1. Introduction

On May 21, 2025, the Legislative Council of Hong Kong officially passed the Stablecoin Bill (hereinafter referred to as the "Stablecoin Ordinance"), which was gazetted on May 30, 2025, and is scheduled to come into force within the year. Following this legislative progress, the Hong Kong Monetary Authority (HKMA) released two consultation papers on May 26: the “Consultation Paper on Proposed Anti-Money Laundering and Counter-Terrorist Financing Requirements for Regulated Stablecoin Activities” (hereinafter referred to as the “AML Consultation Paper”), and the “Draft Guidelines for the Supervision of Licensed Stablecoin Issuers” (hereinafter referred to as the “Supervisory Guidelines Consultation Paper”). The former clarifies AML and CFT obligations for licensed issuers, while the latter sets standards for reserve asset management, disclosures, cybersecurity, and financial soundness—laying out the operational framework for licensed issuers. The Stablecoin Ordinance marks a major milestone in Hong Kong’s virtual asset regulatory landscape and, together with the finalized AML and supervisory guidelines, will form the legal foundation for Hong Kong’s stablecoin market.

Not long before that, the “Guiding and Establishing National Innovation for U.S. Stablecoins Act” (hereinafter referred to as the “GENIUS Act”) was passed in the U.S. Senate with 66 votes in favor and 32 against. Clearly, as leading global financial centers, both the U.S. and Hong Kong are racing to establish regulatory frameworks for stablecoins and even reshape the international monetary system. Can Hong Kong, with its geographic advantages, mature financial infrastructure, and open attitude toward technological innovation, become a global model for stablecoin regulation? This article will explore the highlights and legislative journey of Hong Kong’s Stablecoin Ordinance and compare the frameworks of the U.S. and Hong Kong to assess their impact on the crypto industry.

2. A Quick Overview of Hong Kong’s Stablecoin Legislative Journey

This section summarizes the timeline of Hong Kong’s stablecoin legislation in the following table:

From the discussion paper on crypto assets in early 2022, to the licensing regime for virtual asset trading platforms in 2023, and then sandbox testing to validate technical feasibility in 2024, Hong Kong's Stablecoin Ordinance, passed in May 2025, clearly did not come together overnight. Instead, it represents a carefully developed legal framework, refined over three and a half years—putting it ahead of the GENIUS Act in terms of legislative timing.

3. Key Content and Highlights of the Stablecoin Ordinance

3.1 Main Content

The Stablecoin Ordinance consists of 11 parts and a total of 175 clauses, covering definitions, licensing systems, obligations of licensees, regulatory powers of the HKMA, criminal offenses and penalties, and supervisory mechanisms. We will summarize its core structure by examining three areas: the definition of stablecoins, asset-pegging requirements, and issuer qualifications.

3.1.1 Definition of Stablecoins

In terms of regulatory scope, the Stablecoin Ordinance defines a stablecoin as a “cryptographically protected digital representation of value” that meets five key criteria:
(1) expressed as a unit of account or a store of economic value;
(2) used or intended to be used by the public as a medium of exchange for payment, debt settlement, or investment;
(3) capable of being transferred, stored, or traded electronically;
(4) operates on a distributed ledger (meeting four characteristics: record retention, network sharing, consensus validation, and node synchronization) or similar information storage system;
(5) designed to maintain a stable value by referencing a single asset or a group/basket of assets.

While this definition is broad, only stablecoins pegged to a specific standard of value fall within the regulatory scope of the Ordinance. These are referred to as “designated stablecoins.” According to Section 4.1, a designated stablecoin must fully reference “one or more official currencies” (e.g., USD or HKD), or a unit of account or store of value specified in a gazette notice by the HKMA, or a combination thereof, and must maintain price stability through an asset-pegging mechanism. Therefore, algorithmic stablecoins—despite fitting the general definition—are excluded from the Ordinance due to the lack of asset backing that makes them unqualified under the asset-pegging requirement.

Moreover, the HKMA retains the power to expand the scope of stablecoins. Section 4.2 authorizes the Monetary Authority to include other forms of digital value as “designated stablecoins” via a gazette notice, allowing the HKMA to dynamically adjust the regulatory perimeter in response to evolving crypto assets.

3.1.2 Reserve Asset Requirements

As mentioned earlier, the Stablecoin Ordinance permits two categories of pegged assets: official currencies and assets designated by the HKMA. These requirements are further elaborated in the “Supervisory Guidelines Consultation Paper.”

