Original Title: "Web3 Lawyer's Full Analysis of the 'Stablecoin Ordinance': From Regulatory Framework to Market Significance, How Exactly is Hong Kong Doing It?"

Authors: Guo Fangxin, Sha Jun, from Crypto Salad

The year 2025 may well be the "Year of Stablecoins." On May 21, Hong Kong concluded the second and third readings of the "Stablecoin Ordinance" draft, which was officially passed by the Legislative Council. Subsequently, on May 29, 2025, the official "Stablecoin Ordinance" (hereinafter referred to as the "Ordinance") was published, with an effective date announced as August 1. This event has stirred up major excitement both within and outside the circle. Crypto Salad received numerous inquiries about it. We observed that the community is predominantly concerned about what practical benefits this legislation might bring, what impact it might have on the Web3 ecosystem, and whether industry participants along the value chain should actively partake in stablecoin development. Additionally, people are keen to understand the entry points for engaging with stablecoins—whether as compliant issuers or as part of the broader infrastructure—and how to apply for relevant licenses if aiming to issue regulated stablecoins as a licensed entity.

Previously, Crypto Salad has already provided an in-depth discussion on key concepts such as the definition, characteristics, and functions of stablecoins. For more details, see: "Web3 Lawyer Explains: Are Stablecoins Really Stable? Why Are Stablecoins So Critical?" Simultaneously, we analyzed key regulatory challenges associated with stablecoins, comparing the regulatory frameworks of the United States and Hong Kong in great detail. For further insights, refer to: "Web3 Lawyer's Deep Dive: What Are the Key Regulatory Focuses for Stablecoins? How Do the Regulatory Frameworks in the U.S. and Hong Kong Differ?"

In this article, Crypto Salad will refrain from reiterating the inherent properties and value of stablecoins. Instead, our focus will pivot to Hong Kong's new "Ordinance," dissecting it further to seek answers to the following critical questions:

· What are the minimum requirements for applying for a stablecoin license?

· What capabilities does holding a stablecoin license confer?

· How are reserve asset management and redemption mechanisms specifically regulated?

· What implications does the Ordinance have for RMB cross-border payments?

· What does the passage of the Ordinance truly mean for the industry? Does it signal a drastic transformation in the financial market landscape of Hong Kong?

1. Analyzing the Regulatory Framework of Hong Kong’s "Stablecoin Ordinance"

1. What kind of stablecoins does Hong Kong regulate?

The essence of a stablecoin is its ability to achieve price stability through specific mechanisms, such as pegging its value to reserve assets. The "Ordinance" provides a clear definition of stablecoins: A stablecoin is a digitally encrypted form of value that possesses the following features:

· Its value is expressed as a unit of account or a form of economic value storage;

· Used for payments, settling debts, or investments;

· Can be transferred, stored, or traded electronically;

· Operates on the basis of distributed ledger or similar technology;

· Its value is ostensibly pegged to a specific asset or a basket of assets.

At the same time, the Ordinance explicitly excludes certain forms of digital value from its regulatory scope. These include digital currencies issued by central banks and related banking institutions, point systems used as limited-purpose tokens, assets considered as securities or futures contracts (e.g., security tokens), stored value facilities regulated under the Payment Systems and Stored Value Facilities Ordinance, as well as traditional bank deposits.

However, the Ordinance does not regulate all stablecoins. Its regulatory focus is narrowed to “designated stablecoins” operating in Hong Kong. The term “designated stablecoins” is unique to the Hong Kong government. According to Section 4 of the Ordinance, designated stablecoins refer to stablecoins whose value is fully pegged to one or more official currencies, units of account or forms of economic value storage designated by the HKMA, or a combination thereof, in order to maintain value stability. Essentially, these are the stablecoins we commonly refer to as fiat-pegged stablecoins (hereafter referred to as “fiat stablecoins”).

It is evident that the Hong Kong government has chosen to emphasize the regulatory focus on the payment function, as fiat stablecoins, owing to their high collateralization with fiat currencies, high value stability, and relatively lower degree of decentralization, are the most likely to be treated as “quasi-currencies” circulating in financial transaction markets. When stablecoins become a common payment tool and their usage scale expands, any occurrence of runs or depegging could inevitably ripple through the entire financial ecosystem. Thus, the demand and requirements for stablecoin regulation are particularly stringent. Additionally, the Ordinance explicitly prohibits licensed entities from paying interest on the designated stablecoins they issue, thereby reducing the likelihood of them being perceived as savings-like financial products. Other types of stablecoins with non-payment purposes or insufficiently stable value, such as algorithmic stablecoins, are not included in the first round of regulatory measures.

