Hong Kong’s Bold Stablecoin Regulations Threaten USD Hegemony—Will Wall Street Giants Retreat?
Hong Kong fires the next shot in the global stablecoin war—with rules so tight they might just scare off the usual suspects.
Subheader: The USD Dominance Dilemma
The city’s upcoming framework doesn’t just level the playing field—it bulldozes the old guard’s advantage. By mandating 1:1 reserves and real-time audits, regulators are forcing stablecoins to actually be stable (what a concept).
Subheader: Big Players, Bigger Problems
JP Morgan won’t touch this with a 10-foot pole—compliance costs could gut their profit margins. Meanwhile, crypto-native firms are already salivating over the arbitrage opportunities.
Closing thought: Another case of TradFi overcomplicating what blockchain solves elegantly—but hey, at least the regulators finally read the Bitcoin whitepaper.
Setting a high bar
Only licensed entities will be permitted to issue or market stablecoins to retail investors. While the regime opens the door to multi-currency issuance by offering a more global framework than some jurisdictions, analysts say the law sets a high bar.
"Its capital requirement is roughly three times that of Singapore," Sean Lee, co-founder of digital asset tech company IDA—which focuses on developing regulated stablecoin infrastructure—told Decrypt.
He called the approach progressive but more likely to attract domestic players than global giants like Circle or Tether.
Lee added that mandated Hong Kong-based reserves and operational presence make direct issuance by large global firms unlikely. Instead, he expects professional usage of offshore stablecoins to persist through distribution partners.
Retail uptake appears limited, especially with Hong Kong’s mature domestic digital payment systems. But cross-border business use remains promising.
"Do not underestimate the offshore CNH angle. That’s the primary reason why the Hong Kong regime has the full support from Beijing," Lee said, referring to the offshore RMB traded outside mainland China.
However, despite theoretical cost savings, stablecoin use may not yet beat existing options.
"When all costs are included, the end-to-end costs may not necessarily be cheaper at this point in comparison to established players like Wise," Lee noted, citing a lack of liquidity on different currencies.
Other fintech players, such as $6.2 billion valuation startup, Airwallex CEO Jack Zhang, have echoed that sentiment, albeit more pessimistically.
“I can’t see any ways stablecoin can reduce fees—off-ramping from stablecoin to recipient currency are far more expensive than the FX interbank market,” he said on X at the start of this month.
Still, Lee remains optimistic that this will change. "In time, stablecoin-based transaction costs (including FX) will become lower and lower," he said.
Edited by Sebastian Sinclair
