Why haven't the most Web3-savvy people obtained the first batch of stablecoin licenses?

Original Author: Shao Jiadian Lawyer

After much anticipation, Hong Kong’s first stablecoin issuer license has finally been granted. The first batch of licensees are not the ones who tell the most compelling stories, but those who best align with regulatory logic and can meet the requirements for fund security and risk control. This outcome is not surprising in itself. Hong Kong’s regulatory framework explicitly includes stablecoins under the “fiat-referenced stablecoin” category, essentially managing them as “money-related activities.” Once in this category, who can issue is no longer a market competition issue but a credit access issue. Under this premise, the licensing process is more about answering a core question: in Hong Kong, who is qualified to map fiat currency on-chain? The answer is clear: entities capable of meeting banking-level compliance and risk management standards.

Many people are accustomed to understanding stablecoins through “technical capabilities,” but from a regulatory perspective, the core of stablecoins has never been technology. Instead, it is the management of reserve assets, redemption arrangements, and risk controls. 100% reserves, instant redemption, asset segregation—these requirements are fundamentally established mechanisms already mature within traditional finance. Stablecoins simply transfer this set of mechanisms onto the blockchain. Meanwhile, once widely used, stablecoins will naturally acquire “currency-like” properties. If problems arise, the impact will not be limited to a single project but could spill over into the payment system and even the broader financial system.

Under this premise, regulators will not grant issuance rights to entities lacking a comprehensive risk control system. Therefore, this round of licensing is not about choosing “who understands Web3 better,” but about selecting “who is most controllable.”

What the First Batch of Licenses Signifies

Breaking down this licensing process further reveals a more valuable insight: the core characteristics of the licensees are not their storytelling ability but their strong credit foundation, capital strength, compliance systems, and operational capabilities. This is not about selecting “new species,” but about choosing “those capable of building infrastructure.”

From a regulatory logic, stablecoin issuers need to meet requirements that essentially resemble a “scaled-down bank” or “similar deposit-taking institution.” Whether it’s 100% reserves, asset segregation, instant redemption, or anti-money laundering and risk management systems, these are not lightweight requirements that a small entity can bear. More critically, these are not just formalities; they must be continuously maintained in actual operations. This means issuers must not only “obtain a license” but also sustain a high-cost compliance and risk management system over the long term.

This leads to two direct outcomes. First, the threshold for issuance is substantially raised. The previous pathways of creating “pseudo-stablecoins” through structural design are unlikely to continue under this system. As soon as a stablecoin is recognized as being aimed at the public and anchored to fiat currency, it inevitably falls within the regulatory scope. Second, issuance capacity will remain concentrated. Once entering a banking-level regulatory environment, scale effects become very pronounced. Only institutions with sufficient capital, compliance ability, and long-term operational capacity can sustain themselves at this level.

In other words, this layer is not only difficult to enter but also a “heavy asset, heavy compliance” business once inside.

But even more noteworthy is that the commercial attributes of this issuance layer are also being significantly diminished. Many people tend to see stablecoin issuance as a high-profit business, but structurally, this is not entirely accurate. Issuing stablecoins fundamentally depends on reserve asset yields and the marginal effects of scale. Under regulatory requirements for 100% high-liquidity reserves, the profit margin is compressed. In other words, issuing stablecoins is more like “building infrastructure” rather than a direct profit center.

From this perspective, participation by banks or large financial institutions aligns with their usual logic: controlling infrastructure to handle larger capital flows, rather than relying solely on issuance for profit. This explains why focusing solely on “whether they can issue coins” is no longer very meaningful. The real market dynamic is determined by how these issued stablecoins will be used next.

The Real Change Happens in “How Funds Flow”

If we dissect stablecoins further, a crucial but often overlooked point emerges: stablecoins themselves do not create value; the real value is generated by their circulation across different scenarios. Over the past few years, USDT’s rise to prominence was not because it was “well issued,” but because it became the default settlement unit. Once an asset becomes a settlement unit, it embeds itself into nearly all transaction pathways.

