Hong Kong’s Stablecoin Bill Paves the Way for a Licensed Regime and Global Innovation

Main Points:

• Legislative Approval: Hong Kong’s Legislative Council passed the Stablecoin Bill on May 21, 2025, establishing the first comprehensive licensing framework for fiat-referenced stablecoins in the region.
• Regulatory Framework: The new law mandates reserve backing, redemption procedures, risk controls, and periodic audits, aligning “same activity, same risks, same regulation” under a risk-based approach.
• Web3 Hub Ambitions: By enabling licensed issuance, Hong Kong seeks to strengthen its position as an Asian and global Web3 innovation hub, encouraging real-world use cases in retail payments, cross-border remittances, and P2P transfers.
• Yield-Bearing Stablecoins: The proposal includes provisions for interest distributions to stablecoin holders, tapping into a rapidly growing $11 billion market segment (4.5 % of total stablecoin supply).
• Global Regulatory Context: Hong Kong’s move mirrors parallel efforts in the United States (the GENIUS Act) and the European Union (MiCA), reflecting a global trend towards formal stablecoin regulation.
• Market Impact: Licensed issuance is expected to attract major financial institutions and global enterprises, potentially increasing competition with established players like Tether and Circle.
• Future Outlook: Applications for licenses will open by year-end 2025, with full regulatory enforcement to commence shortly thereafter, marking a new era for digital asset issuance in Asia.

1. Legislative Approval and Regulatory Framework

On May 21, 2025, Hong Kong’s Legislative Council overwhelmingly approved the Stablecoins Bill, marking a watershed moment in the region’s digital asset regulation. This bill establishes a licensing regime under which any entity issuing fiat-referenced stablecoins (FRS) in or from Hong Kong must register and comply with stringent regulatory requirements. Financial Secretary Christopher Hui emphasized that this initiative follows the principle of “same activity, same risks, same regulation,” applying a risk-based approach to ensure that stablecoin issuance is subject to standards comparable to those of traditional financial products.

Entities seeking to issue stablecoins will be required to hold adequate reserve assets in recognized fiat currencies, maintain robust redemption mechanisms, and adhere to strict risk management and disclosure obligations. The bill also prescribes periodic external audits and on-site inspections by the Hong Kong Monetary Authority (HKMA) to safeguard consumer interests and uphold market integrity. These measures represent Hong Kong’s transition from a regulatory sandbox—where three pilot issuers have been operating—to a full-fledged licensing system designed to foster a safe, transparent virtual asset ecosystem.

2. Implications for Hong Kong as a Web3 Innovation Hub

Legislator Johnny Ng Kit-Chong characterized the passage of the bill as “the first step in constructing Hong Kong’s Web3 infrastructure,” underscoring the city’s ambition to become a leading global hub for digital asset innovation. By offering a clear regulatory pathway, Hong Kong aims to attract both established financial institutions and emerging fintech startups to develop stablecoin-based solutions that integrate with existing payment rails and cross-border settlement systems.

Ng also highlighted the importance of concrete real-world use cases, advocating for the use of stablecoins in retail payments, cross-border transactions, and peer-to-peer transfers as engines of innovation. He pledged to actively facilitate collaboration between the government, regulators, and industry stakeholders to accelerate project development and ensure practical deployment of Web3 technologies. This coordinated approach contrasts with jurisdictions that have either taken a prohibitive stance or delayed clear guidance, positioning Hong Kong as an innovation-friendly environment.

3. Stablecoin Issuance Requirements

Under the new regulatory framework, licensed issuers must meet the following core requirements:

1. Reserve Backing: 100 % backing of circulating stablecoins with high-quality liquid assets denominated in recognized fiat currencies.
2. Redemption Mechanisms: 24/7 redemption services at par value to promote confidence and liquidity.
3. Risk Controls: Robust governance, internal controls, and capital adequacy measures to manage operational, credit, and liquidity risks.
4. Auditing and Reporting: Quarterly audits by independent external firms, with quarterly reports submitted to the HKMA and published publicly.
5. Consumer Protection: Clear disclosures on issuance policies, fees, reserve composition, and dispute resolution channels.

These requirements are designed to align with international best practices, drawing on frameworks proposed by the Financial Stability Board (FSB) and the International Organization of Securities Commissions (IOSCO). By codifying these standards, Hong Kong ensures market participants operate on a level playing field, thereby promoting healthy competition and reducing systemic vulnerabilities.

