The global stablecoin regulatory framework is accelerating its construction, with Hong Kong and the United States becoming pioneers.

In the previous article, we delved into the core concepts of stablecoin and systematically analyzed the operational mechanisms and application scenarios of mainstream stablecoins in the current market. It is not difficult to see that the stablecoin sector contains enormous rise potential. However, the technological innovation of stablecoins acts as a double-edged sword; although it has broad development prospects, its potential risks cannot be ignored. According to data from on-chain analysis institutions, the total amount of illegal transactions completed through stablecoins reached as high as 40 billion USD from 2022 to 2023. Among them, 70% of encryption fraud criminal activities and over 80% of sanction-evading transaction activities involved the use of stablecoins.

Therefore, to balance innovation and risk, global regulators are accelerating the construction of a systemic regulatory framework for stablecoins: the United States continues to advance relevant legislative processes, while the Hong Kong Monetary Authority has passed relevant regulations and established a "stablecoin sandbox" regulatory mechanism. This dynamic balance of technological neutrality and risk prevention is shaping the development paradigm for the next stage of stablecoins, marking the transition of the stablecoin industry from barbaric growth to a stage of compliance.

This article will combine relevant industry research and practical experience to clarify and answer the following questions from a professional perspective:

• What risks are associated with stablecoins, and why is regulation of stablecoins necessary?
• Which countries and regions currently have regulatory frameworks for stablecoins?
• What are the specific contents of the regulatory framework? What are the entry barriers and compliance requirements for the stablecoin industry?
• In the long term, what impact will the continuous improvement of the regulatory framework have on the future development of the stablecoin industry?

What risks are associated with stablecoins, and why is there a need for regulation of stablecoins?

Why is the regulatory framework for stablecoins so important? Currently, there are two major risks in the stablecoin industry:

The first is the intrinsic risks of stablecoins.

The value stability of stablecoins is not an absolute guarantee, but rather built on the balance of market consensus and trust mechanisms. The core logic is that the relative stability of stablecoins does not stem from the intrinsic value of reserve assets, but relies on the holders' continuous trust in the issuer's ability to fulfill their obligations. This trust is essentially a "consensus-driven coin value balance"—when the majority of market participants trade and transfer based on the expectation of stablecoin value stability, the risk of significant price fluctuations is suppressed by the consensus itself.

However, once the trust foundation shows cracks, the stability of the stablecoin will quickly collapse. For example, mismanagement behaviors such as insufficient reserve assets or fund misappropriation; when the market detects such risks, the consensus mechanism of stablecoin holders may quickly reverse or collapse. This is specifically manifested as: the panic selling of stablecoin holders can trigger the depegging of the coin's value, and the market panic caused by the depegging will further stimulate a wave of selling, ultimately forming a self-reinforcing negative feedback loop—what is known as the "death spiral." Even a single stablecoin's collapse can ultimately trigger a series of chain reactions in the cryptocurrency market and ultimately become a black swan event for the entire market.

The transmission mechanism of this systemic risk was fully verified in the 2022 Luna-UST incident. As a representative of algorithmic stablecoins, UST relies on a complex algorithmic mechanism with Luna tokens to maintain its value pegged to the US dollar. However, when a market liquidity crisis erupted, the inherent flaws in the algorithmic design were maliciously attacked and continuously amplified. At the same time, the lack of transparency of UST further led to a rapid spread of the trust crisis, ultimately triggering a collapse in its value. This incident not only caused nearly $40 billion in market capitalization to evaporate but also triggered a chain reaction in the encryption market, fully exposing the inherent risks contained in stablecoins that lack regulatory constraints.

The external risks of stablecoins

The anonymity and cross-border liquidity of stablecoins certainly bring significant convenience and advantages, but these characteristics also make them susceptible to exploitation by black and gray markets and criminal activities. Without effective regulation, especially if the anti-money laundering (AML) and counter-terrorism financing (CFT) compliance requirements for stablecoins are unclear, stablecoins are likely to become a hidden channel for illegal fund flows, thereby posing a threat to the security of the financial system.

