In June 2025, a fraudulent platform masquerading as the "Dubai Gold and Commodities Exchange" called Xin Kang Jia used USDT and a daily interest rate of 2% as bait to orchestrate a stablecoin scam worth 18 billion yuan that affected 2 million people. After absconding with the funds, the actual controller Huang Xin arrogantly declared he was "taking away wealth that doesn't belong to your intelligence level" and used coin mixing technology to transfer massive assets overseas, evading regulatory tracking and causing enormous impact on victims and the market.

This case serves as a mirror, reflecting the challenges ordinary investors face behind the development boom of stablecoins. While stablecoins attract increasing attention from regular people with their characteristic of being "pegged to fiat currencies with stable value," the underlying potential risks are often overlooked. For most individual investors lacking professional financial knowledge, what do stablecoins actually represent? As blockchain technology brings opportunities for financial innovation, what challenges does it face? These questions concern the vital interests of every ordinary person who might encounter stablecoins.

On July 23, Eddie Yue, Chief Executive of the Hong Kong Monetary Authority (HKMA), noted that stricter regulatory requirements would inevitably limit the possibility of significant expansion of stablecoin business in the short term. However, since regulated stablecoin business is still in its infancy, being strict first, walking steadily, and then appropriately relaxing based on practical experience is more conducive to the sustainable and healthy development of the market and issuing institutions than starting too loosely and then cleaning up chaos. The HKMA will also ensure the necessity and reasonableness of various regulatory requirements, creating space for issuing institutions to establish themselves and grow.

On August 14, the HKMA and the Securities and Futures Commission (SFC) issued a joint statement, calling on the public to remain cautious, conduct in-depth analysis of relevant information, and avoid making irrational investment decisions based solely on market speculation or price momentum. The public should remember that making thoughtful and well-founded decisions in volatile environments is crucial for risk reduction.

Katharine Fei, partner at King & Wood Mallesons and lecturer at the University of Hong Kong Faculty of Law, told reporters that stablecoins are essentially payment tools, not investment products that provide returns. For users with cross-border payment or "on-chain" digital asset trading needs, moderate use of stablecoins is an option.

Fei stated that for users who don't understand related potential risks, technology, or lack financial knowledge, blind participation in stablecoin-related activities is not recommended. Understanding basic principles, uses, and potential risk points helps users reasonably use this payment tool while protecting their own interests, without feeling compelled to get involved due to market hype.

**Reshaping Payment Ecosystem: Value and Challenges**

Li Ming, Executive President of the Hong Kong Web3.0 Standardization Association, explained that the application of stablecoins in inter-financial institution settlements and B2B cross-border trade essentially reconstructs the traditional financial "information flow - capital flow - logistics" coordination model through "digitized value carriers + blockchain trusted networks," improving efficiency and reducing costs. Meanwhile, through smart contracts and on-chain transparency, it reduces fraud, operational, and settlement risks while supporting efficient regulation.

Research from China Merchants Bank shows that compared to traditional SWIFT systems that require multiple intermediary clearings with single transaction fees typically reaching $5-20 and settlement cycles of 1-5 business days, stablecoins can achieve instant settlement without intermediaries through blockchain peer-to-peer mechanisms. Single transaction fees can be controlled at a few cents to several dollars, supporting 24/7 trading.

Additionally, Joseph Cheung, co-founder and CEO of CipherBC, a multi-party computation (MPC) digital asset custody solution provider, noted that stablecoins have advantages in enhancing financial inclusivity and anti-inflation properties.

Cheung illustrated that some countries face high inflation and low bank account coverage, with many residents lacking bank accounts entirely. In this context, stablecoins provide local residents with convenient access to currencies like the US dollar.

WINSS research shows that Turkey's high inflation rate in 2023 drove residents to seek asset preservation methods. Stablecoins gained attention as anti-inflation tools, with 52% of the 18-60 age population investing in cryptocurrencies over nearly 18 months, of which 33% invested in stablecoins. In December 2023, a 49% inflation rate meant that holding 9,325 lira saw its real value shrink to 6,258 lira due to inflation, while holding 500 USDC maintained its $500 value, now convertible to 13,750 lira.

