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On April 10, 2026, the Hong Kong Monetary Authority (HKMA) granted its first stablecoin issuer licenses to HSBC and Anchorpoint Financial—a Standard Chartered-led consortium including Animoca Brands and HKT. After reviewing 36 applications from diverse entities including international banks, blockchain firms, virtual banks, and payment companies, the HKMA selected two of Hong Kong’s three note-issuing banks.
This decision was not accidental. It reflects a deliberate strategy: prioritize institutional credibility over innovation, familiarity over disruption, and control over market adoption.
But this report asks a more fundamental question: What is the difference between Hong Kong’s regulated stablecoins and existing electronic money?
The uncomfortable answer: Very little.
Through a comprehensive analysis of Hong Kong’s regulatory evolution, technical architecture, global context, and proposed use cases, this report argues that Hong Kong has created a regulatory framework for stablecoins that transforms them into something functionally indistinguishable from electronic money—raising the fundamental question: Why create a new parallel system at all?
The evidence suggests Hong Kong is an outlier globally. While other jurisdictions (EU MiCA, US GENIUS Act, Singapore, UK) are regulating the stablecoin market that already exists (USDT, USDC), Hong Kong is attempting to create an entirely new market of bank-issued, HKD-pegged stablecoins. The implicit shift from “regulating existing” to “creating new” occurred between December 2023 and July 2024—without explicit acknowledgment.
1. The Regulatory Evolution: From Risk Management to Market Creation
Hong Kong Stablecoin Timeline of Key Milestones
Hong Kong’s approach shifted gradually between July 2023 and July 2024:
- December 2023: The consultation paper emphasized “facilitating Web3 ecosystem development with guardrails”
- March 2024: The sandbox was designed for new entrants, not existing issuers seeking compliance
- July 2024: The three sandbox participants were all new entities planning HKD stablecoins—not Tether, Circle, or other existing issuers
By the time the licensing regime took effect in August 2025, it was clear: the regime was designed to create a new market of regulated, bank-issued stablecoins—not to bring existing global stablecoins into compliance.
Out of 36 applications received from diverse firms (international banks, blockchain firms, virtual banks, payment companies, fintechs), only 2 licenses were granted in the first batch—both to note-issuing banks with deep regulatory relationships.
2. The E-Money vs. Stablecoin Convergence
A central question in the debate over digital assets is whether the “regulated stablecoin” is a breakthrough innovation or a redundant rebranding of existing electronic money systems. In Hong Kong, electronic money is regulated as Stored Value Facilities (SVF) under the Payment Systems and Stored Value Facilities Ordinance (PSSVFO), while stablecoins fall under the new Stablecoins Ordinance (SO) .
The skeptical view posits that the regulated stablecoin regime may be more of an architectural rebranding than a functional revolution. Critics argue that while stablecoins and electronic money (SVF) are governed by different laws, they serve the same primary purpose—maintaining a stable digital peg to fiat currency. The core of this skepticism lies in the “programmability paradox”: if the HKMA requires stringent identity verification for every wallet, the “open-loop” and peer-to-peer nature of blockchain is effectively neutralized, turning the stablecoin into a “sterile” instrument that mimics a traditional centralized database. Furthermore, in a market like Hong Kong where existing systems like the Faster Payment System (FPS) already provide near-instantaneous settlement, the incremental benefits of blockchain-based redemption or transfer may not justify the added technological complexity and higher compliance costs for issuers. Ultimately, if these regulated tokens cannot interoperate with the broader, permissionless DeFi ecosystem, they risk becoming a redundant layer of “bank money” that offers no more real-world utility than the electronic money systems already in place.
3. The Genesis of the Stablecoin: Solving the "Exchange Trap" (2014)
To understand the current regulatory push in Hong Kong, one must first recognize that the stablecoin was originally created not as a tool for financial inclusion, but as a workaround for a specific technical and banking failure. In the early years of the cryptocurrency industry, traders faced significant friction: moving fiat currency (like USD or HKD) into or out of a crypto exchange required traditional bank transfers that could take several business days to complete. This “liquidity gap” meant that traders could not react quickly to market movements or “park” their funds in a stable asset without leaving the blockchain ecosystem entirely.
1.1 The Pioneers and the Price of Failure
The stablecoin era began in July 2014 with the launch of BitUSD on the BitShares blockchain, created by Dan Larimer and Charles Hoskinson. It was a crypto-collateralized instrument, meaning it was backed by other volatile tokens rather than hard cash. Shortly after, NuBits was launched in September 2014, utilizing an algorithmic seigniorage system to maintain its peg.
