Hong Kong's Stablecoin Bill Released: Requirement of Real-Name Registration for Coin Holders Leads to Controversy, Relatively Conservative on DeFi

By Aki Chen, Blockchain Talk

This article was compiled using GPT and is for information sharing only. It does not constitute any investment advice. Readers are advised to strictly abide by local laws and regulations and not participate in illegal financial activities.

introduction

On August 1, 2025, the Hong Kong Stablecoin Ordinance officially came into effect. The ordinance explicitly stipulates that any institution issuing or offering fiat-pegged stablecoins to local retail users in Hong Kong must apply for a license from the Hong Kong Monetary Authority (HKMA) and strictly adhere to reserve requirements, AML/KYC obligations, and transparency requirements. The HKMA also announced the launch of applications for stablecoin licenses, with the first round closing on September 30 and the first batch of licenses expected to be issued in early 2026. This series of actions has been hailed by the industry as a "significant milestone in global stablecoin compliance." However, its strict real-name KYC requirements and high threshold for exclusivity, comparable to the world's strictest stablecoin regulations, have sparked heated debate among Web3 project developers and the community. Meanwhile, the US SEC's Project Crypto initiative, which proposes an "innovation exemption" that avoids cutting corners, stands in stark contrast to Hong Kong.

Overview of Stablecoin Core Regulations

Under the new regulations, all activities related to issuing, circulating or providing fiat-backed stablecoins to local retail users in Hong Kong must obtain a dedicated license issued by the HKMA. The core requirements include:

Capital requirements: minimum paid-in capital of HK$25 million;

Reserve mechanism: 100% high-quality liquid assets (cash, short-term government bonds), custodial isolation must be achieved, and re-hypothecation is prohibited;

Redemption mechanism: Users must be able to redeem at face value within 1 day;

KYC (Know Your Customer) system: All user identities must be retained for at least 5 years. DeFi scenarios and anonymous wallet access are explicitly prohibited.

Prohibition on advertising: Unlicensed stablecoins are not allowed to be marketed to the public. Violators may face fines and criminal penalties.

Of all the regulatory provisions, Know Your Customer (KYC) real-name verification requirements have become the most contentious issue within the Web3 community. According to the HKMA, stablecoin issuers must not only verify user identities and retain data records for at least five years, but also prohibit services for anonymous users. Initially, every compliant stablecoin holder in Hong Kong will also be subject to identity verification. In response, Hong Kong Legislative Council members stated that the HKMA will indeed implement KYC rules, but the specific implementation method is currently uncertain, with real-name verification being one option. Hong Kong Monetary Authority Executive Director (Regulation and Anti-Money Laundering) Chan King-hung also noted that this arrangement is more stringent than the "whitelist" mechanism proposed in an earlier anti-money laundering consultation document. However, he also stated that as the relevant technology matures, the possibility of a moderate relaxation of the regulations in the future is not ruled out.

This means that Hong Kong's stablecoins may initially lack the ability to directly interact with DeFi protocols. Decentralized wallets and permissionless addresses will be isolated from the compliance system, and such interactions will be legally considered "unauthorized use." This suggests that Hong Kong regulators are prioritizing oversight of stablecoin circulation over the scalability and freedom of on-chain protocols. This move and attitude has been viewed by some in the industry as a dampening of support for the adoption of stablecoins in open financial scenarios. This represents a significant divergence from the existing model of mainstream stablecoins (such as USDT and USDC), which allow for free transfers between wallets and seamless integration with DeFi protocols. This will inevitably impact user experience and adoption.

To make matters worse, the Hong Kong Monetary Authority's "Stablecoin Issuer Supervisory Framework" stipulates that licensed entities must comply with the laws and regulations of the relevant jurisdictions when offering specified stablecoins. This requirement emphasizes not only ensuring compliance with issuance regulations but also the establishment of a comprehensive set of institutional safeguards, including cross-border operations, identification of restricted areas, and proactive blocking.

