Regulation is a tale of two extremes: Hong Kong releases the strictest stablecoin regulations, while the United States aims to build an on-chain financial market.

Written by: Gyroscope Finance

On August 1, the highly anticipated Hong Kong stablecoin regulations finally came into effect.

Faced with the heated speculation atmosphere in the market, regulators unexpectedly poured cold water on stablecoins. From the content alone, Hong Kong's stablecoin regulations impose numerous restrictions, and the stringent real-name verification requirements have successfully earned this regulation the title of "the world's strictest stablecoin legislation." Coincidentally, just a month ago, Singapore, which has always been a competitor to Hong Kong, also sparked widespread discussion by issuing "the world's strictest crypto regulations."

In contrast, just one day before the implementation of the stablecoin regulations in Hong Kong, the U.S. Securities and Exchange Commission released a new initiative called "Project Crypto," which passionately outlines a vision for the future of cryptocurrency in the U.S., sending out a strong positive signal.

The regulation on both sides of the ocean presents a stark contrast, and the pattern of cryptocurrency is also beginning to accelerate from this moment.

On August 1, the Hong Kong "Stablecoin Regulation" officially came into effect. This milestone event represents not only a significant step for the virtual currency sector in Hong Kong but also marks the implementation of the world's first comprehensive regulatory framework for fiat-backed stablecoins, which has far-reaching implications.

Reviewing the content of the regulations, the regulations require any institution issuing fiat-backed stablecoins in Hong Kong, or any issuer of stablecoins pegged to the Hong Kong dollar overseas, to implement a mandatory licensing system, with a minimum paid-up capital requirement of HKD 25 million. Regarding reserve assets, full reserves are explicitly mandated, meaning that the issuer must allocate 100% of reserve assets to highly liquid assets such as cash and short-term government bonds, while these assets must be independently custodied by a licensed bank. Each type of stablecoin must have an independent reserve asset portfolio to ensure separation from other reserve asset portfolios. Anti-money laundering is also a top priority; the issuer must establish a comprehensive anti-money laundering mechanism, publish daily audit reports of reserve assets, and prohibit interest payments to prevent disguised savings. In terms of redemption, users may redeem fiat currency unconditionally at face value, and the issuer must process redemption requests within one working day.

In terms of overall requirements, there is no significant difference between the draft of the regulation in June and the current version, but the implementation details can only be described as stringent. On the eve of the regulation's official implementation, on July 29, the Hong Kong Monetary Authority issued a series of supporting regulatory documents regarding the new regulation, including the consultation summary and guidelines for "Licensed Stablecoin Issuer Regulation"; the consultation summary and guidelines for "Guidelines on Combating Money Laundering and Terrorist Financing (Applicable to Licensed Stablecoin Issuers)"; a summary explanation of the licensing system and application procedures related to "Stablecoin Issuer Licensing System"; and a summary explanation of the transitional provisions for existing stablecoin issuers.

According to the requirements, the Monetary Authority will accept the first round of stablecoin issuer license applications from August 1 to September 30, 2025, and has set a 6-month transition period for enterprises. The innovation is advancing simultaneously with the legal framework, reflecting the Hong Kong government's consistent attitude of inclusiveness and prudence. However, regarding the KYC provisions, the market has erupted in a stir.

In the "Guidelines on Combating Money Laundering and Terrorist Financing (Applicable to Licensed Stablecoin Issuers)", the Monetary Authority requires licensed stablecoin issuers to take effective measures to identify and verify the identities of stablecoin holders. Customers must undergo a complete Customer Due Diligence (CDD) process and periodic reviews (such as name, date of birth, ID number, etc., with records kept for at least 5 years). Non-customer holders generally do not need to verify their identities directly, but if monitoring detects wallet addresses associated with illegal activities, sanctions lists, or suspicious sources, and the licensee cannot demonstrate that their risk mitigation measures (such as blockchain analysis tools) are sufficient to prevent ML/TF risks, the licensee must further investigate and verify the identities of the relevant token holders.

In short, to meet anti-money laundering risks, stablecoin issuers must not only verify user identities and retain real-name data for more than 5 years, but also must not provide services to anonymous users. They also have an obligation to verify the identity of each stablecoin holder at the initial stage. The Monetary Authority has also provided an explanation. The Assistant President (Regulation and Anti-Money Laundering) Chen Jinghong pointed out that, given that the current continuous monitoring tools in the industry have not been recognized by the Monetary Authority as effective in reducing money laundering risks, and that international organizations such as the Bank for International Settlements emphasize the importance of preventing money laundering with stablecoins, the Monetary Authority will adopt a 'risk-based but cautious' regulatory approach.

However, from the perspective of the scenario, especially in cross-border payments in physical settings, it is almost impossible to verify the identity of anonymous holders in offshore accounts in real-time, let alone cover every holder in a large-scale payment system. From a practical standpoint, this move essentially excludes all types of applicants other than banking institutions to a certain extent. It is worth noting that under this regulation, Hong Kong stablecoins have also basically bid farewell to DeFi protocol interactions, as existing interaction wallets are all anonymous. In comparison, the competitiveness of Hong Kong stablecoins will be significantly reduced compared to the openly usable USDT and USDC.

