The Hong Kong Monetary Authority has released a guide for the implementation of stablecoin smart contracts, focusing on Compliance and security.

Main Text

With the formal passage of the "Stablecoin Regulation", the Hong Kong Monetary Authority released the "Regulatory Guidelines for Licensed Stablecoin Issuers (Draft)" on May 26, 2025, aimed at ensuring the stability, safety, and compliance of the local stablecoin ecosystem. The guidelines detail the regulatory requirements and operational standards that licensed stablecoin issuers must continuously adhere to.

Recently, more and more institutions have been consulting security teams about the compliance implementation of smart contracts. To assist issuers in better understanding and deploying a compliant smart contract system, we have specially released the "Smart Contract Implementation Guidelines for Stablecoin Issuers in Hong Kong" to provide clear technical paths and practical advice, supporting the healthy development of the Hong Kong stablecoin ecosystem.

Part One Infrastructure and Compliance Strategy

This section aims to lay the foundation for the high-level architecture of the stablecoin system, which is entirely driven by the fundamental requirements of the Hong Kong Monetary Authority framework. The choices made here will determine the entire implementation pathway, ensuring that compliance is deeply embedded in the tech stack from the very beginning of the design.

1. Selection of the underlying distributed ledger

Regulatory Directive

Licensees must assess the robustness of the underlying distributed ledger technology (DLT) they are using. This assessment covers security infrastructure, resistance to common attacks (such as 51% attacks), guarantees of transaction finality, and the reliability of consensus algorithms.

Technical Interpretation

This is not merely a simple technical preference but a core compliance task. The choice of the underlying blockchain must undergo formal due diligence, and the entire evaluation process needs to be documented in detail to provide sufficient justification during regulatory review. The selection process of the underlying ledger effectively sets the tone for the security and stability of the entire stablecoin system.

The Hong Kong Monetary Authority's emphasis on the robustness of the ledger is essentially a warning to issuers to avoid adopting emerging blockchains that have not been market-validated, are overly centralized, or have questionable security. The responsibility for proving their safety and stability falls entirely on the issuers. If an issuer chooses a chain whose security has not been widely verified, they must design and implement additional compensatory controls.

Implementation Guidelines

• Prioritize mature public blockchains: It is recommended to prioritize mature public blockchains with high security, such as Ethereum and Arbitrum. These networks have inherent advantages due to their proven resilience, large validator node networks, and ongoing public oversight. Their high attack costs (economic security) can directly address regulatory concerns regarding resistance to 51% attacks and ensuring transaction finality.

• Rigorous assessment of alternatives: If considering the adoption of a consortium chain or other types of distributed ledgers, a rigorous and quantifiable comparative analysis must be conducted, such as a security audit, to demonstrate that its security standards are not lower than, or even superior to, mainstream public chains.

• Risk Assessment Document: The assessment report must comprehensively cover its ability to withstand common attacks, the type of consensus algorithm, and the risks associated with code defects, vulnerabilities, exploits, and other threats, along with a detailed analysis of how these risks could potentially impact the issuance, redemption, and daily operations of stablecoins. This document is a key document to demonstrate the prudence of technology selection to regulatory authorities.

2. Core Token Standards and Regulatory Function Expansion

Regulatory Directive

The regulatory documents do not specify any particular token standard (such as ERC-20). However, the documents mandate the implementation of a series of core management functions, including minting ( mint ), burning ( burn ), upgrading ( upgrade ), pausing ( pause ), resuming ( resume ), freezing ( freeze ), blacklisting ( blacklist ), whitelisting ( whitelist ), and other operations.

Technical Interpretation

The Hong Kong Monetary Authority has effectively defined a "Regulatory Enhanced" token standard that far exceeds the ERC-20 standard. This standard not only requires basic token circulation functions but also emphasizes operational security, controllable permissions, and traceable risks. In order to maximize security while meeting compliance requirements, the most efficient and safest development path is to use widely audited and community-recognized standard libraries (such as OpenZeppelin) and build upon this foundation for functional expansion.

Implementation Guide

• Basic Standard: Using ERC-20 as the basic standard to ensure the fungibility of tokens and interoperability within a broader ecosystem.

• Function Expansion: The following functional modules must be integrated to meet regulatory requirements:

• Pausable: A global pause and resume function for all token activities, which is a core tool for responding to major security incidents.

  • Mintable: Used to implement that licensed issuers must mint new tokens through controlled processes and ensure that the token issuance strictly corresponds to adequate fiat reserve assets.

  • Burnable: Provides the function of burning tokens. In the specific implementation, this function will be under strict permission control, rather than allowing any user to destroy at will.

  • Freezable: Used to pause the token transfer function of specific accounts (such as those involving suspicious transactions).

  • Whitelist: Used to implement additional security measures, only allowing addresses that have passed due diligence and approval to participate in core operations (such as receiving newly minted tokens).

  • Blacklist: Used to implement transaction bans on addresses involved in illegal activities (such as money laundering and fraud), prohibiting them from sending/receiving tokens. Blacklist management needs to be linked with the AML/CFT system to monitor suspicious transactions in real time.

  • AccessControl: This is the foundation for implementing a fine-grained, role-based access management system. All management functions must go through this module for permission control to meet the requirements of separation of duties.

3. Main Compliance Models: Choosing Between Blacklists and Whitelists

Regulatory Directive

The consultation document on ongoing monitoring and anti-money laundering/counter-terrorist financing ( AML/CFT ) proposes various measures, including "blacklisting wallet addresses identified as subject to sanctions or related to illegal activities," or implementing stricter "whitelisting for wallet addresses of stablecoin holders, or adopting a closed-loop model."

