How do the stablecoin regulatory frameworks differ between the United States and Hong Kong?

In the previous article, the Crypto Salad team explored the core concept of stablecoins in depth and conducted a systematic analysis of the operating mechanisms and application scenarios of mainstream stablecoins in the current market. It is not difficult to see from the analysis that the stablecoin track has huge growth potential. However, as a double-edged sword, the technological innovation of stablecoins has broad development prospects, but its potential risks cannot be ignored. According to the "2024 Global Crypto Crime Report" released by Chainalysis, an on-chain analysis agency, the total amount of illegal transactions completed through stablecoins will reach US$40 billion between 2022 and 2023 alone. Among them, 70% of crypto fraud crimes and more than 80% of sanctions evasion transactions use stablecoins.

Therefore, in order to balance innovation and risk, global regulators are accelerating the construction of a systematic regulatory framework for stablecoins: the United States continues to advance the relevant legislative process such as the "Stablecoin Transparency Act for Payments" (STABLE Act), and the Hong Kong Monetary Authority has passed the "Stablecoin Ordinance" and established a "Stablecoin Sandbox" regulatory mechanism. This dynamic balance between technology neutrality and risk prevention and control is shaping the next stage of stablecoin development paradigm, and also marks that the stablecoin industry is evolving from wild growth to compliance.

• What risks are there in stablecoins, and why do they need to be regulated?

• Which countries and regions have currently formulated 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 run, what impact will the continuous improvement of the regulatory framework have on the future development of the stablecoin industry?

The Crypto Salad team has been deeply involved in the cryptocurrency industry for many years and has rich experience in dealing with complex cross-border compliance issues in the cryptocurrency industry. In this article, we will combine relevant industry research and the practical experience of the Crypto Salad team to sort out and answer the above questions from the perspective of professional lawyers.

1. What are the risks of stablecoins and why do they need to be regulated?

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

First, the endogenous risk

The value stability of stablecoins is not absolutely guaranteed, but is based on the balance between market consensus and trust mechanism. The core logic is that the relative stability of stablecoins does not come from the intrinsic value of reserve assets, but depends on the holders' continued trust in the issuer's ability to perform. This trust is essentially a "consensus-driven currency balance" - when most market participants trade and transfer based on the expectation of stablecoin value stability, the risk of large price fluctuations will be suppressed by the consensus itself. However, once the trust foundation is cracked, the stability of stablecoins will quickly collapse. Take the example of management failures such as insufficient reserve assets or misappropriation of funds. When the market perceives such risks, the consensus mechanism of stablecoin holders may quickly reverse or collapse. Specifically, the panic selling of stablecoin holders will cause the currency value to depeg, and the market panic caused by the depeg will further stimulate the selling tide, and eventually form a self-reinforcing negative feedback loop - the so-called "death loop". Even the collapse of a single stablecoin will eventually trigger a series of chain reactions in the cryptocurrency market and eventually become a black swan event in the overall market. This transmission mechanism of systemic risk has been fully verified in the Luna-UST incident in 2022. As a representative of algorithmic stablecoins, UST relies on a complex algorithmic mechanism with Luna tokens to maintain the currency value pegged to the US dollar. However, when the market liquidity crisis broke out, the inherent defects of the algorithm design were continuously magnified after malicious attacks. At the same time, the lack of transparency of UST further led to the rapid spread of the trust crisis and eventually caused the currency value to collapse. This incident not only caused the evaporation of nearly US$40 billion in market value, but also further triggered a chain reaction in the crypto market, fully exposing the endogenous risks

Second, the external risks

of stablecoins

The anonymity and cross-border liquidity of stablecoins have certainly brought them significant convenience and advantages, but these characteristics also make them extremely easy to be used by black and gray industries and illegal and criminal activities. Without effective supervision, especially the unclear compliance requirements for anti-money laundering (AML) and counter-terrorist financing (CFT) for stablecoins, stablecoins are likely to become a secret channel for illegal capital flows, thereby posing a threat to the security of the financial system.

II. Introduction to the regulatory framework of stablecoins in the United States and Hong Kong

In recent years, the development of the global regulatory framework for stablecoins has shown a rapid development trend. Hong Kong, the United States, Singapore, the European Union, the United Arab Emirates and other countries or regions are advancing rapidly and gradually implementing relevant laws and regulations.