From a skeptical perspective, the history of these early “innovations” is primarily a history of collapse:
BitUSD lost its parity with the US dollar in 2018 because its underlying collateral (BitShares) was itself unbacked and volatile—an “unstable” asset cannot reliably back a “stable” one.
NuBits suffered a catastrophic unpegging in 2016 when users rushed to sell it to buy Bitcoin during a bull run, proving that algorithmic models often fail during high-volatility events.
It was only with the arrival of Tether (USDT)—originally founded as “Realcoin” in 2014—that the industry pivoted toward the fiat-backed model that regulators are now attempting to codify. Tether succeeded where others failed because it offered a “digital dollar” that allowed exchanges lacking access to traditional fiat banking infrastructure to facilitate high-volume trading. The current Hong Kong regime is, in many ways, an attempt to institutionalize the very “digital dollar” concept that emerged a decade ago as a shadow-banking solution for crypto exchanges.
4. The Regulated Stablecoin: A "System Upgrade" for Electronic Money
The current regulatory movement in Hong Kong poses a fundamental question: if banks now support crypto, why do we need a new stablecoin that may not even support the existing, permissionless crypto ecosystem?
A growing school of thought suggests that what we call “regulated stablecoins” are not actually stablecoins in the original sense. Instead, they represent a system upgrade for electronic money (SVF)—upgrading centralized e-wallets into real-time, programmable digital settlement layers.
Solving the “Pain Points” of Legacy Finance
The HKMA and the first batch of licensees (HSBC and Anchorpoint) are prioritizing use cases that traditional electronic money cannot handle efficiently:
- Programmability: Allowing “conditional payments” where funds are only released upon the fulfillment of digital milestones (e.g., supply chain delivery).
- Atomic Settlement: Enabling the cash leg of a trade to move at the same time as a tokenized real-world asset (RWA), such as a green bond or a trade document.
- Wholesale Efficiency: Providing a regulated settlement tool that operates 24/7, unlike traditional SWIFT or interbank systems that are bound by banking hours.
In a more extreme sense, the Hong Kong stablecoin regime has almost nothing to do with the core philosophy of Web3 (decentralization, anonymity, and permissionless access). Instead, it represents a strategic “capture” of Web3 technology by traditional finance. The HKMA and its licensees have essentially:
- Adopted the Technical Stack: Using Distributed Ledger Technology (DLT) and smart contracts for their superior speed and automation.
- Borrowed the Branding: Utilizing the term “stablecoin” to signal modernity and innovation.
- Discarded the Principles: By enforcing strict identity verification (KYC), blacklisting capabilities, and centralized control, the regime strips away the “permissionless” nature that defined the original stablecoin era.
5. The Composability Gap: Missing the DeFi Opportunity
While it is undeniably a positive development to upgrade the technical infrastructure of the Hong Kong Dollar, this direction does not necessarily embrace the trillion-dollar DeFi and Crypto market. The global digital asset economy thrives on “composability”—the ability for different protocols and assets to interact without permission. By mandating a verified-wallet-only environment, the HKMA is building a “walled garden” that isolates its digital money from the most innovative liquidity pools in the world. This suggests that the current licensing effort is an internal optimization of Hong Kong’s banking rails rather than an expansion into the borderless digital economy.
Hong Kong is not alone in its quest for regulation, but its approach is notably more institutionally narrow compared to other global hubs.
6. The Path Hong Kong Should Have Taken
If Hong Kong genuinely aspires to be a Web3 hub, the correct approach is obvious: abandon the fantasy that a new bank-issued stablecoin will capture market share from USDT and USDC. Regulatory success lies in integrating existing instruments into the banking system, not creating competitors no one requested.
The framework Hong Kong should have built would address three questions:
1.How do we regulate existing stablecoins that residents already use?
2.How do we enable banks to accept stablecoin deposits and provide fiat off-ramps?
3.How do we protect consumers without stifling innovation?
This framework would have created genuine value. A Hong Kong business holding USDC could bank with HSBC or Standard Chartered, confident that its deposits are recognized and protected. An international crypto exchange could establish Hong Kong operations knowing that banking relationships are available and regulated. A retail investor could buy USDT through a licensed Hong Kong platform with full consumer protection. These are services the market wants and needs.
Instead, Hong Kong has created a framework for stablecoins that no one from the crypto space will use. Decentralized finance protocols cannot integrate permissioned instruments. Non-custodial wallets cannot verify every user’s identity. International traders have no use for Hong Kong dollar-denominated stablecoins when the global market runs on dollars. The issuers will find customers, no doubt—banks have existing relationships to leverage—but these will be traditional businesses doing traditional things on blockchain rails, not the Web3 ecosystem that Hong Kong claims to be embracing.