First, under Section 2.1.1 of the Guidelines, issuers must ensure full backing of their reserve assets. The market value of reserves must always exceed or equal the face value of circulating stablecoins, with added buffers based on asset risk (e.g., over 15% overcollateralization for credit bonds) to account for market volatility. All reserve assets must be denominated in the reference currency (HKD stablecoins, due to the currency peg, may be exempt from holding USD reserves). If there’s a currency mismatch, prior written approval from the HKMA is required along with risk mitigation measures such as overcollateralization.

Second, reserves must consist of highly liquid, low-credit-risk instruments as detailed in Section 2.2.1:

·Bank deposits maturing within 3 months;

·Tradable debt securities maturing in under 1 year (issued or guaranteed by sovereign governments, central banks, qualified international organizations, or multilateral development banks and carrying a 0% risk weighting under the Banking (Capital) Rules sections 55–58; securities issued by financial institutions or affiliates are strictly prohibited);

·Overnight reverse repurchase agreements with highly rated counterparties;

·Investment funds solely established to manage reserves;

·Other assets approved by the HKMA.

Lastly, Section 2.4.4 of the Guidelines requires reserve assets to be completely segregated from the issuer’s own assets via a statutory trust structure. The validity of the trust must be confirmed through a legal opinion by an independent lawyer and updated upon material changes. The trust must be held by a licensed bank or institution recognized by the HKMA. The trust agreement must explicitly prohibit any deduction of fees from reserve accounts, ensuring priority payout to stablecoin holders in the event of issuer bankruptcy.

3.1.3 Issuer Requirements

According to Section 14 of the Stablecoin Ordinance, the issuer of a stablecoin must be a legally registered entity—either a Hong Kong-incorporated company or an eligible overseas company—and must have a substantive presence in Hong Kong. On top of this, the Supervisory Guidelines propose additional risk controls. For example, if the issuer is a subsidiary of a corporate group, its parent company must possess financial credentials and be subject to consolidated supervision at the group level. Banks may also serve as issuers but must comply with both traditional banking regulations and the requirements under the Stablecoin Ordinance.

Regarding capital requirements, different issuers are subject to different reserve thresholds. Non-bank issuers must maintain a paid-up capital of no less than HKD 25 million or its equivalent in freely convertible foreign currencies. This capital must be fully ring-fenced for stablecoin operations and cannot be diverted to affiliates. While banks are exempt from this minimum capital requirement, they are still required under Section 5.1.3 of the Supervisory Guidelines to meet the capital adequacy standards for banking institutions, and the capital allocated to stablecoin operations must be strictly segregated from other banking assets.

It is also worth noting that Section 7 of the Supervisory Guidelines outlines requirements on corporate governance and personnel qualifications. The issuer must establish a governance structure with internal checks and balances, with at least one-third of the board members being Independent Non-Executive Directors (INEDs). The appointment of core executives—such as the CEO, the head of the stablecoin business, and board directors—must receive prior written approval from the HKMA and pass a “fit and proper” assessment, covering criteria such as professional competence, clean criminal record, financial soundness, and conflict-of-interest reviews. Information about managerial staff must be filed with the regulator, and their qualifications must be maintained on an ongoing basis. All personnel involved in key stablecoin functions are required to undergo regular compliance training and behavioral supervision.

3.2 Highlights of Hong Kong’s Stablecoin Framework

While many countries are racing to implement stablecoin legislation, Hong Kong’s Ordinance features two notable highlights.

First, Hong Kong’s extraterritorial regulation of stablecoins is a key institutional innovation. Under the traditional “territorial jurisdiction” principle of financial supervision, any issuance of designated stablecoins within Hong Kong must be licensed. What’s innovative is that Hong Kong’s regulation also extends to stablecoins issued overseas. Specifically, if a foreign-issued stablecoin is pegged to the Hong Kong dollar, or if the issuer actively promotes the stablecoin to the Hong Kong public, it must apply for a license. Furthermore, if an issuance is deemed to potentially affect “Hong Kong’s monetary or financial stability,” “its role as an international financial center,” or involves “significant public interest,” the HKMA has the authority to subject it to licensing requirements. This stringent approach to cross-border regulation is designed to bring foreign issuers targeting Hong Kong under supervision and to protect the region’s monetary sovereignty and financial system stability.