Overall, the current regulatory frameworks for stablecoins in various countries are mainly developed around the following three major directions:

• Entry threshold for issuers:Clearly define the qualification requirements for stablecoin issuers to ensure that they have sufficient capital strength, risk management capabilities and industry experience.

• Currency stabilization mechanism and maintenance of reserve assets:Require issuers to maintain sufficient stablecoin reserve assets and ensure transparency and compliance through regular disclosure and independent audits.

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

Next, this article will focus on Hong Kong and the United States, deeply analyze their latest stablecoin regulatory frameworks, and discuss them from the following dimensions: regulatory process, regulatory documents, regulatory authorities, and the core content of the regulatory framework.

(The above figure is a comparative summary of the stablecoin regulatory frameworks in the United States and Hong Kong)

(I) Hong Kong

1. Regulatory process

• January 2022:

  The Hong Kong Monetary Authority (hereinafter referred to as the “HKMA”) issued the “Discussion Paper on Cryptoassets and Stablecoins” and began to preliminarily explore the nature of stablecoins and the relevant regulatory framework.

• December 2023:

  The HKMA and the Financial Services and the Treasury Bureau (hereinafter referred to as the "FSTB") jointly issued the "Consultation Document on Legislative Proposals for Implementing a Regulatory Regime for Stablecoin Issuers in Hong Kong", proposing a specific draft regulatory framework for stablecoins.The document focuses on regulating issuers and protecting holders.

• March-July 2024:

  The HKMA launched the "Stablecoin Sandbox" program and launched the "Sandbox" for stablecoin issuers. Yuanbi Technology, JD Coin Chain and other companies became the first participants in the "Sandbox".

• December 2024:

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

  According to Hong Kong's legislative procedures, before a bill becomes a formal law, it must complete the three reading procedures of the Hong Kong Legislative Council, namely the first reading, the second reading and the third reading. In essence, this is a three-stage reading and deliberation of the bill. Therefore, before the Stablecoin Bill is officially signed into law, it must also complete this procedure, which is optimistically estimated to be completed within 2025.

2. Legal texts and corresponding regulatory authorities

The core regulatory document of Hong Kong's stablecoin regulatory framework is the Stablecoin Ordinance issued in December 24, and the regulatory system of Hong Kong's stablecoins is mainly responsible for the HKMA and the Treasury Bureau mentioned above.

3. Regulatory framework and main contents

a. Definition of stablecoin

First, the Stablecoin Ordinance first clarifies the broad definition of "stablecoin". Article 3 of the Stablecoin Ordinance stipulates that stablecoins should have the following characteristics:

• A unit of account or a form of storage of economic value;

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

• Deployed on a distributed ledger system and capable of being transferred, bought, sold and stored electronically;

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

It should be noted that Hong Kong's Stablecoin Ordinance does not regulate all stablecoins in a broad sense, but specifically regulates "specified stablecoins" that meet specific conditions. Article 4 of the Stablecoin Ordinance clearly stipulates that stablecoins that maintain currency stability with full reference to one or more official currencies are the "specified stablecoins" regulated by this Ordinance.

b. Regulated stablecoin-related activities

After clarifying the concepts of stablecoins and specified stablecoins, Article 5 of the Stablecoin Ordinance points out the stablecoin-related activities that are regulated by the Ordinance and require a license, such as

• issuing specified stablecoins in Hong Kong;

• issuing specified stablecoins pegged to the Hong Kong dollar in countries or regions outside Hong Kong;

• and actively promoting the stablecoin-related activities that are being carried out to the public.

c. Entry threshold for issuers

If you want to engage in regulated stablecoin-related activities, you need to obtain the corresponding stablecoin issuance license under the regulatory framework of the Stablecoin Ordinance. The entry conditions for obtaining the license include but are not limited to the following:

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

• Secondly, if the license applicant wants to engage in stablecoin-related activities, it needs to meet basic financial resource requirements to fulfill its due obligations. Specifically, the paid-up share capital of the license applicant shall not be less than HK$25,000,000.