Under the current market structure, this “circulation” has relatively clear endpoints.

The most typical are trading and settlement scenarios. Whether on centralized exchanges or OTC markets, stablecoins are now de facto pricing benchmarks. Users buy and sell assets with stablecoins, and platforms provide matching and liquidity services, earning transaction fees. This model has been validated over a long period and is difficult to replace in the short term.

Secondly, cross-border fund flows. In scenarios like corporate fund transfers, trade settlements, and personal cross-border transfers, stablecoins have become a practically usable tool. Their advantage lies not in “greater compliance” but in efficiency and cost. When traditional channels involve time costs or friction, stablecoins offer an alternative path.

Further down are merchant payments. Especially in cross-border e-commerce and some Web3-native businesses, stablecoins are already being used as a payment method. These often involve payment service providers or OTC channels converting stablecoins into fiat currency to complete the payment cycle.

Finally, there are asset-related applications, such as RWA (Real-World Asset) directions. Once assets are on-chain, a stable valuation and settlement tool is needed. Stablecoins are almost naturally suited for this, whether for yield distribution or asset transfer.

Looking at these scenarios together reveals a commonality: stablecoins are not isolated products but embedded as “standard units” within existing financial activities.

Business Division Around Stablecoins Has Already Formed

Further dissection shows that a relatively mature business structure has already formed around stablecoins, and these structures are not just theoretical but operational.

On the asset side, custody is handled by professional custodians and licensed platforms responsible for managing user assets or related reserves. This step usually involves high compliance thresholds due to asset security and segregation concerns.

On the user side, wallet systems handle asset storage and transfer. This includes exchange-provided custody wallets and self-custody wallets controlled by users. Both modes have established stable usage habits.

At the trading level, centralized exchanges remain the primary liquidity providers, supported by market makers to maintain depth. This structure is critical in stablecoin systems because it directly affects the efficiency of fund flows.

In deposit and withdrawal, conversions between fiat and stablecoins mainly rely on OTC markets and some compliant channels. Although regional compliance levels vary, this layer has already formed a relatively stable operational pathway.

These segments are not isolated but form a complete fund flow pathway. Stablecoins’ role is to connect these previously fragmented links. That’s why, after licensing, changes will not occur at a single point but in the reshaping of the entire pathway.

The True Turning Point Is Not Licensing, But Positioning

If we refocus on the licensing itself, what it truly changes is not “who can issue stablecoins,” but rather that it formally brings a previously gray-area activity into the regulatory framework. Before, stablecoins were more of a “trial-and-error” structure. Different projects could achieve similar functions through various paths, with regulatory boundaries being somewhat ambiguous. Many activities evolved gradually through trial and error.

But after this licensing, the situation fundamentally changes. Issuance is explicitly included in the licensing system, with clear requirements for reserves, redemption, and fund segregation. Stablecoins are no longer products that can be arbitrarily designed; they are financial arrangements that must operate within a defined framework.

Once rules are clear, market division of labor becomes fixed. The issuance layer is confined to a very small number of entities; the circulation, settlement, and application layers built around issuance then have more room to grow. This is why, after licensing, the market will not shrink but become more layered. The real change is not about “whether there is an opportunity,” but “at which layer the opportunity exists.”

In practice, this layering has already begun to manifest. For example, some projects can smoothly connect to banking and clearing channels, while others remain stuck at critical points. These differences are not only apparent after operations start but are determined at the initial design stage. Once stablecoins enter a regulatory framework, all arrangements around fund flows are scrutinized under the same logic: where does the money come from, who processes it, and where does it go? If any link fails, the entire pathway becomes difficult to scale.

So returning to the initial question: the significance of this stablecoin licensing is not about a particular institution but about defining a boundary. Inside this boundary are scalable pathways; outside, structures become increasingly difficult to establish. To summarize in one sentence: stablecoins have shifted from “products that can be experimented with” to “foundations that must be properly designed.” The projects that succeed will not necessarily be the most technically advanced or the earliest entrants but those who have chosen the right position and built the right structure from the start.