Specifically, it includes the following three obligations:

1. Prohibition of providing services to certain regions

Licensees must ensure that they do not issue or offer stablecoins in jurisdictions where trading is prohibited. Regulators recommend implementing this through a multi-faceted approach, 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 addresses or GPS positioning technology; and technically blocking access from restricted regions to prevent downloads, registrations, or purchases. This requirement essentially requires licensees to act as a "geographic risk firewall," cutting off potential access to restricted regions at the source of issuance to prevent violations of foreign laws or cross-border regulatory disputes.

Section 3.5.3 also explicitly states that licensees must verify whether users are using virtual private networks (VPNs). This means that if stablecoins are not permitted in your location, even using a VPN is still a violation. This significantly raises the barrier to entry for users, requiring each user to submit identification, creating a cumbersome process that negates the "open wallet, go" experience. It can also hinder global access. Non-Hong Kong users, if not explicitly included in the policy, may be unable to use Hong Kong-issued stablecoins in practice. Transfers are also strictly restricted. Stablecoin licensees are considered financial institutions and must comply with FATF rules on funds transfers. Before a transfer is made, both the recipient and the initiator must complete Know Your Customer (KYC) and provide relevant information. Otherwise, the platform or contract may block the transaction.

This requirement of Hong Kong regulators essentially transforms "stablecoins" into electronic certificates in the form of controlled-circulation electronic currencies or bank tokens. Their characteristics are no longer universal decentralized assets on the chain, but rather: a digital tool with real-name binding, geographical restrictions, and incidental regulatory attributes.

2. Overseas marketing and operations must be fully compliant

In addition to the jurisdictional blocking obligations prohibiting transactions, the regulations also require licensees to ensure that all business operations and marketing activities (such as advertising promotion, cooperative channels, application deployment, etc.) comply with the applicable regulations of the target market. This means:

Marketing content may not be pushed to unauthorized areas;

· Assess whether the overseas partner has the compliance qualifications;

The website language version, terms of service, etc. should be handled with caution to avoid the legal fact of "actual provision of services".

3. Continuous monitoring and dynamic adjustment mechanism

Regulators further require licensees to establish continuous monitoring mechanisms, closely monitor policy changes in various countries/regions, and promptly adjust their business strategies and technical measures. For example, if a country imposes a new ban on stablecoins, issuers should immediately terminate related services. If regulatory standards are strengthened (e.g., requiring additional licenses or real-name registration requirements), KYC processes and compliance review systems should be updated simultaneously.

Dr. Xiao Feng, Chairman and CEO of HashKey Group, has stated that in traditional finance, anti-money laundering mechanisms rely heavily on identity-based information retrieval and account information connectivity. However, in practice, this system faces severe bottlenecks in scenarios spanning multiple banks, regions, and jurisdictions. In contrast, the on-chain tracking and address tagging mechanisms developed in recent years by the crypto industry offer an alternative approach to anti-money laundering. In a blockchain system, every transaction is transparent, and the historical flow of funds to any address can be fully traced. From token minting, initial circulation, cross-chain transfers, to final ownership, on-chain information is immutable, globally readable, and synchronized in real time, improving the efficiency and accuracy of money laundering identification.

Industry impact analysis: project owners, users, and market chain reactions

According to an on-site investigation by Techub News reporters, on August 1st, the first day the Hong Kong Stablecoin Ordinance officially came into effect, some offline cryptocurrency OTC stores, including One Satoshi, temporarily closed due to concerns about violating regulatory red lines. Meanwhile, several OTC stores chose to continue operating normally, leading to divergent interpretations of the new regulations' scope. Reactions within the Hong Kong Web3 industry were mixed following the introduction of the regulations. Some exclaimed, "Finally, there's regulation," while others frankly admitted, "This isn't the kind of regulation we wanted." The real-name registration system, licensing requirements, and high barriers to entry—a series of restrictions—have barred many native projects from participating. In particular, stablecoins cannot directly integrate with DeFi, and anonymous wallets and open contracts are excluded from compliance. This essentially makes it clear that Hong Kong stablecoins will not support free circulation on-chain.

