Hong Kong Ratifies Stablecoin Legislation

• Hong Kong's Stablecoins Ordinance issued by the Hong Kong Monetary Authority on the 1st August 2025, is the world’s first dedicated legislation targeting stablecoins.

• Stablecoins, like Tether (USDT CURNCY), are considered a less volatile type of cryptocurrency as they are pegged to fiat currencies (like the US$/euro), short-term treasuries, and commodities (such as gold).

• Proponents of stablecoins, backed by real currency, just need to espouse how they can be a surrogate/improvement on just using ... the real currency.

The Stablecoin Universe

• As of July 2025, the total market capitalisation of stablecoins was ~US$250–275bn

• Tether (USDT CURNCY) dominates with ~US$150bn, followed by USD Coin (USDC CURNCY) with ~US$71bn.

• Stablecoins account for a little over 7% of the total cryptocurrency market cap, with USD-denominated stablecoins comprising 99% of the stablecoin market.

• There are four main stablecoins:

  1. Fiat-backed: pegged 1:1 to fiat currencies (Tether and USD Coin are backed by reserves like cash or U.S. Treasury securities;

  2. Crypto-backed: collateralised by other cryptocurrencies, often over-collateralized to account for volatility (such as Dai);

  3. Commodity-backed: tethered to assets like gold (such as Paxos Gold; and

  4. Algorithmic: which use contracts to adjust supply and maintain stability, without collateral. Such as TerraUSD (UST CURNCY). Before it collapsed.

• The benefits. Stablecoin transactions are recorded instantaneously on digital ledgers; allowing retail and cross-border payments to be settled in minutes rather than days, at a fraction of the fees charged by banks and card issuers.

• Displacing central-bank money? Not that I see. More a case deposits (backing the stablecoins) getting moved around, as opposed to disappearing altogether.

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What's New?

• On the 1st August 2025, the Hong Kong Hong Kong Monetary Authority (HKMA) introduced the Stablecoins Ordinance (Cap. 656).

  • This Explanatory Note on Licensing for Stablecoin Issuers sets out guidance on the licensing regime as well as licensing procedures.

• This ordinance is the world’s first dedicated legislation targeting stablecoins, distinct from broader crypto-asset frameworks such as the EU’s Markets in Crypto-Assets Regulation (MiCA), and the US' GENIUS Act.

  • Hong Kong’s ordinance targets only fiat-referenced stablecoins pegged to one or more official currencies (such as the HKD) or HKMA-specified units of account.

  • It excludes algorithmic and commodity-backed stablecoins, reducing complexity compared to broader frameworks such as MiCA.