On May 21, 2025, Hong Kong’s Legislative Council passed the Stablecoin Ordinance Bill, marking a pivotal moment in the region’s financial evolution. The Hong Kong Special Administrative Government subsequently announced in the Gazette on June 6, 2025, that the ordinance will officially take effect on August 1, 2025. This landmark legislation positions Hong Kong at the forefront of digital finance innovation and regulatory clarity, reinforcing its role as a leading international financial center.
To explore the implications of this regulatory shift, we spoke with Zeng Gang, Chief Expert and Director at the Shanghai Financial Development Laboratory. His insights reveal how stablecoins are reshaping digital finance, what makes Hong Kong’s approach unique, and how individuals and institutions can navigate this evolving landscape.
What Are Stablecoins? Understanding the Basics
Stablecoins are a class of cryptocurrencies designed to maintain a stable value by being pegged to an underlying asset—most commonly fiat currencies like the U.S. dollar or euro. Unlike volatile digital assets such as Bitcoin or Dogecoin, stablecoins aim to offer the best of both worlds: the efficiency and accessibility of blockchain technology combined with the price stability of traditional money.
According to Zeng Gang, stablecoins possess four defining characteristics:
1. Price Stability
By anchoring their value to stable assets—typically one-to-one with a fiat currency—stablecoins minimize volatility. This makes them ideal for everyday transactions, cross-border payments, and short-term value storage in digital environments.
2. High Liquidity
Stablecoins operate on public blockchains, enabling near-instant transfers at low cost across borders. They are widely accepted on centralized exchanges, decentralized finance (DeFi) platforms, and payment networks, enhancing their utility and circulation speed.
3. Diverse Collateral Models
Different types of stablecoins use various mechanisms to maintain their peg:
- Fiat-collateralized (e.g., USDT, USDC): Backed by reserves of real-world currency.
- Crypto-collateralized (e.g., DAI): Overcollateralized with other digital assets.
- Algorithmic: Use smart contracts to adjust supply based on demand.
- Hybrid models: Combine multiple approaches for enhanced resilience.
4. Role as a Digital Financial Infrastructure
Stablecoins serve as the backbone of the crypto economy—facilitating trading pairs, liquidity provision, lending protocols, and yield-generating activities in DeFi ecosystems.
Despite these advantages, challenges remain—including transparency of reserves, counterparty risks, and regulatory compliance. As central bank digital currencies (CBDCs) advance globally, the coexistence and competition between regulated stablecoins and government-backed digital money will shape the future of finance.
Stablecoins vs. Traditional Cryptocurrencies: Key Differences
While Bitcoin is often called “digital gold” and Dogecoin thrives on community-driven momentum, stablecoins fulfill a fundamentally different purpose.
Zeng Gang highlights four core distinctions:
Value Anchoring Mechanism
Stablecoins derive value from external assets—usually cash held in reserve—ensuring a consistent 1:1 ratio. In contrast, Bitcoin and Dogecoin have no intrinsic backing; their prices emerge purely from market supply and demand dynamics.
Price Volatility
Stablecoins are engineered to resist price swings, making them reliable mediums of exchange. Bitcoin can experience double-digit percentage changes in a single day, while Dogecoin—driven by social media trends—is even more unpredictable.
Use Cases
Stablecoins power real-time settlements in digital asset markets, support cross-border remittances, and act as safe havens during market turbulence. Bitcoin is primarily viewed as a long-term store of value or speculative investment. Dogecoin sees limited use in microtransactions and online tipping.
Risk Profile
Although stablecoins appear safer, they carry hidden risks: if issuers mismanage reserves or face liquidity crises (as seen with past de-pegging events), confidence can collapse rapidly. Bitcoin and Dogecoin expose investors directly to market sentiment but lack systemic counterparty dependencies.
In essence, stablecoins prioritize utility and stability, while traditional cryptocurrencies emphasize decentralization and speculative potential.
Why Hong Kong Is Leading the Regulatory Charge
The introduction of the Stablecoin Ordinance isn’t just a local policy update—it's a strategic play for global influence.
Zeng Gang explains that Hong Kong’s push stems from three key motivations:
1. Establishing Global Regulatory Leadership
As major financial hubs like Singapore, Switzerland, and the EU refine their crypto frameworks, Hong Kong aims to set a benchmark for Asia. The ordinance offers a clear licensing regime for stablecoin issuers, mandating capital requirements, custody standards, redemption guarantees, and regular audits—creating what experts call the “Hong Kong model” of balanced oversight.
