Regulatory Landscape of Stablecoins in China, the US, and Europe: Hong Kong's New Regulations Take Effect, Seizing Opportunities in the Trillion-Dollar Market

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

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

The Hong Kong government stated that it will continue to support the development of virtual assets. With the implementation of the regulatory framework for virtual asset trading platforms and stablecoin issuers, the government will soon consult on over-the-counter (OTC) trading of virtual assets and custodial services, and will issue a second policy declaration on the development of virtual assets.

Excerpt from the Bill: Conditions for Issuing and Selling Stablecoins in Hong Kong

1. Licensing Requirements for Issuers

After the implementation of the "Stablecoin Bill," anyone who issues fiat-backed stablecoins in Hong Kong during the course of business, or issues fiat-backed stablecoins claiming to be pegged to the value of the Hong Kong dollar in or outside of Hong Kong, must apply for a license from the Financial Commissioner.

License holders will be subject to ongoing supervision by the Financial Commissioner. The Financial Commissioner has the authority to temporarily suspend or revoke licenses and impose fines for violations by license holders, designated stablecoin entities, and their senior personnel.

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

Additionally, to prevent fraud, at any time (including the 6-month transition period), only advertisements related to licensed fiat-backed stablecoin issuance will be permitted. Citizens should be aware of this and exercise caution when receiving advertisements or information related to fiat-backed 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 the opportunity to pilot stablecoin issuance in a limited and controlled risk environment before the relevant legislation comes into effect.

As of now, the HKMA has announced three "sandbox" participant companies: JD Coin Chain, Yuan Coin Technology, and a joint venture of Standard Chartered Bank, Animoca, and HKT.

Regulations for the "sandbox" state that approval to participate in the sandbox arrangement does not imply recognition or regulation of the relevant stablecoin projects by the HKMA or other financial regulatory bodies. Once the stablecoin issuer licensing system is officially introduced, sandbox participants must still submit license applications to the HKMA.

2. Other Requirements for Issuers

Issuers must comply with regulations regarding reserve asset management and redemption, including properly segregating customer assets, maintaining a sound stability mechanism, and processing redemption requests from stablecoin holders at face value under reasonable conditions.

Issuers must also meet a series of requirements related to anti-money laundering and counter-terrorism financing, risk management, disclosure regulations, and auditing and suitability of personnel. The Financial Commissioner will further consult on detailed regulatory requirements in due course.

Specifically, according to the "Legislative Council Reference Material Summary," the licensing criteria for stablecoin issuers include the following key elements:

(a) Management of Reserve Assets and Stability Mechanism: The market value of the reserve assets backing the stablecoin must at all times be at least equal to its circulating face value. License holders must have robust stability mechanisms, proper segregation and management of reserve assets, and sufficient disclosure policies;

(b) Redemption: To ensure that holders of the specified stablecoin receive appropriate protection, license holders must pay the face value of the specified stablecoin to holders who submit valid redemption requests, without imposing overly cumbersome conditions or unreasonable fees. The redemption procedures, timelines, any conditions or fees involved, and rights must also be clearly disclosed for holders' reference;

(c) Physical Presence in Hong Kong: To ensure effective supervision and enforcement by the Financial Commissioner, license holders must have a physical presence in Hong Kong;

(d) Financial Resources: License holders must have sufficient financial resources to operate their business, including a minimum paid-up capital requirement of HKD 25 million;

(e) Suitability of Personnel: The controlling persons, CEOs, and directors of license holders must be suitable individuals, and personnel responsible for managing and operating regulated stablecoin activities must possess the necessary knowledge and experience; and

(f) Prudential and Risk Management: License holders must have appropriate risk management policies and procedures to manage risks arising from their business operations, and these policies and procedures must be commensurate with the scale and complexity of their operations. License holders should also have sound and appropriate control systems to prevent and combat potential money laundering and terrorist financing activities.

3. Temporary Licenses During the Transition Period

The "Stablecoin Bill" is expected to come into effect in 2025, allowing the industry sufficient time to understand the requirements under the licensing system.

The licensing system also includes a 6-month transition period, provided that issuers must within the first 3 months after the regulatory system comes into effect------

(i) submit a license application to the Financial Commissioner;

(ii) receive written notification from the Financial Commissioner; and

(iii) commit to their ability to comply with applicable regulatory requirements.

Existing issuers who meet the above (i) to (iii) and can demonstrate their ability to comply with applicable regulatory requirements will be issued a temporary license to continue their issuance activities until the Financial Commissioner makes a final decision on their license application. The Financial Commissioner may issue a rejection notice at any time if they do not believe the applicant can meet the licensing criteria and regulatory requirements. If an issuer receives a rejection notice, they must orderly cease their business within 1 month.

Existing issuers who do not meet the above (i) to (iii) must orderly cease their business by the end of the 4th month after the regulatory system comes into effect.

4. Eligibility for Selling Stablecoins

To ensure protection for potential holders, only the following institutions regulated by the Financial Commissioner or the Securities and Futures Commission may sell stablecoins to the public:

(a) License holders under the fiat-backed stablecoin issuer system;

(b) Virtual asset trading platforms licensed by the Securities and Futures Commission;

(c) Corporations licensed by the Securities and Futures Commission to conduct regulated activities under Section 116 of the Securities and Futures Ordinance (Cap. 571); and

(d) Recognized institutions as defined under the Banking Ordinance (Cap. 155).