This is clearly a blow to some teams that had hoped to establish Hong Kong as a Web3 hub. If you want to issue a coin, you must apply for a license; if you want to create a wallet, you must ensure that every address is registered with a real name. This deviates from the traditional definition of "Web3" and resembles more like "Web2.5," or "permissioned blockchain finance." A more practical issue is that the regulations exclude some small and medium-sized entrepreneurs. While the Hong Kong Monetary Authority claims to welcome innovation, it appears to favor banks and giants, with only invited institutions or platforms eligible to apply for licenses. The entire system is designed to allow "orthodox forces" to dominate the development of stablecoins, leaving individual and small projects to either wait and see or flee. If Hong Kong's Web3 ecosystem previously experienced unchecked growth, it is now undergoing a complete "restructuring of order." However, in its pursuit of compliance and financial stability, Hong Kong may be losing the free-spirited atmosphere that initially attracted developers.

Comparison with other regions' regulatory frameworks

Compared with the "innovation exemption" proposed by the Project Crypto plan that has just been launched on the other side of the ocean, the new Hong Kong stablecoin regulations are mainly characterized by clear supervision, strong KYC real-name system, and strong anti-money laundering efforts.

It can be seen that Hong Kong's current strategy leans towards building a "quasi-sovereign settlement tool," emphasizing regulatory oversight and financial security, while shielding core Web3 capabilities such as permissionless structures, contract calls, and decentralized wallets from regulatory oversight. This, to some extent, presupposes that stablecoins "can only serve regulated financial institutions," rather than serving as neutral infrastructure for the on-chain ecosystem.

In contrast, while the EU's MiCA also emphasizes KYC, it allows for some flexibility—for example, exemptions for low-value transactions or the permission for anonymous wallets. Singapore's DTSP, on the other hand, is more aligned with a "tiered sandbox" approach, welcoming DeFi projects with proven risk management capabilities to gradually test the waters. In the United States, while regulation has long lagged, the signing of the GENIUS Act, the release of the PWG report, and the launch of Project Crypto have signaled a shift toward modernizing on-chain systems while accommodating financial innovation. The current SEC chairman even emphasized in a public speech: "We are introducing regulation for the sake of regulation, cutting the feet to fit the feet."

This comparison reveals key differences: Hong Kong is betting on stablecoin compliance infrastructure, the US is turning to on-chain institutional modernization, the EU is pursuing universal standards, and Singapore remains open to financial experimentation. Hong Kong's current approach is more suitable for "permissioned blockchain finance" aimed at offshore settlement, while its compatibility and appeal are relatively limited for the Web3 approach, which prioritizes an open ecosystem and anonymous circulation.

Conclusion: Can compliance and openness be balanced? Hong Kong is still testing the boundaries.

Regulation must move forward, but it should also leave room for improvement. As an Asian financial hub, Hong Kong serves not only as a testing ground for technology and institutions but also bears the responsibility of setting a paradigm for the region and even the world. However, while promoting KYC, anti-money laundering, and traceability mechanisms, the real long-term challenges of this bill lie in how to avoid completely eliminating on-chain privacy and how to maintain a certain degree of openness and scalability while ensuring financial security. As Dr. Xiao Feng noted, the fundamental nature of blockchain's development lies in its permissionless nature. Anyone can freely join or exit the network, while the current Hong Kong stablecoin regulation, which emphasizes real-name registration and approval mechanisms, in some ways deviates from this permissionless and open logic.

Stablecoins are essentially an institutional innovation tool, bridging the on-chain and off-chain, and bridging tradition and the future. Overly paternalistic regulation would not only hinder integration into the current DeFi ecosystem, but could also jeopardize Hong Kong's pivotal position in reshaping the global digital financial order. How Hong Kong strikes a balance between regulatory rigidity and technological flexibility during the next phase of implementation and interpretation will warrant continued attention.