Despite stablecoins' numerous advantages in cross-border remittances and broad personal application potential, Amy Zhang, APAC Head at Fireblocks, noted that stablecoin peer-to-peer payments at the retail level are still difficult to popularize, mainly because users must go through a series of cumbersome preliminary coordination and technical operations to conduct a single stablecoin transfer.

Zhang explained that first, both parties must agree on the stablecoin type (such as USDC or USDT) and the underlying blockchain network (such as Solana). Second, they need to accurately provide and verify lengthy wallet addresses. Most critically, the transaction initiator must ensure their wallet contains the corresponding blockchain's native tokens as "gas fees" to pay network transaction fees. This series of complex operational procedures creates extremely high usage barriers for ordinary users lacking professional knowledge.

**Building Stablecoin Security Lines**

The frequent occurrence of stablecoin fraud cases also exposes risk hazards in their development process. Zhang emphasized that due to extremely liquid assets, it's difficult to timely report fund flows. Highly liquid stolen funds may have already deeply circulated into the ecosystem, making actual recovery very difficult. In contrast, when encountering bank wire or credit card fraud, traditional financial channels usually have more comprehensive insurance and consumer protection mechanisms, providing greater space for rights protection.

For example, judicial interpretations by the Supreme People's Court of China clearly state that when fake card theft or online theft transactions occur, if credit card holders request issuing banks to return deducted overdraft principal, interest, and penalty fees and compensate for losses based on credit card contract legal relationships, courts will support this according to law; courts will not support issuing banks' requests for credit card holders to repay overdraft principal, interest, and penalty fees.

Addressing these issues, Fei believes that Hong Kong's "Stablecoin Ordinance" (the Ordinance) implemented on August 1 requires Hong Kong stablecoin issuers to operate under licenses, stablecoins must have 1:1 support from high-quality reserve assets, and regular information disclosure. These provisions can effectively increase transparency and reduce fraud opportunities to some extent.

The Ordinance shows that institutions applying for licenses must be entities incorporated in Hong Kong with identifiable management and physical offices. This means that when problems occur, regulatory authorities and law enforcement can clearly identify responsible parties for investigation, accountability, and even prosecution, avoiding situations where fraudsters "flee" without being traceable.

Furthermore, Fei believes user identity verification and anti-money laundering mechanisms help ensure transparency of fund sources and destinations.

The Ordinance shows that licensed institutions must comply with anti-money laundering and anti-terrorism financing requirements as strict as traditional financial institutions. This includes user identity verification to confirm users' real identities and recording and monitoring transactions. When law enforcement needs to track stolen funds, licensed institutions are obligated to provide real-name information and transaction records of involved accounts, providing crucial clues for fund tracing.

**From Reserve Transparency to Technical Security**

Tether (USDT) has long been questioned for transparency issues regarding its reserve assets. A 2019 investigation by the New York Attorney General's Office revealed that approximately 26% of USDT's assets were not fully backed by US dollars but were "air coins," significantly deviating from its previously claimed 1:1 US dollar reserve commitment.

Although payment-type stablecoins are based on 1:1 fiat currency reserves with instant redemption capability, Cheung noted that stablecoins still face depegging risks, where the market trading price persistently and significantly deviates from its preset pegged value.

He pointed out that stablecoins' 1:1 redemption mechanism faces risks, especially when reserve assets include commercial paper and other assets with higher default risks. When encountering liquidity shocks, this mechanism becomes difficult to maintain.

Additionally, Cheung noted that insufficient market confidence triggering large-scale redemptions could also cause stablecoin depegging risks.

For example, Silicon Valley Bank's collapse became the largest US bank failure in over a decade. Despite multiple crypto institutions claiming no risk exposure, USDC issuer Circle Internet Corp. confirmed it had $3.3 billion in cash reserves stuck at the bank. This news triggered market panic, causing massive runs and net redemptions of USDC. Its price depegged, dropping to approximately $0.88 at its lowest.