2. Enhancing Financial Infrastructure
By formalizing rules for digital assets, Hong Kong strengthens its position as a bridge between traditional finance and Web3 innovation. A predictable legal environment attracts institutional investors, fintech startups, and blockchain talent—fueling economic diversification.
3. Aligning with International Standards
The new law responds to calls from G20 and the Financial Stability Board for tighter regulation of systemically important stablecoins. This alignment boosts Hong Kong’s credibility with global regulators and facilitates cross-border cooperation.
👉 See how compliant platforms are preparing for Hong Kong’s new regulatory era.
Impact on Investors and Everyday Users
For the average person, stablecoins aren't just abstract financial instruments—they offer tangible benefits.
Zeng Gang notes that stablecoins act as a "financial safe harbor" within volatile crypto markets. When uncertainty rises, traders can quickly convert Bitcoin or Ethereum into USDT or USDC to preserve capital without exiting digital ecosystems entirely.
They also enable:
- Low-cost international transfers, bypassing traditional banking fees.
- Access to global DeFi opportunities, such as earning interest through staking or liquidity pools.
- Faster settlement times compared to legacy wire systems.
However, he cautions against treating stablecoins as high-return investments. Their primary function is capital preservation, not wealth generation. Long-term value comes not from holding the coin itself but from participating in regulated yield programs—provided users verify issuer transparency and jurisdictional compliance.
"Investors should prioritize safety over yield," Zeng emphasizes. "Choose stablecoins issued by reputable entities under strong regulatory oversight."
How Stablecoins Are Reshaping Traditional Asset Markets
One of the most underappreciated effects of stablecoin growth is its influence on traditional asset pricing, particularly gold.
Zeng Gang outlines three ways this interaction unfolds:
- Competition for Safe-Haven Demand
In times of economic stress, investors historically turn to gold. Now, digitally native users may opt for dollar-pegged stablecoins instead—especially younger demographics who value speed and divisibility over physical ownership. - Gold-Backed Digital Tokens
Projects like PAX Gold (PAXG) and Tether Gold (XAUT) tokenize physical gold reserves, allowing fractional ownership on blockchain networks. These assets link digital trading activity directly to gold prices, increasing market efficiency and liquidity. - Reserve Diversification by Issuers
Some stablecoin operators are allocating portions of their reserves into high-quality assets—including gold—to hedge against fiat inflation and diversify risk. This institutional demand adds upward pressure on precious metal prices.
Still, Zeng stresses that gold retains irreplaceable qualities: scarcity, historical trust, and geopolitical neutrality. While stablecoins may affect short-term flows, they’re unlikely to displace gold’s role as a long-term store of value.
Frequently Asked Questions (FAQ)
Q: Are all stablecoins equally safe?
A: No. Safety depends on transparency, audit frequency, reserve composition, and regulatory compliance. Stick to major issuers with regular attestations from reputable accounting firms.
Q: Can stablecoins lose their peg?
A: Yes—though rare, events like bank runs (e.g., USDT briefly dropping below $0.90 in 2022) show that even top-tier stablecoins can de-peg under extreme stress.
Q: Is Hong Kong’s Stablecoin Ordinance applicable to foreign issuers?
A: Yes. Any entity offering services to Hong Kong residents must comply with licensing and operational standards set by the Securities and Futures Commission (SFC).
Q: Do stablecoins earn interest by default?
A: No. Holding stablecoins in wallets doesn’t generate returns. Interest comes only from active participation in lending protocols or savings products—each carrying varying degrees of risk.
Q: Will CBDCs replace stablecoins?
A: Not necessarily. Central bank digital currencies may dominate domestic payments, but private stablecoins could thrive in global commerce and DeFi due to innovation agility and interoperability.
Q: How do I choose a trustworthy stablecoin?
A: Look for full reserve disclosures, third-party audits, regulatory registration (like in Hong Kong or the U.S.), and widespread adoption across secure platforms.
Final Thoughts: Hong Kong’s Digital Finance Future
The Stablecoin Ordinance signals more than regulatory maturity—it reflects Hong Kong’s ambition to lead in the next era of finance. By creating a clear path for innovation within guardrails, the city strengthens its appeal to global investors and fintech pioneers alike.
As digital assets become integral to global capital flows, jurisdictions that combine clarity, security, and openness will rise to prominence. With this bold step, Hong Kong isn’t just adapting to change—it’s helping define it.