Cover Story: Stablecoins Face Reality Check as Tech Gaps and Policy Firewalls Mount

A surge in policymaking and market volatility around stablecoins has put these digital assets at the center of financial debates worldwide, as regulators from the U.S., Hong Kong, China, and beyond grapple with oversight of this rapidly evolving sector. Stablecoins are cryptocurrencies pegged to traditional fiat currencies to maintain price stability, distinguishing them from more volatile cryptos like Bitcoin. By July 25, 2025, stablecoins had a global market value of $265.2 billion, with Tether’s USDT comprising 62% ($163.9 billion) of the total market [para. 1][para. 2][para. 3].

In July 2025, U.S. President Donald Trump signed the Genius Act, allowing U.S. banks to issue stablecoins—an unprecedented move. Hong Kong is also setting up a licensing framework for stablecoin issuers to be implemented in August. However, regulatory activity generated market speculation, prompting warnings from officials like Eddie Yue (HKMA CEO), who cautioned about a potential speculative bubble. The Bank for International Settlements (BIS) echoed these concerns, stating stablecoins lack key qualities of traditional money, such as integrity and flexibility, due to the absence of a central issuer and supply controls [para. 4][para. 5][para. 6].

China’s approach is divided: some officials push for a yuan-pegged stablecoin to counter U.S. dollar primacy, while others prioritize easing capital controls and yuan convertibility. Notably, 99% of stablecoins are U.S. dollar-pegged, reinforcing dollar dominance and raising risks for monetary sovereignty in smaller economies [para. 7][para. 8]. Recent events like the $1.8 billion collapse of crypto platform DGCX Xinkangjia have intensified scrutiny, leading regulators in China to warn against fraudulent schemes and restrict stablecoin promotions [para. 9].

Hong Kong, aiming to be a global crypto hub, has slowed its rollout of stablecoin licenses. On July 30, the HKMA said no licenses would be issued before early 2026, contrary to prior expectations. Only a limited number of licenses are expected in the initial round, favoring established financial institutions over tech firms. The HKMA mandated identity verification for each user, effectively excluding many non-financial companies, and focusing entry on global and local financial heavyweights [para. 10-18].

Hong Kong’s stablecoins will likely be pegged to convertible currencies like the U.S. or Hong Kong dollar, but some policymakers see a future for a yuan-pegged stablecoin as a tool for Chinese financial ambitions. Hong Kong's offshore status positions it as a testbed for such innovations [para. 19][para. 20].

China, however, faces a key vulnerability: issuing a global yuan stablecoin requires a trustworthy public blockchain, which it currently lacks. Meanwhile, dollar-based stablecoins have expanded rapidly by leveraging established public blockchains like Ethereum and Tron. Security remains a significant challenge: in early 2025, 344 major crypto incidents caused $2.47 billion in losses. Experts cite persistent gaps in blockchain security and compliance tools compared to traditional finance [para. 21-29].

Despite risks, stablecoins are integral to the burgeoning market of tokenized real-world assets (RWAs). As of July 30, 2025, on-chain RWAs reached $25.1 billion. Innovations like 24/7 trading of tokenized U.S. equities via platforms like Robinhood and Kraken lower investment barriers and increase accessibility. Stablecoins also play practical roles globally, from hedging inflation in Argentina to circumventing sanctions in Russia and Iran. Yet, experts warn against overhyping the technology, noting that regulatory constraints and unresolved technical limitations could minimize projected efficiency gains [para. 30-43].