Global Stablecoin "Arms Race"

In 2023, the Financial Stability Board (FSB) finalized its recommendations for regulating stablecoins. According to the recommendations, financial regulatory authorities in member regions should implement measures to regulate and monitor stablecoin activities conducted within their jurisdictions to address potential financial stability risks. The FSB will review the implementation progress in its member regions (including Hong Kong) in 2025.

(Starlabs Consulting Note: The FSB was established in 2009 to coordinate the work of financial regulatory authorities and international standard-setting organizations across different regions at the international level, as well as to promote reforms in international financial regulations. Both mainland China and Hong Kong are members of the FSB.)

Jim Reid, Global Head of Macro and Thematic Research at Deutsche Bank, noted in a recent report that stablecoins are expanding at an unprecedented pace, and corporate finance executives are feeling the wave of change.

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

• Fiat-backed stablecoins (the type referred to in Hong Kong's "Stablecoin Bill," including $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 currently, dollar-backed stablecoins dominate the market, with over 99% of stablecoin market capitalization pegged to the U.S. dollar. These stablecoins hold over $120 billion in dollar-backed assets, effectively acting as money market funds supporting the U.S. short-term debt market. For example, as of March 2025, Tether held $98.5 billion in U.S. Treasury bonds, a figure that was nearly zero in 2020, and Tether has now become one of the major overseas holders of U.S. debt.

Citigroup's report pointed out that the dollar still dominates the share of foreign exchange reserves, and the dominance of dollar stablecoins not only stems from the dollar's first-mover advantage but also reflects the "excessive privilege" of the dollar as the preferred reserve currency. The stablecoin market has enormous potential, with Citigroup estimating it could reach a size of $1.6 - 3.7 trillion by 2030.

United States: 2 Stablecoin Bills in the Legislative Process

On May 19, the U.S. Senate passed the "Guiding and Establishing National Innovation for U.S. Stablecoins Act of 2025" (GENIUS Act) by a vote of 66-22. It is the first comprehensive federal regulatory bill for stablecoins in U.S. history. Prior to this, stablecoins and cryptocurrencies had existed in a delicate gray area.

The GENIUS Act focuses on the issuance and circulation of stablecoins. The bill establishes several regulatory requirements for stablecoin issuers, including mandatory asset reserves equal to the value of the issued stablecoins, prioritizing the repayment of funds to token holders in the event of bankruptcy, and compliance with anti-money laundering regulations and counter-terrorism sanctions to prevent the use of crypto assets for illegal activities.

Standard Chartered Bank's latest research report predicts that once the GENIUS Act is officially passed in the U.S., the supply of stablecoins will grow nearly tenfold in the next four years, from the current $230 billion to approximately $2 trillion by the end of 2028.

According to Tether's Q1 2025 transparency report, $USDT is the largest stablecoin by market capitalization (approximately $130 billion), with about 60% of its reserves consisting of U.S. short-term Treasury bonds and 40% in cash and cash equivalents. Industry analysts believe that Tether has met the GENIUS Act's requirements for reserve assets primarily in U.S. Treasury bonds, and its transparency measures (such as quarterly audits) also meet the requirements, but the focus is on how to adjust its business to adapt to regulation, given that USDT has been associated with gray market activities (such as fraud).

Additionally, according to Circle's May 2025 monthly report, $USDC has a market capitalization of approximately $60 billion, with 80% of its reserves in short-term U.S. Treasury bonds (approximately $48 billion) and 20% in cash. Circle is registered in the U.S. and actively cooperating with regulators (applying for an IPO in 2024), and its reserves also comply with the GENIUS Act requirements. After the GENIUS Act comes into effect, it may make USDC the preferred stablecoin for institutions, especially in the DeFi sector (currently, USDC accounts for 30% of DeFi), with market share expected to further increase.

Furthermore, on April 2, the U.S. House Financial Services Committee passed the "Stablecoin Transparency and Accountability for a Better Ledger Economy Act" (STABLE Act) by a vote of 32-17. This is a Republican-supported framework bill for stablecoins aimed at providing rules for payment stablecoins.

Europe: MiCA Promotes Adoption of Euro Stablecoins

Although the euro holds an important position in TradFi—accounting for 20% - 30% of global foreign exchange reserves, SWIFT transactions, and trade flows—its share in the global stablecoin circulation is less than 0.5%.

However, with the "Regulation on Markets in Crypto-Assets" (MiCA) coming into effect at the end of 2024, providing a detailed legal framework for stablecoin issuance and trading, euro-backed stablecoins have become a key driver of growth in the European cryptocurrency market.

In November 2024, the monthly trading volume of euro stablecoins surged to nearly €800 million, reaching a multi-year high. Reports from research firm Kaiko and Dutch cryptocurrency exchange Bitvavo indicate that this sharp increase can largely be attributed to Banking Circle's $EURI, which gained significant attention after being listed on Binance. Other stablecoins compliant with the MiCA framework, such as Circle's $EURC and Société Générale's $EURCV, also contributed to this growth, together accounting for 91% of the euro-backed stablecoin market share by the end of 2024.

Citigroup warns that since the launch of euro stablecoins under the European MiCA legislative framework, the market capitalization of non-dollar stablecoins has increased, aligning with the weakening of the dollar and cracks in the "American exceptionalism" narrative. Although euro-backed stablecoins currently hold a small share, changes in this area may be a forward-looking indicator of shifts in the dollar's status.

Now, dollar-backed stablecoins will face new competitors—HKD/CNY-backed stablecoins. Previously, Hong Kong Legislative Council member Wu Jietzhuang stated that the issuance of stablecoins in Hong Kong should be combined with practical application scenarios and is not limited to issuing HKD stablecoins, but can also include offshore RMB and even euro stablecoins.