Hong Kong Enforces Stablecoin Regulation, Bans DeFi
Hong Kong’s new stablecoin regulation took effect on 1 August, requiring all issuers targeting local retail customers to obtain a licence from the Hong Kong Monetary Authority (HKMA). Under the stablecoin regulation, issuers must hold a minimum paid-up capital of HKD 25 million, maintain 100% high-quality liquid assets as reserves, and enable one-day redemption at face value. Strict AML/KYC measures—including five-year data retention, geo-blocking and cross-border compliance—apply. The framework bars integration with DeFi protocols, anonymous wallets and marketing of unlicensed stablecoins. The HKMA will accept licence applications until 30 September, with first approvals expected in early 2026. While traders welcome clearer rules to bolster anti-money laundering safeguards and institutional trust, critics warn that high entry barriers favour banks and large firms, risking fragmentation of on-chain liquidity. In the short term, reduced issuance and tighter trading spreads may unsettle markets, while long-term impacts include potential shifts of liquidity to more permissive jurisdictions despite improved confidence among institutional investors.
Bearish
In the short term, stringent stablecoin regulation and high licensing barriers are likely to reduce issuance and trading volumes, tightening spreads and fragmenting on-chain liquidity—factors weighing negatively on market activity. Over the long term, enhanced regulatory clarity may boost institutional confidence but continued restrictions on DeFi integration and anonymous wallets could limit innovation and user flexibility in Hong Kong’s crypto market, maintaining downward pressure on stablecoin-related trading.