Second, the diversification of fiat currency pegs reflects Hong Kong’s openness as an international financial center. As previously mentioned, designated stablecoins in Hong Kong may be pegged to one or multiple official currencies. Thanks to the currency peg mechanism (where HKD/USD is maintained between 7.75 and 7.85), stablecoins linked to the HKD may hold reserves denominated in USD. Accordingly, Hong Kong’s stablecoin framework must meet international AML and CFT standards to mitigate the complexities that come with multi-currency pegs. This mechanism reduces the depreciation risk of a single-currency peg and opens the door to international investors seeking stablecoins linked to USD, EUR, and other major currencies. Compared to single-currency or sovereign-asset pegging, Hong Kong’s model clearly offers greater flexibility and institutional support.

4. Comparison with the GENIUS Act

Although Hong Kong’s Stablecoin Ordinance provides a robust regulatory framework, the concept of asset-pegged crypto did not originate here. Stablecoins like USDT and USDC—both pegged to the U.S. dollar—already enjoy widespread usage in global settlement systems. With the Biden administration’s regulatory clampdown on crypto winding down, the Trump-backed GENIUS Act may offer an alternative path for global stablecoin regulation.

4.1 Key Provisions of the GENIUS Act

4.1.1 Scope of Application

The GENIUS Act explicitly defines a “payment stablecoin” as a digital asset issued using distributed ledger technology, whose primary function is to serve as a means of payment or settlement. Issuers are required to guarantee redemption at a fixed monetary value. Notably, the Act explicitly excludes sovereign currencies, deposits (including blockchain-recorded deposits), and securities (as defined under the Investment Company Act of 1940).

From a technological standpoint, the Act embraces a “technology-neutral” principle, allowing stablecoins to be issued via blockchain, smart contracts, and other innovations. However, it mandates independent custody of reserve assets and strictly prohibits co-mingling these assets with the issuer’s proprietary funds, in order to prevent fund misuse.

4.1.2 Regulatory Hierarchy

The Act establishes a tiered regulatory framework of “federal leadership supplemented by state oversight”:

At the federal level: Agencies such as the Federal Reserve and the Office of the Comptroller of the Currency (OCC) are responsible for licensing nationwide issuers with market capitalizations exceeding $10 billion. These issuers must regularly disclose reserve asset details, undergo stress testing, and comply with the Bank Secrecy Act and Anti-Money Laundering (AML) requirements.

At the state level: Smaller issuers (market cap ≤ $10 billion) may operate under a state-level regulatory framework, provided that the regime is “substantially equivalent” to federal standards, as certified by the U.S. Department of the Treasury.

4.1.3 Issuer Qualifications and Compliance Obligations

The Act imposes strict entry requirements for issuers and explicitly prohibits stablecoins from offering interest-bearing returns.

There are three categories of eligible issuers:

·Subsidiaries of insured depository institutions (subject to Federal Reserve approval);

·Non-bank entities approved at the federal level;

·State-authorized entities (as mentioned above, once their market cap exceeds $10 billion, they must come under federal oversight).

·For foreign issuers, the Act requires registration in the U.S. and proof that their home country’s regulatory framework is “substantially comparable” to that of the U.S. In addition, such issuers must have the technical capability to comply with lawful orders from U.S. courts or government authorities (e.g., asset freezes).

4.1.4 Reserve Asset and Transparency Requirements

The Act imposes strict rules on how reserves must be managed and disclosed:

·Reserve assets must be highly liquid: The reserves must fully (100%) cover the circulation volume and can only consist of U.S. dollars, Treasury bills maturing within 93 days, or Treasury-backed repurchase agreements. Rehypothecation or reuse of reserve assets is strictly prohibited.

·Disclosure and audit: Issuers are required to publish monthly disclosures of reserve asset amounts, composition, and custodial locations. These must be reviewed by a certified public accounting firm, and the CEO/CFO must personally certify the data’s accuracy. Private issuers with over $50 billion in circulation must also submit audited financial statements to ensure fiscal transparency.

4.1.5 Consumer Protection and Cross-Border Coordination

To protect consumer interests and mitigate systemic risks, the Act includes the following provisions:

·Redemption and Fee Transparency: Issuers must establish clear procedures for timely redemptions and guarantee face-value redemption without delay.

·Prohibition on Political Endorsements: The use of government branding in names or promotional materials is strictly prohibited. No member of Congress or senior executive branch official may issue payment stablecoins during their term of public service.

·Bankruptcy Priority Rights: Stablecoin holders are granted senior creditor status over other claimants. Reserve assets must be segregated from the issuer’s bankruptcy estate to ensure the safety of users’ funds.