2. What stablecoin-related activities are restricted?

Following the enactment of the Ordinance, any individual conducting or claiming to conduct regulated stablecoin activities must obtain a license. One of the core focuses of the Ordinance is defining activities that constitute “regulated stablecoin activities.” Section 5 provides a clear list of restricted activities currently covered:

(1) Issuing designated stablecoins in Hong Kong;

(2) Issuing designated stablecoins outside Hong Kong that are pegged to the Hong Kong dollar (regardless of the reference ratio);

(3) Activities specified in a public notice by the Financial Secretary after consulting the Monetary Authority;

(4) Actively promoting to the public the undertaking or apparent undertaking of the above activities.

Moreover, Part 2 of the Ordinance also specifies additional regulatory scopes concerning designated stablecoins:

Offering or representing oneself as offering designated stablecoins:

· Publishing advertisements for regulated stablecoin-related activities and the aforementioned offerings;

· Engaging in fraudulent or deceptive activities related to transactions involving designated stablecoins, or inducing others to enter into agreements aimed at acquiring, disposing of, subscribing to, or underwriting designated stablecoins.

Overall, the Ordinance focuses on the issuance, distribution, and retail aspects of stablecoins. Its series of restrictions on actions such as "offers" and "advertising" aim to confine stablecoins within the category of "payment tools" rather than allowing them to be marketed as speculative investment products. Issuers, platform operators, and wallet service providers are all incorporated into the regulatory framework to ensure the entire ecosystem of stablecoins remains under governance.

From a jurisdictional perspective, the Hong Kong government regulates not only stablecoins issued within its territory but also those pegged to the Hong Kong Dollar (HKD) issued outside of Hong Kong. Even if issuance does not occur locally, any stablecoin linked to the HKD—regardless of the pegging ratio—will be considered to have potential local financial implications and will fall under regulation. This arrangement demonstrates Hong Kong's emphasis on monetary sovereignty and financial stability, aiming to prevent unauthorized digital assets from exploiting the "HKD-pegged" label to mislead the public and gain illicit profits.

3. How to Apply for a Stablecoin License?

The licensing regime serves as the core regulatory mechanism established by the Ordinance. Any company issuing, managing, or distributing designated stablecoins within Hong Kong, as well as recognized institutions incorporated outside Hong Kong, must formally submit a license application to the Monetary Authority. The Ordinance does not provide for multiple types of licenses but instead uses a unified licensing structure. Conditions tailored to the applicant's specific business activities and risk characteristics are attached to the license upon approval.

The license approval process is relatively straightforward. Applicants submit their requests directly to the Monetary Authority, awaiting its decision. The primary focus of the Monetary Authority's assessment is whether the applicant meets the "minimum standards" stipulated in Schedule 2, which outlines the following specific criteria:

(1) Possession of adequate financial resources and liquid assets

Applicants are required to pay a minimum share capital of HK$25 million or an equivalent amount in other currencies; or possess other financial resources valued at no less than HK$25 million, subject to the approval of the Financial Management Commissioner.

(2) Allocation of Corresponding Reserve Assets

To ensure the credibility and redemption capability of stablecoins, the Hong Kong government mandates that licensees adhere to the following conditions when allocating reserve assets corresponding to stablecoins:

· Asset Segregation: Reserve asset portfolios must be segregated from other reserve asset portfolios held by the licensee and must not be affected by the licensee's other debts or operational conditions. Furthermore, reserves must be independent of the licensee's corporate assets to ensure legal and financial isolation;

· Redemption Assurance: The market value of the reserve assets must not be less than the total face value of outstanding stablecoins in circulation, guaranteeing full coverage and ensuring immediate redemption;

· Pegged to HKD Assets: Unless a prior written approval is obtained from the Financial Management Commissioner, reserve assets must directly reference the same benchmark assets to which the designated stablecoin is pegged;

· Reserve portfolios must possess high quality, high liquidity, and a minimum risk investment profile;

· Licensees must establish risk management and internal audit systems;

Licensees are required to disclose the following information to the public:

· Their reserve asset management policies;

· Risks that the strategy may entail and the corresponding assessment methods;

· Composition and market value of their reserve assets;

· The results of periodic independent reviews and audits of such reserve assets.

· Licensees must maintain sound governance and control systems.

(3) Establishing a Redemption Mechanism

Licensees must grant redemption rights to every holder of the designated stablecoin they issue. Excessively stringent conditions restricting the redemption of the designated stablecoin are prohibited. Additionally, no fees shall be charged for redemption activities.

