Panoramic view of stablecoins regulation in China, the United States and Europe: New Hong Kong regulations are implemented, seizing the lead in the trillion-dollar market

On May 21, just two days after the US stablecoin bill GENIUS Act was voted by the Senate, the Legislative Council of the Hong Kong Special Administrative Region passed the "Stablecoin Bill", which will establish a fiat currency stablecoin licensing system in Hong Kong to improve the regulatory framework for virtual asset activities in Hong Kong.

△As the central bank of Hong Kong, the Hong Kong Monetary Authority (HKMA) is responsible for supervising virtual assets with financial attributes, including stablecoins, etc.

The Hong Kong government said it will continue to support the development of the virtual asset industry. With the implementation of the regulatory system for virtual asset trading platforms and stablecoin issuers, the government will next consult on virtual asset over-the-counter trading (OTC) and custody services, and will issue a second declaration on the development of virtual assets.

Excerpt from the regulations: Conditions for issuing and selling stablecoins in Hong Kong

1. Issuer 's license requirements

After the implementation of the Stablecoin Ordinance, anyone who issues fiat currency stablecoins in Hong Kong during business or issues fiat currency stablecoins that claim to anchor the value of the Hong Kong dollar in Hong Kong or outside Hong Kong must apply for a license from the Financial Management Commissioner.

Licensed persons are subject to ongoing supervision by the Financial Management Specialist. The Financial Management Specialist has the right to temporarily revoke or revoke the license and impose a fine for violations by licensees, designated stablecoin entities and their senior personnel.

The Ordinance only allows designated licensed institutions to sell fiat stablecoins in Hong Kong, and only fiat stablecoins issued by licensed issuers can be sold to retail investors.

In addition, to prevent fraud, only advertisements about the issuance of licensed fiat stablecoins will be allowed at any time (including a 6-month transition period) . Citizens should pay attention to the above matters and be cautious when receiving advertisements or information related to fiat currency stablecoins.

*** 3 "sandbox" companies still need to apply for licenses**

Previously, the HKMA launched a stablecoin issuer sandbox arrangement as early as March 2024 to provide interested issuers with opportunities to pilot the issuance of stablecoins before the promulgation of relevant legislation takes effect, within a limited scope, and with controllable risks.

As of now, the HKMA has announced three "sandbox" participants: JD.com Coin Chain, Yuanbi Technology, and a joint venture between Standard Chartered Bank, Animoca and HKT.

The regulatory "sandbox" stipulates that being approved to participate in the sandbox arrangement does not mean that the relevant stablecoin projects have been recognized or regulated by the HKMA or other financial regulatory agencies. After the stablecoin issuer license system is officially introduced, participants in the sandbox arrangement must still submit license applications to the HKMA.

2. Other Requirements of the Issuer

The issuer must comply with the provisions on reserve assets management and redemption, including properly separating customer assets, maintaining a sound stability mechanism, and handling the redemption requirements of stablecoin holders in denomination under reasonable conditions.

Issuers must also meet a series of requirements for combating money laundering and terrorist fundraising, risk management, disclosure regulations, audits and appropriate candidates. The Financial Management Specialist will provide further consultations on the detailed regulatory requirements of the system in a timely manner.

Specifically, according to the Legislative Council Reference Summary, the licensing guidelines of stablecoin issuers include the following main elements:

(a) Management and stability mechanism of reserve assets: It indicates that the market value of reserve assets of stablecoins must at least be equal to their circulating face value at all times. Licensed persons must have a robust and stable mechanism, properly separate and manage reserve assets arrangements, and have sufficient disclosure policies;

(b) Redemption: To ensure that the holder of the specified stablecoin (holder) is properly protected, the licensee must pay the face value of the specified stablecoin to the holder who makes a valid redemption requirement without overly cumbersome conditions and unreasonable fees. The redemption procedure, time limit, any conditions or fees involved, and rights shall also be clearly disclosed for reference by the holder;

(c) Have a physical company in Hong Kong: To ensure that the Monetary Authority can conduct effective supervision and enforcement, the licensee must have a physical company in Hong Kong;

(d) Financial resources: Licensors must have sufficient financial resources to operate their business, including the requirement of a minimum paid-up share capital of HK$25 million;

(e) Appropriate candidates: The controller, CEO and director of the licensee must be the appropriate candidates, and the person responsible for managing and operating regulated stablecoin activities must have the required knowledge and experience; and

(f) Prudent and Risk Management: Licensors must have appropriate risk management policies and procedures to manage risks arising from their business operations, and the relevant policies and procedures must be commensurate with their business scale and complexity. Licensed persons should also have sound and appropriate control systems to prevent and combat possible money laundering and terrorist fundraising activities.