4.2 Comparison Between the Stablecoin Ordinance and the GENIUS Act

Both the Stablecoin Ordinance and the GENIUS Act focus on regulating stablecoins that are pegged to fiat currencies or other assets. Both require 100% reserve backing, enforce strict segregation of reserve assets, and align with international Anti-Money Laundering (AML) standards to mitigate criminal risks. However, the two laws differ significantly across several dimensions. The following section outlines these nuanced differences in a comparative table.

5. Potential Impacts of the Two Frameworks

Under the Biden administration, Hong Kong’s government made efforts to fill the regulatory gaps in the crypto sector, attracting more than 200 Web3 Participants to establish or expand their businesses in the city, creating an emerging crypto ecosystem. In contrast, the Trump administration's more open stance toward digital assets signals a shift in U.S. leadership in this field. Although the regulatory landscape remains uncertain, Trump’s vocal support for crypto fuels market expectations of a looser regulatory environment—posing a competitive challenge for Hong Kong's stablecoin ambitions. Facing an evolving global policy climate, Hong Kong can leverage the institutional flexibility provided by the “One Country, Two Systems” framework to actively contribute to the shaping of global crypto standards.

In terms of reserve asset management, Hong Kong’s Ordinance allows for diversified asset options. The GENIUS Act imposes strict requirements by limiting reserves to the highest-quality, most liquid instruments—primarily U.S. Treasuries—effectively binding stablecoins to the U.S. bond market. U.S. Treasuries are favored for their balanced safety, yield, and liquidity. In contrast, Hong Kong offers global investors a wider range of value storage and payment options. This diversification could help Hong Kong establish a stablecoin system that balances risk control with multi-currency utility.

From a geopolitical standpoint, Hong Kong benefits from its proximity to Mainland China’s vast industrial base. The long-term value of crypto assets should go beyond financial speculation—supporting the real economy and digitizing real-world assets is a promising path forward. Mainland China boasts the world’s most comprehensive industrial supply chain, offering rich applications for stablecoins, from international logistics and supply chains to digital proof of asset ownership. Hong Kong can harness its institutional strengths and global connectivity as a financial hub to build a leading platform for the issuance and trading of Real-World Asset (RWA) tokens. This would enable high-quality assets from China and around the world to circulate efficiently and compliantly within Hong Kong’s markets—facilitating integration between traditional assets and crypto finance, and building a more diverse digital asset ecosystem.

At the same time, we must recognize the current trends in the global crypto landscape. On one hand, the U.S. maintains a clear advantage in foundational technologies—such as public blockchain protocols, cryptographic standards, and developer tools. If more Web3 startups and developers continue to base their R&D operations in the U.S., it may divert talent and capital away from Hong Kong. On the other hand, after more than a decade of development, the crypto ecosystem has shifted from early “de-dollarization” toward a firmly dollar-dominated structure. Major stablecoins like USDT and USDC are issued, circulated, and cleared through U.S.-controlled infrastructures. Against this backdrop, Hong Kong’s regulatory experimentation offers a valuable alternative path, encouraging compliant innovation in areas like cross-border payments and asset tokenization.

6. Conclusion

With the rollout of Hong Kong’s Stablecoin Ordinance and the U.S. GENIUS Act, global stablecoin regulation has officially entered an era of institutional competition. Hong Kong’s framework, centered around “diversified reserves and prudent regulation,” not only offers a viable alternative outside the U.S. dollar system, but also promotes innovation in emerging areas like Real-World Asset (RWA) tokenization—expanding the potential use cases for stablecoins in the real economy. Looking ahead, as more countries introduce their own stablecoin regulatory regimes, Hong Kong’s unique position—“rooted in China, connected to the world”—may allow it to become a key node in the evolving global digital financial order, offering international capital more diverse options for value storage and payments.

Meanwhile, the U.S. GENIUS Act has established a multilayered regulatory framework with the federal government at its core. By setting clear standards on reserve asset management, audit disclosures, and issuer eligibility, the Act strengthens risk controls over stablecoin operations. Its technology-neutral principle also leaves room for future innovation. Although Hong Kong and the U.S. have taken different regulatory paths, both frameworks reflect a shared goal: bringing stability and compliance to the rapidly evolving stablecoin market.

In short, a clearer and more structured regulatory regime for stablecoins will help restore and boost overall confidence in the crypto market. The evolving relationship between regulation and market forces is now driving the global digital asset ecosystem into a new phase of compliant growth.