Hong Kong stablecoin bill released: Real-name registration for coin holders sparks controversy, relatively conservative towards Decentralized Finance.

Author | Aki Chen Wu says Blockchain

This article is organized using GPT and is for information sharing only, not constituting any investment advice. Readers are advised to strictly comply with the laws and regulations of their location and not to engage in illegal financial activities.

####Introduction

On August 1, 2025, Hong Kong's "Stablecoin Regulation" officially came into effect. The regulation clearly states that any institution issuing or providing fiat-pegged stablecoins to local retail in Hong Kong must apply for a license issued by the Monetary Authority and strictly comply with reserve mechanisms, AML/KYC obligations, and transparency requirements. The Hong Kong Monetary Authority also announced the launch of the stablecoin license application, with the first round of applications closing on September 30, and the first licenses expected to be issued in early 2026. This series of actions is regarded by the industry as an "important milestone in the global compliance of stablecoins," but its strong real-name system (KYC) requirements and high entry barriers have sparked intense controversy among Web3 projects and the community, as it is comparable to the strictest stablecoin legislation in the world. Meanwhile, the U.S. SEC has introduced the Project Crypto plan, proposing an "innovation waiver" that sharply contrasts with Hong Kong's approach, emphasizing not to engage in detrimental practices.

####Overview of Core Regulations for Stablecoins

According to the new regulations, all activities related to the issuance, circulation, or provision of fiat-backed stablecoins to local retail users within Hong Kong must obtain a special license issued by the Monetary Authority. Core requirements include:

· Capital Requirements: Minimum paid-in capital of 25 million HKD;

· Reserve Mechanism: 100% high-quality liquid assets support (cash, short-term government bonds), must achieve custody isolation, re-mortgaging is prohibited;

· Redemption mechanism: Users can redeem at face value within 1 day;

· Real-name system (KYC): All user identities must be retained for more than 5 years, and access to DeFi scenarios and anonymous wallets is explicitly prohibited;

· Prohibition on Promotion: Unlicensed stablecoins are not allowed to market to the public, and violators may face fines and criminal penalties.

Among all regulatory provisions, KYC real-name verification requirements have become the focal point of the biggest controversy in the Web3 community. According to the requirements of the Monetary Authority, stablecoin issuers must not only verify user identity information and retain data records for more than 5 years, but also must not provide services to anonymous users. Additionally, initial identity verification is required for each compliant stablecoin holder in Hong Kong. In response, Hong Kong Legislative Council members stated that the Hong Kong Monetary Authority will indeed implement KYC rules, but the specific implementation methods are still uncertain, with real-name systems being one of the options. Chen Jinghong, Assistant Chief Executive (Regulation and Anti-Money Laundering) of the Hong Kong Monetary Authority, also pointed out that this arrangement is stricter than the "white list" mechanism proposed in the earlier anti-money laundering consultation document. However, he also mentioned that as relevant technologies gradually mature, there may be a possibility of moderately relaxing regulations in the future.

This means that initially, stablecoins in Hong Kong may not have the capability to interact directly with DeFi protocols, and decentralized wallets and permissionless addresses will be isolated from the compliance system. Such interactions will also be legally regarded as "unauthorized usage." It can be seen that, compared to the scalability and freedom of on-chain protocols, Hong Kong regulators are more focused on controlling the regulatory power over the circulation of stablecoins. This move and attitude have also been viewed by some industry players as a cold splash of water on the application of stablecoins in open financial scenarios on-chain. This has created a huge divergence from the model of existing mainstream stablecoins (like USDT and USDC) that allow free transfers between wallets and seamless integration with DeFi protocols, which will inevitably impact user experience and adoption.

What makes matters worse is that according to the Hong Kong Monetary Authority's "Regulatory Framework for Stablecoin Issuers", when "offering specified stablecoins", licensees must comply with the laws and regulatory requirements of the relevant jurisdictions. This provision emphasizes that not only must issuance be compliant, but a complete set of institutional safeguards covering cross-border operations, identifying restricted areas, and proactive blocking must also be established.