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

d. Currency stabilization mechanism and maintenance of reserve assets

Regarding the management of reserve assets of specified stablecoins, the "Specified Stablecoins" make the following provisions:

• 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 the reserve assets.

• Secondly, at any time, the market value of the reserve asset portfolio of the specified stablecoin needs to be greater than or equal to the circulating face value of the stablecoin, so as to achieve equal or excess reserves.

• Finally, the licensee needs to implement appropriate risk control policies and management systems for reserve assets, and make timely and complete disclosures to the public on the management policies, risk assessments, composition and market value of its reserve assets, and the results of regular audits.

e. Compliance requirements in the circulation link

• First, the Stablecoin Ordinance clearly stipulates that licensees need to establish a special risk management system, which must comply with the relevant provisions of the Anti-Money Laundering and Terrorist Financing (Amendment) Ordinance promulgated in 2022, and prevent money laundering or terrorist financing activities related to its specified stablecoin activities.

• Secondly, each holder of a specified stablecoin must have the right to redeem the stablecoin, and the issuance of the specified stablecoin shall not impose any overly stringent conditions to restrict the redemption of the stablecoin, nor shall it charge unreasonable fees related to the redemption.

f. Hong Kong Stablecoin Sandbox

While launching the Stablecoin Ordinance, the Hong Kong Monetary Authority also established a corresponding "Stablecoin Sandbox" mechanism to provide a testing environment and compliance support for relevant stablecoin issuers. At present, there are many stablecoin issuers in the sandbox that have passed the initial approval of the HKMA, including Yuanbi Technology, JD.com and Standard Chartered Bank. These issuers are expected to become the first batch of entities to issue compliant stablecoins in Hong Kong.

Although the "Stablecoin Sandbox" mechanism was launched and began trials last year, the relevant entities have not yet officially completed the formal issuance of stablecoins. The Crypto Salad team learned that the stablecoin issuers in these sandboxes may officially launch stablecoin products that meet Hong Kong's compliance requirements in 2025.

(II) United States

1. Regulatory process and regulatory documents

To understand the current regulatory framework for stablecoins in the United States, the two core regulatory 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 supported by many senators. The bill was passed by the Senate on March 13, 2025 with 18 votes in favor and 6 votes against. The STABLE Act was proposed by U.S. Representatives Bryan Steil and French Hill, and was passed by the House Financial Services Committee with 32 votes in favor and 17 votes against on April 3, 2025.

According to the U.S. legislative process, the STABLE Act, which has been reviewed and passed by the House Financial Services Committee, will be submitted to the Senate or the House of Representatives for plenary debate. The bill must be passed by a majority and coordinated in the Senate and the House of Representatives respectively, and finally signed by the President to become a formal law.

It should be noted that the two bills are not mutually exclusive or contradictory. On the contrary, the positioning of the STABLE Act is based on the improvement and continuation of the GENIUS Act. Bryan Steil, chairman of the U.S. House Digital Assets Subcommittee, told reporters, "After a new round of deliberations, the STABLE Act will be well aligned with the Senate's GENIUS Act, which was achieved after several rounds of draft revisions by the House and Senate and technical assistance from the SEC and CFTC. In fact, there are 20% differences between the bill and the GENIUS Act, and these differences are only in text, not significant or substantive differences."

2. Corresponding regulatory authorities

Up to now, the regulation of stablecoins in the United States is still fragmented, and a unified federal framework has not yet been formed to regulate the issuance and operation of stablecoins. This regulatory ambiguity has led to overlapping jurisdictions between federal agencies, while inconsistencies between state laws have further exacerbated regulatory complexity.

At present, the U.S. Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) currently have primary regulatory authority over the stablecoin market. The SEC believes that many stablecoins are structurally similar to money market mutual funds and therefore argues that they should be subject to securities regulations.

However, on June 28, 2024, the U.S. District Court for the District of Columbia ruled in favor of Binance and rejected the SEC's claim that the stablecoin BUSD is a security. BUSD is issued by Paxos in cooperation with Binance and is regulated by the New York State Department of Financial Services (NYDFS). This ruling is consistent with previous judicial decisions on stablecoins and further emphasizes that stablecoins such as BUSD and USDC - because they are anchored to fiat currencies at a 1:1 ratio - do not inherently meet the definition of investment contracts under the jurisdiction of the SEC.