3. Temporary license for transition period

The Stablecoin Ordinance is expected to come into effect within 2025, giving the industry enough time to understand the requirements under the licensing system.

The licensing system also has a transition period arrangement of 6 months, provided that the issuer must be within the first 3 months after the regulatory system takes effect—

(i) Submit a license application to the Monetary Authority;

(ii) Obtain written notice from the Monetary Authority; and

(iii) Commit its ability to comply with applicable regulatory provisions.

An original issuer who complies with (i) to (iii) above and who can demonstrate his or her ability to comply with applicable regulatory requirements will be issued with a temporary license and continues its issuance activities until the Monetary Authority makes a final decision on its licensing application. If the Financial Management Specialist fails to be satisfied that the applicant is capable of complying with the licensing guidelines and regulatory requirements, he or she may issue a notice of refusal to him or her at any time. If the issuer receives a notice of refusal, he must end his business in an orderly manner within 1 month.

If the original issuer fails to meet the above items (i) to (iii) above, he must end his business in an orderly manner before the end of the fourth month after the regulatory system takes effect.

4. Stablecoin sales qualifications

To ensure protection for potential holders, only the following institutions regulated by the Monetary Authority or the SFC can sell stablecoins to the public:

(a) Licensors under the fiat stablecoin issuer system;

(b) A virtual asset trading platform licensed by the China Securities Regulatory Commission;

(c) a corporation licensed by the SFC in conducting Class 1 regulated activities under section 116 of the Securities and Futures Ordinance (Cap. 571); and

(d) Accredited institutions as defined in the Banking Ordinance (Chapter 155).

Global Stablecoin "Arms Race"

In 2023, the Financial Stability Board (FSB) finalized its final recommendation on regulating stablecoins. According to the recommendation, financial regulators in member regions should implement measures to regulate and monitor stablecoin activities carried out in their jurisdictions to address potential financial stability risks. FSB will review the implementation progress of its member regions, including Hong Kong, in 2025.

(Starlabs Consulting Note: The FSB was established in 2009 and is responsible for coordinating financial regulatory agencies and international standard-setting organizations in different regions at the international level, as well as promoting the reform of international financial regulations. Mainland China and Hong Kong are both FSB members.)

Jim Reid, head of global macro and thematic research at Deutsche Bank, pointed out in his latest report that stablecoins are expanding rapidly at an unprecedented rate and corporate finance executives have felt the wave of change.

Deutsche Bank's report points out that there are four main types of stablecoins:

• Stable coins supported by fiat currency (stable coins referred to in the Hong Kong Stable Coins Bill are of this category, and there are also $USDT, $USDC, $BUSD, etc.);
• Asset-backed stablecoins (such as $PAXG, $DGX);
• cryptocurrency-backed stablecoins (such as $DAI, $sUSD); and
• Algorithmic stablecoins (such as $UST, $FRAX).

Deutsche Bank pointed out that at present, USD-backed stablecoins dominate the market, with more than 99% of the stablecoins being pegged to the USD. Holding more than $120 billion in U.S. dollar-backed assets, these stablecoins actually act as money market funds that support U.S. short-term debt markets. For example, as of March 2025, Tether had held US Treasury bonds of US$98.5 billion, a figure that was almost zero in 2020, and Tether has now become the main overseas holders of US Treasury bonds.

The Citi report pointed out that the US dollar's share in foreign exchange reserves is still dominant, and the dominance of the US dollar's stablecoin not only comes from the first-mover advantage of the US dollar, but also reflects the "excessive privilege" of the US dollar as the preferred reserve currency. The stablecoin market has huge potential, and Citi estimates that it may reach US$1.6-3.7 trillion by 2030.

