Dual Regulatory Storm in the Crypto Space: Domestic Ban and Hong Kong Reshuffle Reshape the Stablecoin Landscape

Hong Kong's regulatory adjustment of USDT and mainland China's "zero tolerance" crackdown on stablecoins have created the most stringent dual regulatory storm in crypto history. This differentiated approach of "strict domestic regulation + offshore standardization" not only thoroughly reconstructs the domestic and overseas stablecoin market ecosystem, but also clearly outlines the regulatory red lines and innovation boundaries of China's digital finance sector. Its profound impact and market restructuring logic have now fully emerged.

I. Mainland China: From “Restriction” to “Criminalization” in Zero Tolerance Escalation

On November 28, 2025, the central bank, together with 13 departments, jointly issued a document that, for the first time at the national level, clearly defines stablecoins as virtual currencies and brings related activities fully under the supervision of illegal financial activities. This marks the shift from “restricted control” to a new phase of “criminal governance.”

Regulators have adopted a “full-chain blockade” strategy: strictly prohibiting any form of stablecoin issuance and trading domestically, mandating the severance of financial channels between banks/payment institutions and stablecoin businesses, comprehensively clearing out the domestic draw-in channels of overseas platforms, and directly holding involved parties criminally liable. From January to October 2025, China has cracked 342 criminal cases related to stablecoins, intercepted 12,000 suspected illegal transactions involving 4.6 billion yuan, thoroughly blocking the gray channel of stablecoins being used as tools for money laundering and illegal cross-border capital flows.

This regulatory escalation also clears obstacles for the promotion of the digital yuan. By 2025, the scale of cross-border payments in digital RMB has exceeded 10 trillion yuan. Its compliance advantage as a legal digital currency continues to stand out, with Russia, ASEAN, and other countries accessing the cross-border digital yuan payment system. Transaction volume within the year has surpassed 640 billion yuan, making it an important alternative to SWIFT for cross-border settlement.

II. Hong Kong: “Reshuffling” USDT, Rebuilding the Ecosystem under a Compliance Framework

Based on the Stablecoin Ordinance effective August 2025, Hong Kong has launched a stablecoin market “reshuffling”: as USDT issuer Tether failed to meet licensing requirements, retail trading of USDT is fully restricted, with related business only open to professional investors.

The Hong Kong Monetary Authority screens compliant institutions by setting high entry thresholds: non-bank institutions must have HK$25 million in paid-in capital and 100% high-liquidity reserves (mainly cash and short-term government bonds or other low-risk assets). Although no institutions had been officially licensed as of early December, substantial progress has been made: Mainland business giant Giant Chamber of Commerce became one of the first licensed issuers. Its “Giant Coin” was integrated into Hang Seng Bank’s HSL2.0 platform, enabling real-time cross-border payments between Hong Kong, Mainland China, and Southeast Asia, with fees more than 70% lower than the SWIFT system. Sequoia China, ZhongAn International, and others have strategically invested in Hong Kong stablecoin sandbox pilot company Yuan Coin Innovation Technology, helping it build a regulatory-compliant 1:1 fiat reserve mechanism and anti-money laundering framework.

Regulators clearly guide stablecoins to serve the real economy: Caesar Travel has enabled real-time stablecoin-to-RMB conversion for foreign tourists, improving settlement efficiency by 90%; in supply chain finance, stablecoin-based tokenization of accounts receivable has boosted SME financing efficiency by 40% and reduced default rates by 25%, creating a positive ecosystem of “licensed compliance + scenario implementation.”

III. Market Landscape: Massive Capital Migration Amid Domestic-International Divergence

The dual regulatory storm directly triggered a “feast and famine” effect and capital restructuring in the stablecoin market:

- Domestic market: USDT’s previous 90% dominance in the domestic OTC virtual currency market has been completely broken, with stablecoin trading volumes plummeting. Large amounts of capital have exited the gray stablecoin market, flowing instead to the digital yuan or compliant offshore financial instruments. Niche altcoins, due to slashed liquidity, face a wave of “delistings.”
- Global market: Nearly $6 billion in stablecoin funds have fled high-risk areas, with USDC accounting for over half. USDC supply on the Solana chain fell by 18.24%. Meanwhile, compliant-oriented PYUSD issuance grew by 50% against the tide, and stablecoins pegged to real world assets (RWA) such as US Treasuries increased in scale by 10%, from $33 billion to $36 billion, highlighting a trend of capital “fleeing leveraged speculation and embracing compliant yields.”
- Offshore ecosystem: Hong Kong has attracted many institutions such as Ant Group, Ping An Technology, and Standard Chartered to apply for stablecoin licenses. It is expected that in the next three years, over 50 mainland companies will issue stablecoins via Hong Kong, driving the cross-border payments market to surpass $1 trillion.

This regulatory storm is essentially a “separating truth from falsehood” in digital finance: domestically, criminalized governance safeguards the financial security bottom line; in Hong Kong, the compliance framework sparks innovation. Ultimately, this creates a parallel development model of “risk control” and “ecosystem innovation.” The second half of the stablecoin race has shifted from “printing speed competition” to “scenario adaptation, trust endorsement, and asset quality,” with China’s differentiated regulatory approach providing a new paradigm for global digital finance governance.