(4) Fit-and-Proper Persons

Fit-and-proper persons refer to the licensee's CEO, directors, stablecoin managers, or controllers. Licensees must implement sound and appropriate governance systems to ensure that the Financial Management Commissioner has clear identification of each controller of the licensee.

(5) Management Requirements

Management personnel must possess relevant professional knowledge and experience, while licensed entities are also required to manage this aspect appropriately.

(6) Prudence and Risk Management

Licensed entities are required to establish and implement robust and proper risk management policies and procedures to address risks arising from their licensed stablecoin activities. This includes security measures, internal controls, and effective methods to detect fraud and attempted fraud.

(7) Anti-Money Laundering (AML) and Counter-Terrorist Financing (CTF) Measures

Licensed entities must set up and implement sound and appropriate control systems to prevent and combat money laundering or terrorist financing activities that may arise in connection with their licensed stablecoin activities.

(8) Business Activity Requirements

Licensed entities must allocate dedicated and sufficient resources to conduct licensed stablecoin activities. Any activity outside the scope of licensed stablecoin operations requires prior approval from the Financial Authority Commissioner.

(9) Information Disclosure Requirements

Licensed entities must issue a white paper for each type of designated stablecoin they issue, providing comprehensive and transparent information about that stablecoin. In addition, licensed entities are required to inform stablecoin holders about the entity’s complaint handling and compensation mechanisms.

(10) Recovery Plan and Orderly Wind-Down

Licensed entities must establish and implement sound and appropriate control systems to ensure proper planning, which aims to support the key functions of stablecoin activities during instances of significant operational disruption. It’s clear that the Hong Kong government has maintained consistently high standards and strict requirements for stablecoin license applicants. For institutions intending to apply for a stablecoin license, this process is not merely about obtaining a piece of paper but constitutes a comprehensive evaluation of the company's capital strength, compliance capabilities, and risk control systems.

4. What Compliance Obligations Do Licensed Entities Have?

Once licensed, entities must fulfill a range of ongoing compliance obligations. Non-compliance may result in penalties, license revocation, or even criminal liability. Key obligations include:

(1) Obligation to Pay Annual Fees

The annual license fee is HKD 113,020. Licensed entities must pay the first license fee within 14 days of the effective date specified in the written approval notice issued by the Financial Authority Commissioner. Thereafter, the same amount must be paid annually before this date.

(2) Public Display of License Number

License holders are required to publicly display their license number on any materials related to licensed stablecoin activities, as well as on user-facing application interfaces.

(3) Ongoing Compliance with Minimum Standards

Any license holder who fails to maintain the "minimum standards" or reasonably believes they are at significant risk of failing to meet obligations, becoming insolvent, or ceasing payments must promptly and proactively report to the financial authority, providing all relevant facts, circumstances, and information. Failure to comply may lead to severe legal consequences, including potential criminal charges.

(4) Obligation to Report Changes in Information

Changes to relevant information such as address, nature of business, or ownership structure must be reported in a timely manner, failing which penalties or other disciplinary actions may apply. Notably, obtaining a license is not a "one-and-done" process. According to Article 19 of the Ordinance, the financial authority may impose, modify, or adjust licensing conditions temporarily based on market risks or regulatory assessment outcomes. License holders are required to provide written explanations within the designated timeline set by the authority to demonstrate how they will meet the additional or modified conditions.

It is evident that the Ordinance places significant emphasis on the financial strength of license holders, making it more suitable for well-capitalized enterprises with substantial assets to strategically plan for medium- to long-term operations. For medium-sized enterprises planning to allocate major resources to stablecoin issuance projects, it is recommended to thoroughly assess feasibility and sustainability before making a decision. This is because the requirements include paying a minimum capital of no less than HKD 25 million (or its equivalent value in assets), holding an equivalent amount of high-quality reserve assets, and bearing ongoing costs related to compliance, auditing, and system maintenance. Such long-term commitments are substantial and should not be underestimated.

5. What are the rules for license revocation, suspension, and cancellation?

If a license holder ceases to meet regulatory requirements, the Ordinance grants extensive intervention powers to the financial authority:

· Temporary Suspension of License: If the financial authority believes that one or more grounds specified in "Schedule 4" for license revocation have been met, they may issue a written notice to suspend the license for a period not exceeding six months. During the suspension period, the license holder is prohibited from conducting related business activities. Non-compliance may result in fines and imprisonment.

· Voluntary Revocation of License: The grounds for license revocation are detailed in "Schedule 4" and include scenarios such as bankruptcy, submission of false information, violation of licensing conditions, or effectively ceasing business operations.