Technical Interpretation

This is the most critical decision point in the entire system architecture, directly determining the openness, practicality, and complexity of compliance operations for stablecoins.

• Blacklist Mode: A "default open" mode. All addresses are free to trade by default, and only those that are explicitly identified and added to the on-chain blacklist will be restricted.

• Whitelist mode: A "default off" closed-loop mode. Any address, unless explicitly subjected to due diligence and approval by the issuer and added to the on-chain whitelist, cannot hold or receive tokens.

Although the whitelist model provides AML (Anti-Money Laundering) control capabilities, a strict whitelist system for a stablecoin intended for widespread use means that the stablecoin can only circulate among pre-approved participants, making it more like a closed banking ledger system rather than a flexible digital currency.

Therefore, the blacklist model, which is also explicitly mentioned by regulators, combined with the powerful off-chain analytical tools required by regulators, constitutes a more balanced solution. It meets regulatory requirements while retaining the practicality of the assets.

In design, the system can be built to be scalable, or to implement both modes simultaneously, so that it can smoothly transition or switch to a whitelist mode in the future in response to tightening regulations or changes in business models.

Implementation Guide

• Blacklist mode (default recommended option):

  • Advantages: It offers higher practicality, enabling seamless interoperability with the vast decentralized finance ( DeFi ) ecosystem, providing users with lower barriers to use and a smoother experience.

  • Disadvantages: Compliance heavily relies on strong, real-time off-chain monitoring and analysis capabilities to promptly detect and block illegal addresses.

  • Implementation method: In the transfer function of the smart contract, add a logic check to ensure that both the sender (from) and the receiver (to) addresses are not recorded in the blacklist.

• Whitelist Mode

  • Advantages: Provides the highest level of AML/CFT control, achieving prevention before the fact rather than remediation after the fact.

  • Disadvantages: Greatly limits the universality and adoption rate of stablecoins, brings huge operational costs for managing whitelists, and may make it difficult for them to become a widely accepted medium of exchange.

  • Implementation method: In the transfer function of the smart contract, add a logical check that requires both the sender's address (from) and the receiver's address (to) to be in the whitelist. It is recommended to develop a dedicated Web user backend system for operations to enhance convenience.

Part Two Implementation of Smart Contracts

This section provides a detailed blueprint for the core functions of smart contracts, transforming complex regulatory requirements into specific code-level logic, security models, and operational protocols.

1. Design a refined access control system

Regulatory Instructions

The design of high-risk operations must "prevent any single party from being able to unilaterally execute relevant operations (e.g., through multi-signature protocols)." The responsibilities of different operations should be adequately isolated.

Technical Interpretation

This means that a powerful and role-based access control system ( RBAC ) is mandatory. Any form of a single "owner" or "administrator" private key is non-compliant.

Implementation Guidelines

There must be a defined set of clear roles, and these roles should be assigned to different entities or employees controlled by multi-signature wallets to achieve separation of duties and minimize the risk of single points of failure or collusion. Each role should be limited to specific functions, all operations require multi-signature authorization, and it should be ensured that no single employee holds multiple high-risk roles simultaneously. All operations must be logged and subjected to annual third-party audits, with permission allocation supervised by administrators or the board.

• MINTER_ROLE: Responsible for handling the minting of stablecoins (mint) operations, including creating token units upon receiving a valid issuance request, and ensuring that minting matches the corresponding increase in the reserve asset pool.

• BURNER_ROLE: Responsible for handling the destruction of stablecoins ( burn ) operations, including destroying token units upon receiving valid redemption requests.

• PAUSER_ROLE: Responsible for pausing ( pause ) stablecoin operations, such as temporarily stopping transfers, minting, or redemption when an abnormal event (e.g., security threat) is detected.

• RESUME_ROLE: Responsible for restoring the operation of (resume) stablecoin, such as re-enabling transfers, minting, or redemption after the resolution of a pause event.

• FREEZER_ROLE: Responsible for freezing ( freeze ) and unfreezing ( remove freeze ) specific wallets or tokens, such as temporarily freezing assets upon detection of suspicious activities (e.g., money laundering risks).

• WHITELISTER_ROLE: Responsible for managing the whitelist (whitelist), including adding or removing allowed wallet addresses, such as restricting minting to whitelist addresses.

• BLACKLISTER_ROLE: Responsible for managing the blacklist ( blacklist ) and removing from the blacklist ( remove blacklist ), such as blacklisting suspicious wallets to prevent transfers.

• UPGRADER_ROLE: If using an upgradeable model, responsible for upgrading (upgrade) smart contracts, such as updating contract code to fix vulnerabilities or add features.

Table 1: Role-Based Access Control Matrix ( RBAC Matrix )

The table below provides a clear and intuitive specification for developers and auditors, explicitly mapping each privileged operation to its required roles and control types.

| Action | Required Role | Control Type | |------|----------|----------| | Mint (Mint) | MINTER_ROLE | Multisignature | | Burn (Burn) | BURNER_ROLE | Multisignature | | Pause (Pause) | PAUSER_ROLE | Multisignature | | Restore (Resume) | RESUME_ROLE | Multi-signature | | Freeze (Freeze) | FREEZER_ROLE | Multi-signature | | Unfreeze (Unfreeze) | FREEZER_ROLE | Multisignature | | Add Whitelist (Whitelist) | WHITELISTER_ROLE | Multi-signature | | Remove from Whitelist (Remove from Whitelist) | WHITELISTER_