United States: 2 stablecoin bills are in the process of legislation

On May 19, the U.S. Senate passed the Guiding and Establishing National Innovation for US Stablecoins Act of 2025, GENIUS Act with 66-22 votes. It is the first comprehensive federal regulatory bill in U.S. history to target stablecoins. Before this, stablecoins and cryptocurrencies have been in a delicate gray area.

The GENIUS Act focuses on the issuance and circulation of stablecoins. The bill has established several regulatory provisions for stablecoin issuers, including mandatory requirement for issuing institutions to hold assets at the same value as the stablecoins they issue , prioritize repayment of funds from currency holders in the event of bankruptcy, and compliance with anti-money laundering regulations and anti-terrorism sanctions requirements to prevent crypto assets from being used for illegal activities.

Standard Chartered's latest research report predicts that once the United States officially passes the GENIUS bill, the supply of stablecoin will grow nearly 10 times in the next four years, expanding from the current $230 billion to about $2 trillion by the end of 2028.

According to the Tether 2025 Q1 Transparency Report, $USDT is the largest stablecoin with market capitalization (about $130 billion), with approximately 60% of its reserve composition being US short-term Treasury bonds and 40% being cash and cash equivalents. Industry analysts believe that Tether has met the requirement that the GENIUS Act reserve assets are mainly based on US bonds, and its transparency measures (such as quarterly audits) also meet the requirements, but the focus is that the use of USDT has always had a gray industry part (such as telecom fraud, etc.). How to adjust the business to adapt to supervision is the next issue that needs to be considered.

According to Circle's May 2025 monthly report, $USDC has a market value of approximately US$60 billion, and 80% of the reserve composition is short-term US Treasury bonds (about US$48 billion) and 20% is cash. Circle has been registered in the United States and actively cooperated with regulation (applying for an IPO in 2024), and its reserves are also in compliance with the GENIUS Act requirements. After the GENIUS Act comes into effect, USDC may become the first stablecoin of choice for institutions, especially in the DeFi field (the current USDC accounts for 30% of DeFi), and its market share is expected to further increase.

In addition, on April 2, the U.S. House Financial Services Committee passed the Stablecoin Transparency and Accountability for a Better Ledger Economy, STABLE Act with 32-17 votes. This is a Republican-backed stablecoin framework bill that aims to provide rules for payment of stablecoins.

Europe: MiCA promotes adoption of euro stablecoins

Although the euro occupies a major role in TradFi – accounting for 20% - 30% of global foreign exchange reserves, SWIFT trading and trade flows, it accounts for less than 0.5% of global stablecoin circulation.

However, with the Crypto Asset Market Regulatory Framework (MiCA), which officially came into effect at the end of 2024, providing a detailed legal framework for stablecoins issuance and trading, euro-backed stablecoins have become a key driver of European cryptocurrency market growth.

In November 2024, the monthly trading volume of the euro stablecoin soared to nearly 800 million euros, a record high in years. The sharp increase can be largely attributed to Banking Circle’s $EURI, a stablecoin that has gained significant attention after its listing on Binance, according to reports from research firm Kaiko and Dutch-based cryptocurrency exchange Bitvavo. Other stablecoins that are in line with the MiCA framework, such as Circle's $EURC and FASX's $EURCV, also fueled this growth, and together accounted for 91% of the euro-backed stablecoins market share by the end of 2024.

Citi reminds that since the euro stablecoin was launched under the European MiCA legislative framework, the market value of non-dollar stablecoins has increased, which coincides with the weakening of the US dollar and the cracks in the "American Exceptionism" narrative. Although euro-based stablecoins currently account for only a small share, changes in this area may be a forward-looking indicator of the change in the US dollar's status.

Now, the US dollar stablecoin will usher in a new competitor - a stablecoin supported by the Hong Kong dollar/renminbi. Previously, Hong Kong Legislative Council member Wu Jiezhuang said that the issuance of stablecoins in Hong Kong should be based on actual application scenarios, and it is not limited to the issuance of Hong Kong dollar stablecoins, but also offshore RMB or even euro stablecoins.