In response, Li Ming suggested mandatory disclosure of reserve asset composition by issuers and acceptance of independent audits to improve transparency. Meanwhile, establishing dynamic reserve systems to adjust high-liquidity asset ratios based on market volatility. Additionally, regular run stress tests should be conducted to simulate redemption capacity under extreme market conditions, ensuring financial stability and preparing emergency plans in advance.

The blockchain technology behind stablecoins brings transformation to financial market infrastructure but also presents new challenges. Beyond financial risks, Cheung noted that technical issues like smart contract vulnerabilities will exist for certain periods.

Li Ming explained that smart contracts with code flaws might be exploited by hackers for attacks, leading to stablecoin asset theft or contract function abnormalities, such as reentrancy attacks and overflow vulnerabilities. Reentrancy attacks exploit contract flaws to repeatedly call functions to steal funds; overflow vulnerabilities occur when data exceeds preset ranges and overwrites memory, potentially causing program crashes or being exploited by attackers to execute malicious code.

For instance, in 2023, serious vulnerabilities in Vyper smart contract compiler versions 0.2.15, 0.2.16, and 0.3.0 caused reentrancy lock defense failures in multiple DeFi projects (including Curve Finance), putting over $100 million in crypto assets at risk. As a Vyper language application, multiple stablecoin pools under Curve Finance were attacked, causing approximately $25 million in losses.

Li Ming suggested that before stablecoin issuance, professional third-party institutions should inspect underlying code, focusing on identifying reentrancy attacks and overflow vulnerabilities. Second, establishing "vulnerability response funds" to encourage technical experts specializing in finding security issues (known as "white hat hackers") to proactively report vulnerabilities for timely fixes.

From a long-term personal asset planning perspective, Zhang noted that asset inheritance planning is a commonly overlooked but very important issue.

She explained that holders typically control wallet passwords and mnemonic phrases, enabling autonomous management and access to related assets. However, when accidents occur, how inheritors or beneficiaries can legally and smoothly obtain these crypto assets becomes an urgent concern.

**Strict Regulation and Innovation Promotion**

Stablecoins play important roles in promoting financial development. Li Ming stated that stablecoins help promote digital payment interoperability between Hong Kong and international markets, enhance offshore RMB status, form onshore-offshore payment closed loops, and boost Hong Kong's international financial center influence.

Li Ming explained that at the payment interoperability level, relying on compliant offshore RMB stablecoins to build low-cost settlement channels for cross-border trade and investment, combined with smart contracts for real-time clearing, reduces time and cost of traditional currency exchange. Through connection with mainland digital RMB pilot scenarios, it helps form "onshore-offshore" digital payment closed loops.

Undoubtedly, this vision requires a comprehensive regulatory framework as foundational support. Cheung noted that while Singapore introduced regulatory guidance in 2023 and the US has explored through related bills, the former lacks formal legal status while the latter suffers implementation delays due to fragmented regulatory systems. In contrast, Hong Kong's "Stablecoin Ordinance" makes it the world's first jurisdiction to specifically manage stablecoins through an "independent legislation + licensing system" model, marking a milestone achievement.

Hong Kong's "Stablecoin Ordinance" stipulates minimum registered capital of HK$25 million for stablecoin issuers, with reserve assets needing 100% coverage of circulation. Cheung believes requirements regarding reserve assets in Hong Kong's "Stablecoin Ordinance" effectively avoid risks similar to Tether's excessive holdings of commercial paper, institutionally enhancing stablecoin security.

Additionally, the Ordinance requires compliant redemption requests to be processed within one business day of receipt. This T+1 timeline standard is stricter than many existing stablecoin products in the market. Taking Tether as an example, its service terms reserve the right to delay or refuse redemption operations, while Hong Kong's regulatory framework transforms timely redemption from issuer discretion into legally binding obligations.

Cheung pointed out that the redemption mechanism established in Hong Kong's "Stablecoin Ordinance" fully demonstrates regulatory authorities' high attention to liquidity management. This series of comprehensive institutional arrangements makes Hong Kong the most institutionalized stablecoin market in the Asia region.

However, while affirming institutional building achievements, Cheung also noted that Hong Kong's "Stablecoin Ordinance" regulatory compliance requirements are "heavily equipped." How to achieve balance between strict regulation and financial innovation is a question worthy of deep consideration.