The internal responsibilities of the issuer are strictly enforced, and the external jurisdiction is equally clear. The "Regulatory Framework for Stablecoin Issuers" explicitly states that licensees must comply with the laws and regulatory requirements of the relevant jurisdictions. In other words, in addition to complying with local laws and regulations in Hong Kong, overseas compliance is also taken into consideration. Issuers need to have a complete risk control system for cross-border operations and are prohibited from providing services to countries and regions where stablecoin bans exist. It even mentions that licensed institutions must identify the use of VPNs, meaning that circumventing regulations using VPNs will be blocked, indicating that users from Mainland China will still find it difficult to access this system. On the other hand, issuers must also ensure that overseas marketing and operations are compliant, and continuously monitor changes in overseas policies to build a dynamically adjustable compliance system.

From a complete process perspective, the extremely high threshold is the keyword for licensed institutions. However, even with such high application requirements, the Hong Kong stablecoin has placed restrictions on the important functions of the respective stablecoins. Not only are crypto functionalities such as DeFi, anonymous wallets, and open protocols blocked, but the use by overseas economies is also subject to strict regulations. The free circulation of stablecoins on-chain has basically turned into an illusion. Against the backdrop of an already limited market scale, the development of Hong Kong stablecoins will clearly face greater obstacles. From the issuer's perspective, mandatory real-name registration and high-intensity anti-money laundering measures have completely transferred the control of licenses to large banks and financial giants. Not only are small and medium-sized enterprises unlikely to obtain licenses, but internet companies also find it difficult to be optimistic. Due to this, there were previously rumors that JD.com would cancel its license application. According to Caixin reports, Hong Kong may narrow the scope of the first batch of stablecoin licenses to three to four companies. Currently, several Chinese-funded banks with branches in Hong Kong, including Bank of China (Hong Kong), Shanghai Commercial Bank, China Construction Bank (Asia), and Xinyin International, are eager to try their hands at stablecoin business.

Such a stringent implementation path has led to Hong Kong's stablecoin regulations being referred to as the "strictest stablecoin regulations in the world," which is not unfounded. Interestingly, the last region recognized by the market for having the strictest regulations was Singapore, which is also known as the "twin star" alongside Hong Kong. In June of this year, the Monetary Authority of Singapore (MAS) released the final policy guidelines for digital token service providers (DTSP). Due to the strict regulations of "no license, no operation" and "full industry chain jurisdiction," the market has also seen a wave of Web 3 retreat.

However, if we project our vision across the ocean, the attitude of the United States stands in stark contrast to the above two.

On July 31, just one day before the stablecoin regulations took effect in Hong Kong, the new chairman of the U.S. Securities and Exchange Commission (SEC), Paul Atkins, ignited a fire in the cryptocurrency space. On that day, Paul Atkins announced a new policy called "Project Crypto," proposing a grand vision to fully integrate the U.S. financial markets onto the blockchain, clearly stating the goal of making the U.S. the "global crypto capital."

From the perspective of specific measures, first, it is necessary to abandon the traditional model of jurisdiction first and then compliance, and clarify the reclassification standards for crypto assets. This will provide clear disclosure norms, exemption conditions, and safe harbor mechanisms for common on-chain economic activities such as airdrops, ICOs, and Staking, and adopt different regulatory models based on the nature of different assets; second, it will grant legitimacy to decentralized applications such as Defi, providing a clear path for on-chain software developers who do not rely on centralized intermediaries, protecting the developers of decentralized software, and allowing decentralized software to have a place in the financial market; third, it will create "Super-Apps", merging the existing complex licensing systems, enabling securities intermediaries to offer diversified products and services under one platform and one license. The Securities Regulatory Commission will formulate a rule framework to promote this idea, such as drafting a regulatory framework that allows the coexistence and trading of securities and non-securities types of crypto assets on SEC-registered platforms, and relaxing certain listing conditions for assets on non-registered exchanges (such as platforms with only state licenses); fourth, there will be institutional and service guarantees, introducing an "innovation exemption mechanism", focusing on commercial viability, allowing emerging business models and services that do not fully comply with existing rules to be rapidly brought to market. However, service providers of this kind must adhere to commitments to report regularly to the SEC, introduce whitelist or certification pool functions, and only allow securities tokens that meet compliance functional standards (such as ERC 3643) to circulate.

In terms of the design blueprint, the regulatory logic in the United States has completely changed, shifting from punitive regulation to inclusive enforcement, and further advancing towards comprehensive policy support across the entire chain and framework. This includes everything from source attributes to key applications, from platform construction to service guarantees, reflecting that the U.S. is forming a systematic regulatory framework around "crypto assets." This framework is the solid foundation and objective guarantee for the development of the crypto industry in the U.S. The regulatory plan has already fired the first shot, with the U.S. Securities and Exchange Commission (SEC) indicating in its latest guidelines that certain liquid staking activities do not involve securities, and that individuals engaging in liquid staking activities do not need to register with the agency under securities law.

In contrast, although both are regulatory policies, the United States and Singapore, Hong Kong are vastly different. The former releases highly positive signals, while the latter presents a more defensive posture amidst innovation, which may be related to regional characteristics. Both Hong Kong and Singapore have limited geographical scope and are positioned as financial centers, exhibiting traits such as being a bridgehead or regional window. Therefore, stability and order are particularly important to them. If money laundering issues arise, it could have a stronger detrimental effect on the regional brand and generate significant negative externalities. On the other hand, the United States has greater autonomy and has a say in the development of emerging technologies, allowing it to lead the global order to some extent, thus maintaining a higher degree of openness in certain industries. As a result, the market is also reacting; some cryptocurrency projects from Hong Kong and Singapore have already expressed interest in moving to the United States for development.

It is not hard to foresee that the "American-centric" pattern of the cryptocurrency industry will be further strengthened, and the U.S. market will become an important battleground for determining the development of cryptocurrency projects. Other regions may be destined to only take a differentiated subsidiary path.