Hong Kong stablecoin bill released: Controversy arises over real-name requirements for coin holders, extreme conservatism closes off DeFi.

Author | Aki Chen Wu said Blockchain

This article is organized with the participation of GPT and is for informational sharing only. It does not constitute any investment advice. Readers are advised to strictly adhere to 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 comes into effect. The regulation clearly stipulates 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 adhere to requirements such as reserve mechanisms, AML/KYC obligations, and transparency. The Hong Kong Monetary Authority also announced the launch of stablecoin license applications, with the first round of applications set to close on September 30, and the first batch of licenses expected to be issued in early 2026. This series of actions is viewed by the industry as an "important milestone for global stablecoin compliance," but its stringent real-name system (KYC) requirements and high barriers to entry have sparked intense controversy among Web3 project parties and communities, comparable to the world's strictest stablecoin legislation. Meanwhile, the U.S. SEC has introduced the Project Crypto plan, proposing an "innovation exemption" that sharply contrasts with Hong Kong's approach, avoiding the pitfalls of overregulation.

Overview of Core Regulations for Stablecoins

According to the new regulations, all activities related to issuing, circulating, or providing fiat-pegged stablecoins to local retail users within Hong Kong must obtain a special license issued by the Monetary Authority. Core requirements include:

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

· Reserve mechanism: 100% high-quality liquid assets support (cash, short-term government bonds), must achieve custodial segregation, and re-mortgaging is prohibited;

· Redemption Mechanism: Users must redeem at face value within 1 day;

· Real-name system (KYC): All user identities must be retained for over 5 years, and DeFi scenarios and the access of anonymous wallets are explicitly prohibited;

· Prohibited Promotion: Unlicensed stablecoins must not be marketed to the public, and violators may face fines and criminal liability.

Among all regulatory provisions, the KYC real-name verification requirement has become the focal point of the biggest controversy in the Web3 community. According to the requirements of the Monetary Authority, stablecoin issuers not only need to verify user identity information and retain data records for more than 5 years, but also cannot provide services to anonymous users. Additionally, identity verification is also required for each compliant stablecoin holder in Hong Kong initially. In response, Hong Kong Legislative Council members have 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. The Assistant Chief Executive of the Hong Kong Monetary Authority (Regulation and Anti-Money Laundering), Chan King-hung, also pointed out that this arrangement is stricter than the "white list" mechanism proposed in earlier anti-money laundering consultation documents. However, he also mentioned that with the gradual maturity of relevant technologies, there is a possibility of moderately relaxing regulations in the future.

This means that the initial phase of 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 use." 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 practitioners as a cold shower on the application of stablecoins in open financial scenarios on-chain. This creates a huge divergence from the existing mainstream stablecoins (such as USDT, USDC), which allow free transfers between wallets and seamless integration with DeFi protocols, and this will inevitably affect user experience and adoption.

What exacerbates the situation is that according to the Hong Kong Monetary Authority's "Regulatory Framework for Stablecoin Issuers", when "an offer is made to provide specified stablecoins", licensees must comply with the laws and regulatory requirements of the relevant jurisdictions. This provision emphasizes that not only must compliance be ensured in issuance, but a complete set of institutional safeguards covering cross-border operations, identifying restricted areas, and proactively blocking must also be established.

Specifically includes the following three obligations:

1. Prohibit providing services to specific regions

License holders must ensure that they do not conduct issuance or solicitation activities in jurisdictions where trading stablecoins is prohibited. Regulatory recommendations are to be achieved through multiple means, including: verifying user identity documents (such as ID cards or passports) to identify nationality or residence; determining the user's true geographic location through IP address or GPS positioning technology; technically blocking access from restricted areas to prevent downloading, registration, or purchasing activities. This requirement essentially demands that license holders act as a "geographic 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 licensees need to detect whether users are using virtual private networks to determine compliance, meaning 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, requiring each user to submit identification proof, creating a cumbersome process that erases the "open wallet and use" experience. Additionally, it may make it difficult for global users to access, as non-Hong Kong local users who are not explicitly included in the policy scope may be unable to use stablecoins issued in Hong Kong in practice. Transfers are also strictly limited, as stablecoin licensees will be regarded as financial institutions and must comply with FATF's relevant requirements regarding fund transfer rules. Before a transfer, it is necessary to ensure that both the recipient and the initiator have completed KYC and provided the relevant information; otherwise, the platform or contract may prevent the execution of the transaction.

The requirement regulated by Hong Kong essentially transforms "stablecoins" into a form of electronic currency or bank token that circulates under control, characterized not as a decentralized asset commonly used on the blockchain, but rather as: a digital tool with real-name binding, geographical restrictions, and 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 promotion, cooperation channels, application deployment, etc.) comply with the applicable regulations of the target market. This means:

· Marketing content must not be pushed to unauthorized regions;

· The compliance qualifications of overseas partners should be assessed;

· Caution should be exercised in handling the language versions of the website, service terms, etc., to avoid constituting the legal fact of "actual provision of services."

