Lawyer Yang Qi interprets: The implementation of Hong Kong's "Stablecoin Regulatory Bill" and the significance of the stablecoin bill.

Written by: Lawyer Yang Qi

Introduction

BIG NEWS!! On May 21, 2025, the Legislative Council of Hong Kong passed the Stablecoin Issuance and Supervision Bill (hereinafter referred to as the “Bill”) in its third reading, marking a milestone step in the field of virtual asset regulation in Hong Kong. As a global financial hub, Hong Kong’s legislation not only fills the long-standing regulatory gap in the stablecoin market, but also builds a complete framework covering issuance licensing, reserve fund management, information disclosure and investor protection based on the principle of “risk control, innovation and inclusiveness”. The implementation of the bill is not only a response to the lessons of market crises such as Terra/Luna, but also an active embrace of the fintech wave, which is accelerating Hong Kong’s transformation from a “crypto testing ground” to an “international virtual asset compliance center” by balancing compliance and innovation. How will this change reshape the market landscape? What does it mean for institutional investors, the DeFi ecosystem, and cross-border finance? This article will analyze the far-reaching impact of the law on virtual asset investment from multiple dimensions.

1. Enhance market confidence and attract institutional investors

Increased regulatory clarity: The bill requires stablecoin issuers to obtain licenses and meet reserve, audit, and disclosure requirements, reducing market opacity and potential risks (such as the possibility of a repeat of the Terra/Luna collapse), providing investors with a safer trading environment.

Institutional capital inflow accelerates: Traditional financial institutions (such as banks and asset management companies) are more sensitive to compliance frameworks, and clear regulations may promote their layout of stablecoin-related products (such as staking and payment solutions), driving market liquidity growth.

2. Centralization of the stablecoin market and rising compliance costs

Increased industry barriers: Strict licensing and reserve requirements (such as 100% fiat collateral) may force small or technologically immature stablecoin issuers out of the market, with leading compliant projects (such as USDC issuer Circle) or local licensed institutions in Hong Kong dominating.

Balancing Innovation and Costs: Compliance costs (audit, legal consulting, system upgrades) may inhibit some innovation, but in the long run, compliance will become the core of competition, driving technological upgrades (such as real-time reserve auditing technology).

3. The Deep Integration of Virtual Assets and the Traditional Financial System

Expansion of Payment and Settlement Scenarios: Compliant stablecoins may be integrated into Hong Kong’s financial infrastructure (such as interfacing with the Faster Payment System FPS), promoting applications in areas such as cross-border payments and trade financing, thereby enhancing the practical value of virtual assets.

Diversification of financial products: Banks may launch stablecoin savings products and ETFs, while insurance companies could develop derivatives linked to stablecoins, further attracting conservative investors to enter the market.

4. The Double-Edged Sword Effect on the DeFi Ecosystem

Short-term liquidity pressure: Some DeFi protocols rely on unregulated stablecoins (such as DAI). If they are excluded from the Hong Kong market due to non-compliance, it may lead to a decrease in liquidity for the related protocols.

Long-term compliance opportunities: The bill may promote collaboration between DeFi projects and licensed stablecoins (such as using compliant stablecoins as collateral), facilitating compliant interactions between DeFi and traditional finance.

V. Strengthening the Position of Hong Kong as an International Financial Center

Regional competitive differentiation: Compared to Singapore’s “cautious opening” and the EU’s MiCA framework, Hong Kong, by focusing on stablecoin regulation, may become a hub for the integration of fiat currencies and crypto assets in the Asia-Pacific region, attracting Web 3 companies to establish their Asia-Pacific headquarters.

Renminbi Internationalization Window: If Hong Kong launches an offshore renminbi stablecoin (such as a stablecoin pegged to the digital Hong Kong dollar), it may promote the use of the renminbi in cross-border trade and investment, supporting national strategy.

6. Potential Challenges and Risks

Regulatory arbitrage and cross-border coordination challenges: If other jurisdictions have lenient regulations, it may lead to capital flowing to “regulatory havens,” necessitating enhanced international cooperation (such as policy coordination with BIS and IMF).

Technological risks and new types of crime: compliant stablecoins may become targets for hacker attacks, requiring enhanced investment in cybersecurity and anti-money laundering (AML) technologies.

Summary: Long-term structural impacts outweigh short-term fluctuations.

The Hong Kong stablecoin bill may cause market adjustments in the short term (such as fluctuations in stablecoin supply), but in the long run, it will drive virtual asset investment from “speculation-driven” to “value-driven.” Investors need to pay attention to:

Compliance targets: Preferably select licensed stablecoins and associated financial products.

Policy linkage: Focus on the synergistic development opportunities between the digital Hong Kong dollar (e-HKD) and stablecoins.

Geopolitical factors: Under the regulatory game between China and the United States, Hong Kong may become a “buffer zone” for Eastern and Western capital in the virtual asset sector.

Of course, the ultimate success of the bill’s implementation depends on the execution details (such as transition arrangements and cross-border recognition mechanisms) and market feedback. Hong Kong is expected to consolidate its role as a global pioneer in virtual asset regulation through this. Let’s wait and see!