Specifically includes the following three obligations:

1. Prohibition of services to specific regions

Licensees must ensure that they do not conduct issuance or solicitation activities in jurisdictions where trading stablecoins is prohibited. Regulatory recommendations are implemented through a multi-dimensional approach, including: verifying user identity documents (such as ID cards or passports) to identify nationality or residence; using IP address or GPS location technology to determine the user's real geographical location; technically blocking access from restricted areas to prevent downloading, registration, or purchasing activities. This requirement essentially mandates that licensees act as a "geographical risk firewall," cutting off potential access paths to restricted areas from the source of issuance to prevent violations of foreign laws or triggering cross-border regulatory disputes.

3.5.3 also clearly states that license holders need to detect whether users are using virtual private networks to determine compliance. This means that if the use of stablecoins is not allowed in your location, using a virtual private network still constitutes a violation. This significantly raises the user threshold, as each user must submit identification proof, making the process cumbersome and erasing the "open wallet and use" experience. At the same time, it may make it difficult for global users to access; non-local users from Hong Kong may not be able to use Hong Kong-issued stablecoins in practice if they are not explicitly included within the policy scope. Transfers are also strictly limited; stablecoin license holders will be regarded as financial institutions and must comply with FATF's relevant requirements regarding funds transfer rules. Before a transfer, it is necessary to ensure that both the recipient and the initiator have completed KYC and provided relevant information; otherwise, the platform or contract may prevent the transaction from being executed.

The requirement regulated by Hong Kong essentially transforms "stablecoins" into controlled circulating electronic money or bank token forms of electronic vouchers, characterized no longer as decentralized assets that are universally applicable on the blockchain, but rather: a digital tool that is bound to real names, has geographical restrictions, and carries regulatory attributes.

2. Overseas marketing and operations must be fully compliant

In addition to the obligation to block jurisdictions where trading is prohibited, the provisions also require licensees to ensure that all business operations and marketing activities (such as advertising, cooperative channels, application deployment, etc.) comply with the applicable regulations of the target market. This means:

· Marketing content must not be pushed to unlicensed areas;

· The overseas partner's compliance qualifications should be assessed;

· Care should be taken when handling the website language versions, terms of service, etc., to avoid constituting a legal fact of "actual provision of services".

3. Continuous Monitoring and Dynamic Adjustment Mechanism

Regulators further require license holders to establish continuous monitoring mechanisms, closely monitor policy changes in various countries/regions, and promptly adjust their business strategies and technical measures. For example: If a country introduces a new stablecoin ban, issuers should immediately terminate related services; if regulatory standards are raised (such as requiring additional licenses or real-name requirements), they should simultaneously update their KYC processes and compliance review systems.

In this regard, Dr. Xiao Feng, Chairman and CEO of HashKey Group, once stated that in the traditional financial sector, anti-money laundering mechanisms heavily rely on identity-based information retrieval and account information connectivity. However, in practical operations, this system faces serious bottlenecks in scenarios involving multiple banks, multiple regions, and cross-jurisdictional boundaries. In contrast, the on-chain tracking and address labeling mechanisms developed in the Crypto industry in recent years provide another way of thinking for anti-money laundering. In blockchain systems, every transfer is public and transparent, and the historical flow of funds for any address can be fully traced. From the issuance of tokens, the first circulation, cross-chain transfers to final ownership, the on-chain information possesses characteristics of being tamper-proof, globally readable, and real-time synchronized, enhancing the efficiency and accuracy of identifying money laundering paths.

####Industry Impact Analysis: Project Parties, Users, and Market Chain Reactions

According to a field investigation by Techub News reporters, on the first day that Hong Kong's "Stablecoin Regulation" officially came into effect on August 1, some cryptocurrency OTC offline stores, including One Satoshi, have temporarily closed due to concerns about violating regulatory red lines. Meanwhile, several OTC stores have chosen to continue normal operations, and there are differing interpretations within the industry regarding the applicability of the new regulations. After the regulation was introduced, reactions from the Hong Kong Web3 industry varied. Some said, "Finally, there is regulation," while others frankly admitted, "This is not the kind of regulation we wanted." Real-name systems, licensing systems, and high thresholds—one restriction after another—have shut many native projects out. In particular, stablecoins cannot directly connect to DeFi, and anonymous wallets and open contracts are excluded from compliance, which essentially makes it clear: Hong Kong stablecoins will not support free circulation on-chain.

