U.S. and Hong Kong Enact New Stablecoin Regulations

The global stablecoin market, valued at over $250 billion, is undergoing significant changes due to new regulatory frameworks in the U.S. and Hong Kong. These regulations are set to influence the competition and innovation within the stablecoin industry. The U.S. has enacted the Guiding and Establishing National Innovation for U.S. Stablecoins Act (GENIUS Act), while Hong Kong has implemented the Stablecoins Ordinance, each presenting distinct approaches to governing fiat-referenced stablecoins.

The GENIUS Act, signed into law by President Trump on July 18, 2025, establishes a tiered regulatory structure. Issuers with over $10 billion in circulation will face federal oversight by the Office of the Comptroller of the Currency (OCC) or banking regulators, while smaller issuers can opt for state-level regulation, subject to Treasury approval. Reserves must be 1:1 backed by high-quality liquid assets, such as U.S. Treasuries with a maturity of 93 days or less, and cash. The Act bans yield-bearing stablecoins and lending activities, and imposes stringent AML/KYC compliance under the Bank Secrecy Act, with penalties up to $100,000 per day for violations.

Hong Kong’s Stablecoins Ordinance, effective August 1, 2025, requires issuers to be locally incorporated with a minimum capital of HKD 25 million (USD 3.2 million), though banks are exempt. Reserves must be 1:1 backed by liquid assets, with the flexibility to issue stablecoins pegged to any official currency, such as HKD, USD, or offshore RMB, leveraging Hong Kong’s currency peg. The Ordinance focuses on fiat-referenced stablecoins (FRS), excluding algorithmic stablecoins due to their lack of effective stabilization mechanisms, aligning with Financial Stability Board recommendations. AML/CFT requirements meet FATF standards, with penalties up to HKD 5 million (USD 640,000) and seven years’ imprisonment.

The GENIUS Act prioritizes financial stability and U.S. dollar dominance, creating a high-compliance environment that favors large issuers like Circle (USDC). Federal oversight for issuers exceeding $10 billion, coupled with costly AML/KYC and audit requirements, drives market consolidation. For a $100 million issuance, a 0.5% operational cost equals $500,000 in expenses, challenging smaller issuers’ profitability without significant scale. The ban on algorithmic stablecoins and restrictions on high-risk activities, such as lending, limit DeFi innovation, pushing issuers toward a banking-like model. This constrains growth loops in retail adoption but attracts institutional players, leveraging the U.S.’s leading position in the stablecoin market, driven by USD-pegged tokens like USDC and USDT. Requiring U.S. Treasuries in reserves aligns with national interests, boosting government borrowing power. However, high costs and lack of international coordination risk regulatory arbitrage, with issuers eyeing more flexible jurisdictions like Hong Kong and the UAE.

Hong Kong’s Stablecoins Ordinance balances compliance with innovation but favors larger issuers. The HKMA’s plan to issue a “single-digit” number of licenses in 2025 signals a selective process prioritizing well-capitalized firms with robust compliance frameworks. While the HKD 25 million capital threshold is accessible, compliance costs and stringent licensing criteria challenge smaller issuers, limiting their competitiveness. The exclusion of algorithmic stablecoins and lack of support for DeFi applications focus innovation on fiat-backed models, such as tokenized bonds and real-world asset (RWA) tokenization under LEAP’s application pillar. The Ordinance’s flexibility to issue stablecoins pegged to any official currency, including HKD, USD, or offshore RMB, enhances Hong Kong’s competitiveness, attracting issuers targeting Asia-Pacific and global markets. This aligns with China’s Belt and Road Initiative by facilitating cross-border transactions in multiple currencies. The Bill’s clarity and FATF-aligned standards position Hong Kong as a compliant hub, competing with Singapore and the UAE. However, the local incorporation requirement and selective licensing may deter smaller foreign firms, favoring established players with regional presence.

The GENIUS Act is a strategic tool to extend U.S. dollar dominance into the digital realm, reinforcing the dollar’s role as the world’s reserve currency. By mandating that stablecoin reserves be backed 1:1 by high-quality liquid assets, primarily U.S. Treasury bills and cash, the Act ensures that USD-pegged stablecoins, which dominate over 90% of the $250 billion market, directly bolster U.S. government debt. For example, a $100 billion stablecoin issuance backed by Treasuries increases demand for U.S. debt, effectively funding government borrowing. This creates a powerful feedback loop: as stablecoin adoption grows for cross-border payments and digital transactions, so does the global demand for USD and Treasuries, cementing U.S. financial hegemony. This strategy, however, has triggered global pushback. The requirement for USD stablecoin holders - whether individuals, businesses, or institutions - to indirectly finance U.S. debt via Treasury-backed reserves is viewed unfavourably in jurisdictions seeking monetary sovereignty. Countries are countering with their own stablecoin regimes to promote local currency-pegged tokens.

Hong Kong’s stablecoin framework can be seen as an extension for China’s Belt and Road Initiative (BRI), a $1 trillion infrastructure and trade network spanning 150+ countries, particularly in the Global South. Stablecoins offer a transformative solution for cross-border payments, which often incur 5%–7% fees in BRI corridors. A $10 million trade settlement via HKD-, USD-, or RMB-pegged stablecoins could save $500,000, enhancing efficiency for projects like ports in Pakistan, railways in Kenya, or energy hubs in Indonesia. By enabling stablecoin issuance in multiple currencies, including the offshore RMB, Hong Kong strengthens China’s financial influence in regions with volatile local currencies, supporting BRI’s goal of fostering trade and investment. Stablecoins also advance BRI’s digital transformation objectives. In Global South economies, where trust in local banking systems is low, regulated stablecoins provide a stable medium for trade, remittances, and project financing. For instance, African exporters or Southeast Asian SMEs could use RMB- or USD-pegged stablecoins for instant, low-cost transactions, reducing reliance on Western financial networks. The LEAP framework’s education pillar promotes blockchain literacy, while its application pillar encourages tokenized asset adoption, positioning Hong Kong as a financial bridge between China and BRI partners. Potential integration with China’s digital yuan could create hybrid payment systems, amplifying China’s role in global digital finance and challenging U.S. dominance.

The U.S. GENIUS Act, signed into law on July 18, 2025, and Hong Kong’s Stablecoins Ordinance, effective August 1, 2025, represent divergent paths in the global stablecoin race. The U.S. drives market consolidation and dollar dominance through leveraging USD-pegged stablecoins’ market leadership and tying stablecoin reserves to U.S. Treasuries strengthens its financial hegemony, though global pushback from different jurisdictions may signal a general shift toward sovereign stablecoin regimes. Hong Kong’s selective licensing favors established issuers, with its flexibility to peg stablecoins to any currency, including the offshore RMB, enhancing its role as a BRI-driven hub. This multi-currency approach positions Hong Kong to capture Asia-Pacific markets and support China’s global financial ambitions. Issuers face a stark choice: navigate the U.S.’s rigid but dominant market or Hong Kong’s selective yet innovative ecosystem. As stablecoins reshape global finance, this regulatory rivalry underscores a broader battle for digital currency supremacy, with profound implications for economic sovereignty and cross-border trade.