC.

While strengthening issuer responsibilities internally, the regulatory framework also clarifies external jurisdiction. The "Stablecoin Issuer Regulatory Framework" explicitly states that licensees must comply with the laws and regulations of relevant jurisdictions. In other words, in addition to complying with local Hong Kong laws and regulations, overseas compliance is also taken into consideration. Issuers must maintain a comprehensive risk control system for cross-border operations and are prohibited from providing services to countries and regions with stablecoin bans. The document even mentions licensed institutions' identification of VPNs, meaning that the use of VPNs to circumvent regulations will be blocked. This suggests that mainland users will continue to face difficulties accessing this system. On the other hand, issuers must ensure compliance with overseas marketing and operations, continuously monitor policy changes in overseas regions, and establish a dynamically adjusted compliance system.

From the perspective of the entire process, extremely high barriers to entry for licensed institutions are key. However, even with such high application requirements, Hong Kong's stablecoins impose restrictions on key features. Not only do they block cryptographic features like DeFi, anonymous wallets, and open protocols, but their use by overseas economies is also strictly regulated, effectively making the free circulation of stablecoins on-chain virtually impossible. Given the already limited market size, the development of stablecoins in Hong Kong will undoubtedly face further obstacles. From the perspective of issuers, mandatory real-name registration and stringent anti-money laundering measures have completely shifted control of licenses to large banks and financial giants, making it difficult for small and medium-sized enterprises to obtain licenses, and internet companies are also facing challenges. This is precisely why there were rumors that JD.com would cancel its license application. According to Caixin, Hong Kong may narrow the scope of its first batch of stablecoin licenses to three or four. Currently, the Hong Kong branches of several Chinese banks and securities firms, including Bank of China (Hong Kong), Bank of Communications (Hong Kong), China Construction Bank (Asia), and CNCBI, are eager to explore stablecoin business.

With such a stringent implementation path, Hong Kong's stablecoin regulations are undoubtedly known as the "strictest stablecoin regulations in the world." Interestingly, the last region to be recognized as having the strictest regulations was Singapore, known alongside Hong Kong as its "twin stars." In June of this year, the Monetary Authority of Singapore (MAS) released the final policy guidelines for Digital Token Service Providers (DTSPs). The strict regulations, including "no license, no closure" and "full industry chain jurisdiction," triggered a wave of Web3 withdrawal in the market.

However, if we look across the ocean, the attitude of the United States is in sharp contrast to the above two.

On July 31st, just one day before the Hong Kong Stablecoin Ordinance came into effect, the newly appointed Chairman of the U.S. Securities and Exchange Commission (SEC), Paul Atkins, ignited the cryptocurrency world. That same day, Atkins announced a new policy initiative called "Project Crypto," which outlined the ambitious goal of fully integrating U.S. financial markets onto blockchain and explicitly stated his vision of making the United States the "global capital of crypto."

From the specific measures, the first is to abandon the traditional model of first jurisdiction and then law, and clarify the reclassification standards of crypto assets, such as airdrops, ICOs, and staking. First, it will provide clear disclosure standards, exemption conditions and safe harbor mechanisms for common on-chain economic activities, and adopt different regulatory models according to the nature of different assets; second, it will give institutional legitimacy to decentralized applications such as Defi, provide a clear path for on-chain software developers who do not rely on centralized intermediaries, protect the developers of decentralized software, and let decentralized software have a place in the financial market; third, it will create "Super-Apps", merge the existing complex licensing system, and enable securities intermediaries to provide diversified products and services on one platform and under one license. The CSRC will formulate a regulatory framework to promote the implementation of this concept, such as drafting a regulatory framework to allow securities and non-securities crypto assets to coexist and trade on SEC-registered platforms, and relax the listing conditions of certain assets on non-registered exchanges (such as platforms with only state licenses); fourth, institutional and service guarantees, introduce an "innovation exemption mechanism", with commercial feasibility as the core, allowing emerging business models and services that do not fully comply with existing rules to be quickly brought to market, but such service providers must follow the regular reporting to the SEC. Requirements include reporting commitments, the introduction of whitelist or certification pool functions, and only allowing securities tokens that meet compliance function standards (such as ERC3643) to circulate.

From a blueprint perspective, the US regulatory logic has completely shifted, from prevalent crackdown-style regulation to inclusive enforcement, and further progressing towards full-chain, full-framework policy support. This encompasses everything from source attributes to key applications, platform construction, and service assurance. This reflects the US's efforts to establish a comprehensive regulatory framework around "crypto-assets," a framework that provides a solid foundation and objective guarantee for the development of the US crypto industry. The regulatory plan has already begun, with the US Securities and Exchange Commission (SEC) stating in its latest guidance that certain liquidity staking activities do not involve securities, and those engaging in them do not need to register with the agency under securities laws.

Comparing the two, while sharing regulatory policies, the US, Singapore, and Hong Kong differ significantly. The former projects highly positive signals, while the latter adopts a more defensive stance amidst innovation. This may be due to regional characteristics. Both Hong Kong and Singapore have limited territories and are positioned as financial centers, serving as bridgeheads or regional gateways. Therefore, stability and order are paramount for these two countries. Money laundering issues pose a significant threat to regional brands and generate significant negative externalities. The US, on the other hand, boasts greater autonomy, a voice in the development of emerging industries, and a degree of global influence, leading to a greater degree of openness in certain industries. This influence is driving market activity, with some crypto projects in Hong Kong and Singapore expressing interest in relocating to the US.

It's not hard to foresee that the crypto industry's "US-centric" structure will be further strengthened, and the US market will become a key battlefield for the development of crypto projects. Other regions, on the other hand, may be destined to only differentiate themselves and move away from the path of subordination.