The contradiction is obvious. You cannot be a Web3 hub by building infrastructure that Web3 refuses to use. You cannot embrace decentralized finance by creating the most centralized, permissioned stablecoin possible. You cannot capture the trillion-dollar crypto market by ignoring the instruments that market has already adopted. Hong Kong’s approach serves banks and regulators. It does not serve the market it claims to attract.
7. Conclusion and Key Takeaways
Hong Kong’s current decision to prioritize the creation of new regulated stablecoins rather than integrating and regulating existing market leaders represents a significant strategic error. This approach stems from three fundamental misidentifications:
- It misidentifies the problem—there is no demand for new HKD stablecoins when USDT and USDC exist.
- It misidentifies the solution—creating bank-issued instruments does not address the need for regulated on-ramps.
- It misidentifies the beneficiary—the winners are banks and those partnered companies gaining attention and massive valuation spikes, rewarding major shareholders and speculators with short-term gains while leaving consumers with a “regulated” token that lacks real-world Web3 utility.
Five key takeaways:
1.Functional equivalence matters. When regulated stablecoins require the same KYC, redemption timelines, and capital as e-money, they are e-money with extra technical complexity.
2.Global context is instructive. The EU, US, Singapore, and UK regulate existing stablecoins. Hong Kong alone creates new ones.
3.Market reality is stubborn. The crypto industry built infrastructure around USDT and USDC. A new stablecoin that cannot interact with DeFi will not be adopted.
4.The alternative path was available. Hong Kong could have regulated how existing stablecoins integrate with banking. This would address real needs.
5.The fundamental question remains unanswered. Why do we need stablecoins? If the answer is to regulate existing markets, Hong Kong fails. If to improve payments, existing infrastructure succeeds. If to embrace Web3, the industry rejects the product.
The skeptical inquiry continues until policymakers answer: What problem do regulated HKD stablecoins solve that could not be better addressed by regulating existing stablecoins? Until then, the conclusion stands: We do not need new regulated stablecoins. We need to regulate the stablecoins that already exist.
8. REFERENCES
1.Hong Kong Monetary Authority. (2022, January 12). Discussion Paper on Crypto-assets and Stablecoins.
2.Hong Kong Monetary Authority. (2022, November). Hong Kong’s Approach to Stablecoin Regulation: Consultation Conclusions.
3.Financial Services and the Treasury Bureau & Hong Kong Monetary Authority. (2023, December 27). Legislative Proposal to Regulate Fiat-referenced Stablecoins. Consultation Paper.
4.Hong Kong Monetary Authority. (2024, March). Stablecoin Issuer Sandbox.
5.Hong Kong Monetary Authority. (2024, July 18). HKMA Announces Stablecoin Issuer Sandbox Participants.
6.Hong Kong Monetary Authority. (2025, August 1). Stablecoins Ordinance (Cap. 656).
7.Hong Kong Monetary Authority. (2026, April 10). HKMA Grants First Stablecoin Issuer Licenses.
8.Monetary Authority of Singapore. (2023, August). Finalized Regulatory Framework for Single-Currency Stablecoins.
9.Monetary Authority of Singapore. (2024). Digital Payment Token Service License Guidelines.
10.Financial Conduct Authority. (2025). Future Regulatory Regime for Cryptoassets: Consultation Paper.
11.Bank of England. (2024). Digital Pound: Technology Working Paper.
12.Market Data and Industry Analysis
13.Tether Operations Limited. (2026). Tether (USDT) Transparency Reports.
14.Hong Kong. (2025). Stablecoins Ordinance (Cap. 656). Government of the Hong Kong Special Administrative Region.
15.Hong Kong. (2015). Payment Systems and Stored Value Facilities Ordinance (Cap. 584). Government of the Hong Kong Special Administrative Region.
16.European Commission. (2022). Proposal for a Regulation on Markets in Crypto-Assets. COM(2022) 596 final.
17.U.S. Securities and Exchange Commission. (2024). Statement on Stablecoin Regulation.
And more.
DISCLAIMER
Past performance does not guarantee future results.
Opinions and estimates offered constitute our judgment and are subject to change without notice, as are statements of financial market trends, which are based on current market conditions. We believe the information provided here is reliable, but do not warrant its accuracy or completeness. This material is not intended as an offer or solicitation for the purchase or sale of any cryptocurrencies. The views and strategies described may not be suitable for all investors. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, accounting, legal or tax advice. Any forecasts contained herein are for illustrative purposes only and are not to be relied upon as advice or interpreted as a recommendation.
©Linux Group, October 2024.
Unless otherwise stated, all data is as of October 7, 2024 or as of most recently available.