Introduction to the regulatory framework for stablecoins in the United States and Hong Kong

In recent years, the development of global stablecoin regulatory frameworks has shown a trend of rapid growth. Countries or regions such as Hong Kong, the United States, Singapore, the European Union, and the United Arab Emirates are all advancing quickly and gradually implementing relevant laws and regulations.

Overall, the regulatory framework for stablecoins in various countries mainly revolves around the following three major directions:

• Issuer's access threshold: Clarify the qualification requirements for stablecoin issuers to ensure they possess sufficient capital strength, risk management capabilities, and industry experience.

• The mechanism for stabilizing the coin value and maintaining reserve assets: issuers are required to maintain sufficient stablecoin reserve assets and ensure transparency and compliance through regular disclosures and independent audits.

• Compliance in circulation: Focus on strengthening the anti-money laundering (AML) and "know your customer" (KYC) mechanisms for stablecoins to prevent them from being used for illegal fund flows.

Next, this article will focus on Hong Kong and the United States, and conduct an in-depth analysis of their latest stablecoin regulatory frameworks. It will explore the following dimensions: regulatory process, normative documents, regulatory authorities, and the core content of the regulatory framework.

(1) Hong Kong

1. Regulatory Process

• January 2022:

The Hong Kong Monetary Authority (hereinafter referred to as "HKMA") has released the "Discussion Paper on Encryption Assets and Stablecoins," beginning to explore the nature of stablecoins and the related regulatory framework.

• December 2023:

The Hong Kong Monetary Authority and the Financial Services and the Treasury Bureau (hereinafter referred to as "FSTB") jointly issued a consultation document on legislative proposals for implementing a regulatory regime for stablecoin issuers in Hong Kong, proposing a specific draft regulatory framework for stablecoins, with a focus on regulating issuers and protecting holders.

• March-July 2024:

The Monetary Authority has launched the "stablecoin sandbox" plan, introducing a "sandbox" for stablecoin issuers, with multiple companies becoming the first participants in this "sandbox."

• December 2024:

On December 6, 2024, the Hong Kong government published the "Stablecoin Bill" (hereinafter referred to as the "Stablecoin Ordinance") in the Gazette and submitted it to the Hong Kong Legislative Council for a first reading on December 18.

According to Hong Kong's legislative procedures, a bill must undergo three readings in the Hong Kong Legislative Council before it becomes formal law, namely the first, second, and third readings. Essentially, this involves three stages of reading and deliberation of the bill. Therefore, the "stablecoin regulation" must also complete this process before it is officially signed into law, with optimistic estimates suggesting it could be completed within 2025.

2. Legal texts and corresponding regulatory authorities

The core regulatory document for Hong Kong's stablecoin framework is the "Stablecoin Ordinance" published in December 2024, and the regulatory system for Hong Kong stablecoins is mainly managed by the previously mentioned Monetary Authority and the Financial Services and the Treasury Bureau.

3. Regulatory Framework and Main Content

a. Definition of stablecoin

Firstly, the "Stablecoin Regulation" clarifies the definition of "stablecoin" in a broad sense. Article 3 of the Stablecoin Regulation stipulates that stablecoins should possess the following characteristics:

• is a form of storage for a unit of computation or economic value;

• A medium of exchange accepted by the public, which can be used to purchase goods or services, settle debts, or make investments;

• Deployed on a distributed ledger system, and capable of electronic transfer, buying, selling, and storage;

• Refer to a single asset or a basket of assets to maintain stable value.