6. What protections does the Regulation provide for stablecoin users?

The Regulation is not just a supervisory tool targeting issuers and industry participants; it also establishes a legal framework to safeguard the interests of stablecoin end-users. The Hong Kong government has codified several key user protection arrangements in this Regulation. In this article, Crypto Salad outlines two of the most critical areas to help users better understand their rights and potential risks.

Strict regulation of licensed entities’ promotion and marketing activities

Article 10 of the Regulation explicitly prohibits any unlicensed entity from issuing advertisements regarding stablecoin-related activities or offerings to the public. Whether through offline promotions, online social media campaigns, or third-party platforms, all such activities fall under regulatory oversight. Furthermore, Article 12 specifies that any action intended to induce others to acquire specific stablecoins—if it involves misrepresentation, concealment of risks, exaggerated returns, or other deceptive statements—will constitute a criminal offense. Even if such inducement does not result in a transaction, the behavior may still lead to legal consequences.

Mechanism for user rights protection

For stablecoin holders, the primary concern lies in the security of a stablecoin’s value and redemption guarantees. The Regulation has established a robust protection mechanism specifically addressing this issue. It mandates that licensed entities must maintain sufficient reserve assets to back the value of the stablecoins they issue. These assets must be genuine, highly liquid, and readily redeemable upon user request. Furthermore, issuers are required to institute an auditing mechanism, subject to periodic review by qualified third parties, to ensure the alignment between reserve assets and the total stablecoin issuance. This measure aims to avoid empty reserves or mismanagement of funds. Under normal operating conditions, license holders are prohibited from unreasonably suspending redemptions, delaying processing times, or imposing stringent redemption thresholds. In cases of redemption difficulties, the financial management commissioner must be promptly notified.

Overall, the Regulation provides a comprehensive and detailed framework for compliance in the stablecoin sector and mechanisms for user protection. For individual investors, the most critical step is to identify licensed stablecoin issuers and participate in stablecoin transactions and holdings rationally. With the Regulation's formal implementation, marginal projects and niche stablecoins failing to meet licensing standards are bound to face market elimination or even collapse. Investors should remain highly vigilant and refrain from blindly chasing high returns or trusting unauthorized product promotions.

7. How extensive are the regulatory powers of the Hong Kong Monetary Authority (HKMA)?

Based on the review above, it is evident that the role of the Financial Management Commissioner is pivotal within Hong Kong's stablecoin regulatory framework. This signifies that the HKMA not only carries out administrative duties such as licensing approval but also wields broad-ranging regulatory, investigatory, and direct intervention powers. In essence, the Financial Management Commissioner has the authority to approve and issue licenses, exert oversight in daily regulation, and conduct direct investigations and evidence collection when a licensed entity faces significant operational risks.

According to Part 5 of the Ordinance, the financial regulatory commissioner has the authority to conduct investigations directly or to appoint specialized investigators to carry out specific inquiries. These investigators have the right to request evidence, materials, or explanations from the licensed entities under investigation, and may even apply to the Court of First Instance. This array of provisions demonstrates that the Monetary Authority holds near-comprehensive regulatory authority over stablecoins, with the critical inclusion of quasi-judicial investigative powers, which grant it significant deterrent and enforcement capabilities.

Crypto Salad Summary:

For teams intending to participate in Hong Kong's stablecoin market as licensed entities, the Ordinance provides a clear framework and pathway for compliant operations. They simply need to evaluate their capital capacity and have a thorough understanding of both the complexities and ongoing costs related to license application and subsequent compliance maintenance.

For those not planning to apply for licenses directly but wish to engage in the stablecoin ecosystem, collaborating with licensed institutions or those in the process of obtaining licenses offers an ideal route to access the market and expand into digital financial services. Such partnerships can span multiple layers, including providing technical support, custodial services, payment integration solutions, cross-border settlement capabilities, or co-developing compliant wallets and transaction interfaces as ecosystem partners. Companies focusing on payments, Web3 infrastructure, cross-border e-commerce, and compliant custodial operations can ensure their business models remain regulatory-compliant while quickly integrating into a regulator-approved stablecoin ecosystem through deep cooperation with licensed entities.

The Ordinance mandates that licensed institutions must disclose their licensing information through official and public channels, making it relatively straightforward for stakeholders to identify "genuinely licensed" entities. However, when selecting a trustworthy licensed stablecoin institution as a partner, due diligence should extend beyond merely verifying the presence of a license. A holistic assessment of their business strength, regulatory compliance, and partnership potential is crucial.