3. Continuous Monitoring and Dynamic Adjustment Mechanism

Regulators further require licensees to establish a continuous monitoring mechanism, closely monitor policy changes in various countries/regions, and timely adjust their business strategies and technical measures. For example: if a country introduces a ban on stablecoins, issuers should immediately terminate related services; if regulatory standards are raised (such as requiring additional licenses or real-name requirements), the KYC process and compliance review system should be updated accordingly.

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, regions, and cross-jurisdictional boundaries. In contrast, the on-chain tracking and address labeling mechanisms developed in the crypto industry in recent years provide an alternative approach to anti-money laundering. In a blockchain system, every transaction is open and transparent, and the historical flow of funds for any address can be traced in its entirety. From the minting of tokens, the first circulation, cross-chain transfers, to final ownership, on-chain information possesses the characteristics of immutability, global readability, and real-time synchronization, enhancing the efficiency and accuracy of money laundering path identification.

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

According to a field investigation by Techub News reporters, on the first day of the official implementation of the Hong Kong Stablecoin Regulation on August 1, some cryptocurrency OTC offline stores, including One Satoshi, have temporarily closed due to concerns about violating regulatory red lines. At the same time, several OTC stores have chosen to continue normal operations, resulting in differing interpretations within the industry regarding the applicability of the new regulations. Reactions from the Hong Kong Web3 industry after the regulation was introduced vary. Some say "finally there is regulation," while others candidly express, "this is not the kind of regulation we want." Real-name systems, licensing systems, and high thresholds are sequential restrictions that keep many native projects out. In particular, stablecoins cannot directly connect to DeFi, and anonymous wallets and open contracts are excluded from compliance, which essentially clarifies: Hong Kong stablecoins will not support free circulation on-chain.

For some teams that originally hoped to use Hong Kong as a base for Web3, this is clearly a setback. If you want to issue a token, you must 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 a "Web2.5" or "permissioned chain finance." The more realistic issue is that this regulation excludes some small and medium-sized entrepreneurs. Although the Hong Kong Monetary Authority claims to welcome innovation, it seems that what they really welcome are banks and giants, with only invited institutions or platforms eligible to apply for licenses. The entire system design appears to be aimed at allowing "orthodox powers" to dominate the development of stablecoins, while individuals and small projects either watch from the sidelines or exit. If the previous Hong Kong Web3 ecosystem was a case of wild growth, now it is a complete "reordering of order." However, in the pursuit of compliance and financial stability, Hong Kong may also be losing the very freedom that initially attracted developers.

Comparison with regulatory frameworks in other regions

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

It can be seen that Hong Kong's current strategy is more inclined towards building a "quasi-sovereign settlement tool," emphasizing regulatory dominance and financial security, while shielding the core capabilities of Web3, such as typical permissionless structures, contract calls, and decentralized wallets, from the regulatory framework. This, to some extent, 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 a "layered sandbox" approach, welcoming DeFi projects with risk control capabilities to gradually test the waters. In the United States, although regulation has long lagged behind, there have been strong signals of a shift towards on-chain system modernization 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 chairman of the SEC emphasized in a public speech: "We introduce regulation for the sake of regulation, which is akin to cutting off our feet to fit a shoe."

This comparison reveals the core differences: Hong Kong bets on compliant infrastructure for stablecoins, the United States turns to on-chain system modernization, the European Union seeks universal standards, and Singapore maintains openness to financial experimentation. Hong Kong's current approach is more suitable for serving the purpose of offshore settlement in "permissioned blockchain finance," while 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 experimenting with the boundaries.

Regulation must move forward, but it should also leave some room for flexibility. As a financial center in Asia, Hong Kong serves not only as 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, the real long-term challenge of this legislation lies in how to avoid completely erasing the space for on-chain privacy and how to maintain a certain degree of openness and scalability while ensuring financial security. As Dr. Xiao Feng stated, the reason blockchain can develop is fundamentally because it is permissionless. Anyone can freely join or leave the network, while the real-name system and approval mechanism emphasized by the current stablecoin regulation in Hong Kong somewhat deviates from this permissionless open logic.

Stablecoins are essentially a type of institutional innovation tool that connects on-chain with off-chain, bridging the traditional and the future. If there is excessive "parental" regulation, it will not only be difficult to integrate into the current DeFi ecosystem but may also result in Hong Kong losing its key position in the global digital financial order reshaping. In the next phase of implementation and interpretation, how Hong Kong finds a balance between regulatory rigidity and technological flexibility is worth ongoing attention from all sectors.