For teams that originally hoped to use Hong Kong as a base for Web3, this is clearly a setback. If you want to issue tokens, you have to apply for a license; if you want to create a wallet, you must ensure that every address is verified—this deviates from the traditional sense of "Web3" and resembles more of "Web2.5" or "permissioned chain finance." The more realistic problem is that this regulation excludes some small and medium-sized entrepreneurs; although the Hong Kong Monetary Authority claims to welcome innovation, it seems that banks and big players are more welcome, and only invited institutions or platforms are qualified to apply for licenses. The entire system design appears to be aimed at allowing the "orthodox forces" to dominate the development of stablecoins, while individuals and small projects either watch from the sidelines or leave. If the previous Hong Kong Web3 ecosystem was a wild growth, now it is a complete "restructuring of order." However, in pursuing compliance and financial stability, Hong Kong may also be losing the very freedom that initially attracted developers.

Comparison of ####with regulatory frameworks in other regions

Compared to the "innovation exemption" proposed by the recently launched Project Crypto plan across the ocean, Hong Kong's new regulations on stablecoins are characterized by clear regulation, strong KYC real-name system, and robust anti-money laundering efforts.

It can be seen that Hong Kong's current strategy is more inclined towards building "quasi-sovereign settlement tools," emphasizing regulatory dominance and financial security, while shielding core capabilities typical of Web3 such as permissionless structures, contract calls, and decentralized wallets from the regulatory framework. This somewhat presupposes that stablecoins "can only serve regulated financial institutions," rather than being used as neutral infrastructure for the on-chain ecosystem.

In contrast, while the EU MiCA also emphasizes KYC, it allows for certain flexibility—such as exemptions for low-value transactions or permitting anonymous wallets; Singapore's DTSP is closer to the "layered sandbox" approach, welcoming DeFi projects with risk control capabilities to gradually test the waters. In the United States, although regulation has long been lagging, there have been strong signals towards modernizing on-chain systems and balancing financial innovation following the signing of the "GENIUS Act", the release of the "PWG Report", and the launch of the "Project Crypto" initiative. The current chair of the SEC has emphasized in public speeches: "We introduce regulation for the sake of regulation, engaging in the act of cutting off our feet to fit our shoes."

This comparison reveals the core differences: Hong Kong bets on compliant infrastructure for stablecoins, the United States shifts towards on-chain institutional modernization, the European Union seeks universal standards, and Singapore maintains the openness of financial experimentation. Hong Kong's current approach is more suitable for serving "permitted chain finance" aimed at offshore settlements, whereas its compatibility and attractiveness are relatively limited for the Web3 path that emphasizes an open ecosystem and anonymous circulation.

####Conclusion: Can compliance and openness be balanced? Hong Kong is still testing the boundaries.

Regulation must move forward, but there should also be room for flexibility. Hong Kong, as a financial center in Asia, is not only a testing ground for technology and systems, but also bears the responsibility of setting paradigms for the region and even the world. However, while promoting KYC real-name verification, anti-money laundering, and traceability mechanisms, how to avoid completely erasing the space for on-chain privacy and how to retain a certain degree of openness and scalability while ensuring financial security is the real long-term challenge of this legislation. As Dr. Xiao Feng stated, the reason why Blockchain can develop is that permissionlessness is its most fundamental characteristic. Anyone can freely join or exit the network, while the real-name system and approval mechanism emphasized in the current regulation of stablecoins in Hong Kong, in a sense, deviates from this open logic of permissionlessness.

Stablecoins are essentially a type of institutional innovation tool that links on-chain and off-chain, bridging the traditional and the future. If there is excessive "paternalistic" regulation, it will not only struggle to integrate into the current DeFi ecosystem but may also lose Hong Kong's key position in the global digital financial order reshaping. In the next stage of implementation and interpretation, how Hong Kong finds a balance between regulatory rigidity and technological flexibility deserves the ongoing attention of all sectors.