For instance, the security and transparency of a licensee's reserve assets are of utmost importance. An ideal partner should maintain 1:1 asset backing, regularly publish third-party audited reports detailing asset composition, custody arrangements, and risk status. Additionally, the reliability of their redemption mechanism must be a key consideration—project teams should ensure that the partner supports seamless and unrestricted redemption to avoid future liquidity risks. Finally, it’s worth examining the institution's actual influence in the market, such as whether they are integrated with mainstream wallets, exchanges, or payment channels, as well as community reputation and sentiment.

II. What is the Significance of the "Stablecoin Draft Ordinance"?

1. Strategic Significance in Policy

In the traditional financial system, monetary issuance rights—commonly referred to as seigniorage—have always been under national control. However, in the era of digital currencies, this authority is increasingly being challenged. By establishing a stablecoin regulatory framework through local legislation, Hong Kong is effectively vying for a piece of the "digital seigniorage," especially in legitimizing stablecoins pegged to the Hong Kong dollar (HKD).

2. The Significance of Stablecoins in the Web3 World

While the Hong Kong government has designated stablecoins as payment tools, in the context of Web3, stablecoins serve as a critical bridge connecting on-chain and off-chain ecosystems, as well as traditional assets and crypto assets. The institutionalization of stablecoins is a crucial driver for achieving an end-to-end closed loop for RWA (Real-World Assets). Within this framework, the role of stablecoins might extend far beyond mere payment and settlement. A compelling question is whether, in the future, stablecoins could underpin the entire lifecycle of assets—ranging from creation to subscription, holding, and circulation. With the establishment of compliance frameworks, stablecoins are expected to become the "native capital layer" for RWAs, reducing reliance on the traditional fiat systems while enhancing on-chain financial efficiency and transparency.

As for use cases, international trade remains the most promising market for stablecoins. Issues such as cross-border settlement efficiency, forex costs, and sanction evasion are driving increasing corporate interest in on-chain stablecoin instruments. Statistics show that by 2024, stablecoins experienced significant growth, with remittance volumes surpassing the combined totals of Visa and Mastercard. Compliance is the cornerstone for scalability and institutional adoption, marking the starting point for the true commercialization of stablecoin projects.

For native Web3 projects, the greatest impact is not regulation itself but gaining access to channels capable of connecting to larger-scale assets. Given the current context of increasingly scarce "on-chain liquidity," achieving compliant status means unlocking access to institutional investors, RWA assets, and traditional financial systems, fueling higher-quality and more explosive liquidity releases.

3. Could a Renminbi (RMB) Stablecoin Become a Reality?

Does the implementation of stablecoin regulations in Hong Kong open up policy possibilities for a "Renminbi stablecoin"? While the prospect of an RMB stablecoin remains a sensitive topic, its long-term potential should not be underestimated. Crypto enthusiasts believe that, if suitable RWA assets (such as energy, minerals, or offshore bonds) can be identified in the future to provide a stable circulation anchor for an RMB stablecoin, its usage logic would become more solid. Hong Kong might serve as a "policy buffer zone" between an RMB stablecoin and the international Web3 market.

Although Hong Kong leads with legislation, stablecoins face highly complex regulatory challenges in the mainland market. Driven by concerns over financial sanctions and reliance on the U.S. dollar system, many businesses already feel a practical need for "non-dollar settlement tools." However, for regulators, allowing stablecoins to proliferate means addressing:

· Controllability of capital flows and cross-border settlements;

· Strain on foreign exchange control and financial stability;

· Control over data and financial information security concerns;

· Interaction and alignment with the existing Digital Renminbi system.

Therefore, Crypto Salad believes that it is unlikely for the mainland to replicate Hong Kong's approach in the short term. However, Hong Kong's experience as a "testing ground" might serve as a blueprint for broader explorations in digital financial strategies in the future.

3. Conclusion

With the official implementation of the "Ordinance," Hong Kong has undoubtedly taken a crucial step forward in the global stablecoin regulatory race. This is not just a local financial policy reform but also a strategic probe into the entire Web3 ecosystem, real-world assets (RWA), and even the global currency landscape. While Crypto Salad has meticulously analyzed the key provisions of the "Ordinance" for readers in this article, we believe the real point of interest is not about how any individual clause is defined, but rather in recognizing that a brand-new institutional framework is being opened. At a time when global digital currency policies remain unaligned, Hong Kong has laid out a clear roadmap: to legalize, systematize, and industrialize stablecoins. For the entire Web3 world, this represents both a challenge and an opportunity.

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