It is important to note that Hong Kong's "Stablecoin Regulation" does not regulate all broadly defined stablecoins, but specifically governs "designated stablecoins" that meet certain conditions. Article 4 of the "Stablecoin Regulation" explicitly states that stablecoins that maintain value stability fully in reference to one or more official currencies are the "designated stablecoins" governed by this regulation.

b. Regulated stablecoin related activities

After clarifying the concept of stablecoin and specifying what stablecoin is, Article 5 of the "Stablecoin Regulations" points out the stablecoin-related activities that are regulated by this regulation and require a license, such as

• Issue designated stablecoins within Hong Kong;

• Issuing designated stablecoins pegged to the Hong Kong dollar in countries or regions outside of Hong Kong;

• And actively promote to the public the stablecoin-related activities they are conducting.

c. Issuer's Access Threshold

To engage in regulated stablecoin-related activities, it is necessary to obtain the corresponding stablecoin issuance license under the regulatory framework of the "Stablecoin Regulation." The admission criteria for approval of this license include, but are not limited to, the following points:

• First, the license applicant must have corporate status, either as a company established in Hong Kong or as a banking institution established outside of Hong Kong.

• Secondly, applicants for the license who wish to engage in stablecoin-related activities must meet basic financial resource requirements to fulfill their obligations. Specifically, the paid-up capital of the license applicant must not be less than $25,000,000 Hong Kong dollars.

• Finally, the shareholders, directors, actual controllers, and senior executives of the license applicant must also meet the corresponding suitability requirements in the Stablecoin Regulations, which will not be discussed here.

d. Stablecoin value stabilization mechanism and maintenance of reserve assets

Regarding the management of reserve assets for designated stablecoins, the "Designated Stablecoin" provides the following regulations:

• First, the licensee needs to ensure that the reserve asset portfolio of the specified stablecoin is strictly separated from other assets to ensure the independence of that reserve asset.

• Secondly, at any time, the market value of the reserve asset composition of the stablecoin must be greater than or equal to the circulating nominal value of the stablecoin, thereby achieving equal or excess reserves.

• Finally, licensees need to implement appropriate risk control policies and management systems for reserve assets, and timely and fully disclose to the public the management policies, risk assessments, composition and market value of their reserve assets, as well as the results of periodic audits.

e. Compliance requirements in the circulation link

• First of all, the "stablecoin regulations" clearly stipulate that licensees need to establish a dedicated risk management system, which must comply with the relevant provisions of the "Anti-Money Laundering and Counter-Terrorism Financing (Amendment) Ordinance ###" promulgated in 2022, and prevent money laundering or terrorist financing activities related to their designated stablecoin activities.

• Secondly, each holder of the designated stablecoin must have the right to redeem that stablecoin, and the issuance of the designated stablecoin must not impose any excessively strict conditions that restrict the redemption of the stablecoin, nor may it charge unreasonable fees related to the redemption.

f. Hong Kong stablecoin sandbox

The Hong Kong Monetary Authority, while launching regulations for stablecoins, has also established a corresponding "stablecoin sandbox" mechanism aimed at providing a testing environment and compliance support for relevant stablecoin issuers. Currently, there are multiple stablecoin issuers in the sandbox that have passed the initial approval from the Monetary Authority, including several technology companies and banks. These issuers are expected to become the first entities in Hong Kong to issue compliant stablecoins.

Although the "stablecoin sandbox" mechanism was launched and began trials last year, the relevant entities have not officially completed the formal issuance of stablecoins. It is understood that these stablecoin issuers within the sandbox may officially launch stablecoin products that comply with Hong Kong regulations in 2025.

(II) United States

1. Regulatory Process and Normative Documents

To understand the current regulatory framework for stablecoins in the United States, the two core normative documents are the "Guiding and Establishing National Innovation for U.S. Stablecoins Act" (hereinafter referred to as the "GENIUS Act") and the "Stablecoin Transparency and Accountability for a Better Ledger Economy Act" (hereinafter referred to as the "STABLE Act").

The "GENIUS Act" was proposed by Senator Bill Hagerty and has received support from several other senators. The bill was introduced in the Senate on March 13, 2025.