On the other hand, the CFTC regulates some stablecoins by identifying them as commodities. CFTC Chairman Rostin Behnam told reporters in 2023 that stablecoins are commodities, so in the absence of clear instructions from Congress that they are other types of assets, we must regulate this market. ” For example, the CFTC once fined Tether $41 million for violating relevant regulations on sanctions transactions with its USDT.

In summary, the lack of a unified legal framework not only complicates the compliance work of stablecoin issuers, but also poses financial stability risks to investors. Therefore, there are also views that incorporating stablecoins into a regulatory framework similar to that of banks may help reduce the systemic risks of stablecoins while providing the market with clearer compliance guidance.

The GENIUS Act and the STABLE Act have clarified the previously complex and confusing regulatory framework to a certain extent. Specifically, issuers of stablecoins that issue more than $10 billion are regulated at the federal level. Among them, the Federal Reserve (Fed) is responsible for supervising depository institution issuers, while the Office of the Comptroller of the Currency (OCC) is responsible for supervising non-bank issuers. At the same time, state regulators are also allowed to regulate issuers of stablecoins with a market value of less than $10 billion. Therefore, the above two bills have established a parallel pattern of federal and state regulatory systems, hoping to provide a more comprehensive and systematic regulatory model for the stablecoin industry in the United States.

3. Regulatory framework and main contents

Next, we will analyze in detail based on the newly promulgated "STABLE Act"

a. Definition of stablecoin

The Act stipulates that the payment stablecoin regulated by this law shall have the following characteristics:

• A digital asset intended to be used as a means of payment or settlement;

• Denominated in national currency;

• The issuer is obliged to exchange, redeem or repurchase it at a fixed amount of monetary value;

• It is not a national currency and is not a security issued by an investment company.

b. Entry threshold for issuers

Only “Permitted Payment Stablecoin Issuers” can issue stablecoins, including:

• Approved subsidiaries of insured depository institutions;

• Federal certified non-bank payment stablecoin issuers;

• And state certified payment stablecoin issuers;

c. Currency stabilization mechanism and maintenance of reserve assets

At the same time, the issuer should publicly release a detailed report on the composition of the reserves every month, and it should be audited by an independent registered accounting firm. In addition, the report must be accompanied by written certification from the company's Chief Executive Officer (CEO) and Chief Financial Officer (CFO) to ensure the authenticity and completeness of the information.

Finally, the issuer must also comply with the capital adequacy, liquidity management and risk management requirements set by the main federal payment stablecoin regulator. The scope of risk management covers key areas such as operational risk, compliance risk, information technology risk and cybersecurity risk.

d. Compliance in the circulation link

• First, the issuer should publicly disclose the redemption policy of the stablecoin and establish clear procedures to ensure that holders can redeem their stablecoins in a timely manner.

• Second, the issuer shall not pay any form of interest or income to stablecoin holders to avoid potential conflicts of interest and market distortions.

  III. Salad Interpretation

The Crypto Salad team believes that the acceleration of the construction of a stablecoin regulatory framework by major economies around the world actually reveals the core value of stablecoins in different dimensions:

First, as an indispensable key infrastructure in the digital asset market, stablecoins are accelerating the breakthrough of the boundaries of the on-chain ecology and deeply embedded in the operation of the traditional financial system and the real economy, thereby achieving a deep integration of the on-chain and off-chain value systems.

Second, at the critical juncture of the current global financial landscape being deeply adjusted and the trend of de-dollarization accelerating, stablecoins will play a more critical role in the game of international currency and financial systems, and become an important strategic tool for countries to maintain monetary sovereignty and financial security.

Finally, with the continuous optimization of the stablecoin regulatory mechanisms of various countries, the stablecoin industry will surely enter a new stage of balanced development of standardization and innovation. This not only requires stablecoin issuers to further improve their compliance capabilities within the regulatory framework, but also provides institutional space for them to explore new business paradigms. In the future, the development of the stablecoin industry will find new growth momentum and value creation points in the global financial regulatory system through technological iteration and institutional adaptation.