4. Yield-Bearing Stablecoins: A Growing Trend

A distinguishing feature of the Stablecoin Bill is its explicit endorsement of interest distributions to stablecoin holders. Ng proposed that offering yields would boost stablecoin competitiveness, expand market participation, and foster sustainable growth. This proposal aligns with broader market trends: as of May 2025, the market for yield-bearing stablecoins has surged to approximately $11 billion—4.5 % of total stablecoin supply—up from $1.5 billion (1 % share) at the start of 2024.

Prominent protocols such as Pendle have captured 30 % of this segment by enabling users to lock in fixed yields or speculate on variable rates, reflecting a growing appetite for stablecoin-based savings products. Bloomberg reports that market share for interest-bearing stablecoins has more than trebled to over $13 billion since late 2024, with issuers like Spark Protocol and Figure Markets pioneering innovative models for revenue sharing with token holders. By codifying the permissibility of yield-bearing features, Hong Kong signals its readiness to embrace financial innovation that bridges traditional savings instruments and blockchain-native assets.

5. Global Regulatory Landscape and Competitive Dynamics

Hong Kong’s licensing framework emerges against a backdrop of intensifying regulatory efforts worldwide. In the United States, the “Guiding and Establishing National Innovation for U.S. Stablecoins Act” (GENIUS Act) is making headway through Congress to regulate the $248 billion USD-pegged stablecoin sector. The bill aims to reduce legal uncertainty, foster new entrants, and strengthen consumer protections, potentially boosting the U.S. dollar’s dominance in global finance.

Similarly, the European Union’s Markets in Crypto-Assets (MiCA) regulation, effective from mid-2025, mandates capital and reserve requirements, governance standards, and strict disclosure obligations for stablecoin issuers operating across EU member states. Against this global backdrop, Hong Kong’s Stablecoin Bill positions the city as a competitive alternative, offering an Asia-focused regulatory sandbox that prioritizes innovation while maintaining rigorous investor safeguards.

By opening the licensing window by year-end 2025, Hong Kong is set to compete for market share with established issuers such as Tether (USDT) and Circle (USDC), which collectively dominate over 80 % of stablecoin circulation. Observers anticipate that licensed operations by traditional banking institutions and fintech giants—potentially including HSBC, Standard Chartered, or local conglomerates—could quickly reshape the regional stablecoin landscape.

6. Industry Impacts and Market Adoption

The formalization of a licensing regime is expected to produce several industry-wide impacts:

• Institutional Participation: Clear regulations lower entry barriers for banks and licensed financial institutions to issue their own stablecoins, leveraging existing balance sheets and client networks.
• Innovation in Use Cases: Regulatory certainty encourages development of payment rails, tokenized asset offerings, and programmable financial instruments, stimulating ecosystem growth.
• Risk Mitigation: Standardized reserve requirements and audit mandates reduce concerns about asset collateralization and redemption solvency, bolstering user trust.
• Cross-Border Integration: Hong Kong’s stablecoins may integrate seamlessly with Mainland China’s digital yuan initiatives and other Asian digital payment systems, facilitating regional remittance corridors.

Major industry participants have already signaled intent to participate: promotional materials by leading crypto custody providers and consulting firms highlight Hong Kong as a prime destination for stablecoin issuance strategy.

7. Timeline and Next Steps

Following legislative passage, the Stablecoin Bill will enter into force later in 2025, with the HKMA to publish detailed licensing guidelines and application procedures in the coming months. Key milestones include:

1. Regulatory Consultation: Release of draft subsidiary legislation and public consultation by Q3 2025.
2. Guideline Publication: Final HKMA licensing handbook and risk management code by Q4 2025.
3. License Applications: Opening of application window for major institutions by year-end 2025.
4. Full Enforcement: Commencement of mandatory licensed issuance and supervisory inspections in early 2026.

Market participants and service providers should prepare by conducting compliance assessments, optimizing reserve management systems, and engaging with the HKMA’s sandbox framework for preliminary testing.

Conclusion

The passage of Hong Kong’s Stablecoin Bill on May 21, 2025, marks a momentous stride in the city’s evolution as a regional and global Web3 hub. By instituting a comprehensive licensing framework, enforcing robust reserve backing, and embracing yield-bearing innovations, Hong Kong not only enhances market integrity but also signals its readiness to lead in digital asset issuance and application. As global regulators advance parallel initiatives—such as the U.S. GENIUS Act and the EU’s MiCA—Hong Kong’s clear, risk-based approach positions it competitively to attract both institutional licensees and fintech innovators. With license applications slated to open by year-end and full enforcement to follow, the next 12 months will be critical in shaping Hong Kong’s stablecoin ecosystem and advancing practical blockchain use cases that promise to redefine payments, remittances, and programmable finance across Asia and beyond.