A brief overview of what stablecoins and fiat-backed stablecoins are.

Recently, the Hong Kong Special Administrative Region Government published the "Stablecoin Ordinance (Commencement Date) Notice" in the Gazette, designating August 1, 2025, as the date for the implementation of the "Stablecoin Ordinance" (Chapter 656).

Previously, on May 30, the Government of the Hong Kong Special Administrative Region published the Stablecoin Ordinance in the Gazette, which means that the Stablecoin Ordinance has officially become law. According to the HKSAR Government, the main purpose of the Stablecoin Ordinance is to regulate activities involving stablecoins and to establish a licensing regime for regulated stablecoin activities in Hong Kong. After the commencement of the Ordinance, any person who issues fiat currency stablecoins in Hong Kong in the course of business, or fiat currency stablecoins in or outside Hong Kong that claim to be pegged to the value of the Hong Kong dollar, must apply for a licence from the Monetary Authority.

The release of the "Regulations" signifies that Hong Kong is establishing a comprehensive regulatory framework for fiat stablecoins, balancing financial innovation with risk prevention, and also marks an important step for Hong Kong in the field of digital assets.

Fiat stablecoins, as a category of stablecoins, are stablecoins that have real asset reserves (the reserve asset is fiat currency). Holders of fiat stablecoins can redeem the reserve assets from the issuer at any time, and due to being anchored to fiat currency, their credit is essentially consistent with that of fiat currency. Below, we will summarize the basic content of stablecoins and fiat stablecoins.

1. Definition of stablecoins and fiat stablecoins

1、stablecoin

is a type of cryptocurrency that maintains price stability by anchoring to external assets (such as fiat currency, gold, or a basket of assets), aiming to address the payment challenges posed by highly volatile cryptocurrencies like Bitcoin. Core types include:

• Fiat-collateralized (e.g., USDC): Pegged 1:1 to fiat currency, issued and held by centralized institutions with sufficient reserves.

•Crypto-collateralized (like DAI): Over-collateralized with other cryptocurrencies, maintaining stability through smart contracts.

• Algorithmic stablecoins (like the already collapsed UST): rely on algorithms to dynamically adjust supply without physical collateral (extremely high risk).

2. Fiat Stablecoin

It is a subclass of stablecoins, specifically referring to types that are pegged to fiat currencies (such as the US dollar and Hong Kong dollar). The Hong Kong "Stablecoin Ordinance" clearly positions it as a "payment tool" rather than a security, requiring 100% reserve asset coverage, strict custody, and redemption guarantees. For example, the Hong Kong dollar stablecoin (HKDR) must be pegged to the value of the Hong Kong dollar.

2. The basic content of Hong Kong fiat stablecoins

•Function positioning: As a digital extension of fiat currency, focusing on scenarios such as payments and cross-border transfers, promoting the integration of the Web3 ecosystem with the real economy (such as cross-border trade and supply chain finance).

• Regulatory Innovation: The pioneering "value anchoring regulation" principle - any stablecoin claiming to be pegged to the value of the Hong Kong dollar, regardless of the issuing entity's location, must apply for a license from the Hong Kong Monetary Authority.

•Risk control mechanism:

–Minimum paid-in capital requirement (25 million HKD);

– Reserves are independently custodied and 100% cover the circulating supply;

• Establish a mandatory transparent redemption mechanism.

•Reserve Asset Management:

Asset segregation: Reserve assets must be isolated from proprietary assets and held in trust form to ensure sufficient coverage of the circulating value.

Asset type: Reserve assets must be highly liquid and low-risk assets (such as government bonds), and the currency type must match the pegged currency (Hong Kong dollar stablecoins may include US dollar assets).

•Redemption and Stability Mechanism:

– The issuer must redeem the stablecoin at face value within a reasonable time (usually 1 business day), and no unreasonable conditions or fees are allowed.

• It is necessary to establish excessive collateral and other stability mechanisms to prevent price fluctuations from triggering redemption risks.

•Market Behavior Standards

Advertising Restrictions: Only licensed institutions are allowed to publish stablecoin advertisements, with strict control over fraud risks.

Prohibition of Interest Payments: Stablecoins may not pay interest to holders, but marketing incentives (such as discounts) are allowed.

•Goal: Balance financial stability and innovation, consolidating Hong Kong's position as an international financial center and digital asset hub.

3. The similarities and differences between Hong Kong stablecoins and those in the EU, Singapore, and other regions.

1. Common points

•Reserve asset requirements: A sufficient amount of fiat currency reserves or highly liquid assets support is required.

•Licensing system: Issuers must be licensed (such as the "Electronic Money Token" license under EU MiCA, Singapore's tiered license).

•Anti-Money Laundering (AML) Compliance: Strengthen KYC and fund flow monitoring.

2. Core Differences

Hong Kong, China: The regulatory model pioneers the "value anchoring regulation" principle, characterized by "penetrative regulation," meaning that as long as it is linked to the Hong Kong dollar, it falls under jurisdiction, and the capital threshold is high (HKD 25 million).

EU: The regulatory model leans towards "functional regulation (MiCA framework)", covering the entire cryptocurrency asset sector, with classifications for different types of crypto assets, and varying issuance requirements for different asset types. Its characteristics mainly include a comprehensive regulatory scope, focusing on the classification of token functions (such as payment type/asset type), and a broad impact covering 27 EU member states and 3 additional countries in the European Economic Area ( EEA ): Norway, Iceland, and Liechtenstein (.

Singapore: The regulatory model adopts a "tiered licensing system," characterized by issuing licenses based on risk levels, allowing small and medium-sized institutions to participate.

United States: There is a dual-track system of regulation at the federal and state levels. Non-bank issuers of stablecoins with a circulation of less than $10 billion may choose the state regulatory system, but must be recognized by the Secretary of the Treasury, the Chairman of the Federal Reserve, and the Chairman of the Federal Deposit Insurance Corporation that the state regulatory system is "substantially similar" to the federal system. Those choosing the federal regulatory system or banks or non-bank issuers of stablecoins with a circulation exceeding $10 billion will be supervised by the regulatory agency of their affiliated bank or credit union. All stablecoin issuers under the federal regulatory system must submit reports to their primary federal regulatory agency and may be subject to inspections by the regulatory agency.

) Four, the prospects for the interoperability between the digital renminbi and the Hong Kong dollar stablecoin.

The digital RMB is essentially a digital form of legal tender, backed by national credit, positioned as "digital cash", focusing on retail payments and people's livelihood scenarios. As the pilot programs deepen, it has currently shown certain advantages in the field of cross-border payments, such as the pilot program in Hong Kong, which supports opening accounts with mobile phone numbers, "Faster Payment System" recharge, covering over 30 million merchants in the Greater Bay Area, etc.

The Hong Kong dollar stablecoin is essentially a digital token issued by private institutions that is pegged to the Hong Kong dollar, with its underlying asset being fiat currency. In the future, it can be used in electronic asset form for payment functions through technologies such as blockchain. It can also leverage blockchain technology to adapt to Web3 scenarios (such as DeFi, supply chain finance). In terms of cross-border payment efficiency, it not only has settlement costs that are just one hundred thousandth of traditional systems but also supports second-level cross-border transfers.

Both have a certain degree of complementarity: the digital renminbi solidifies the credit foundation of fiat currency, while stablecoins enhance on-chain technical efficiency, forming a collaborative ecosystem of "trunk (fiat currency) and branches (stablecoins)". In the future, both have relatively suitable application prospects in areas such as "cross-border payments" and "trade settlements". How to achieve regulatory mutual recognition, technological interconnection, and settlement interoperability between the two is something that needs to be considered in the future.