Hong Kong’s Strict Stablecoin Framework Will Limit Derivatives Trading, Says DBS
DBS CEO Flags Regulatory Restrictions
Sebastian Paredes, CEO of DBS Hong Kong, said the city’s newly launched stablecoin regulatory framework will severely limit the use of stablecoins for onchain derivatives trading. His remarks, reported Friday by local outlet The Standard, highlight the growing tension between Hong Kong’s ambition to become a digital asset hub and the strict regulatory requirements it has imposed on stablecoin activity.
Paredes pointed to the framework’s stringent Anti-Money Laundering (AML) and Know Your Customer (KYC) obligations, which he said effectively restrict the potential for stablecoins in derivatives markets. While DBS will monitor developments, he emphasized that the bank’s strategy will instead focus on building broader stablecoin capabilities in Hong Kong rather than pursuing speculative trading use cases.
The comments came just weeks later than Hong Kong introduced its new stablecoin rules on Aug. 1, criminalizing the promotion of unlicensed stablecoins and creating a public registry of authorized issuers. Fewer than a handful of firms have been formally authorized so far, underscoring the hardy of navigating the new regime.
Investor Takeaway
Industry Reaction and ahead Market Impact
Criticism of the new framework has been swift. Market participants warned that the rules were harsher than expected, triggering double-digit losses for several stablecoin firms active in Hong Kong. Analysts note that while regulators aimed to establish trust, the unintended consequence has been reduced liquidity and uncertainty for projects viewking licensing.
The Securities and Futures Commission (SFC) itself warned that the speculative frenzy around license applications had elevated the risk of fraud. Rumors that major banks such as HSBC and ICBC were exploring stablecoin licenses circulated earlier this summer but later faded amid reports of pressure from mainland Chinese authorities to avoid the sector.
In ahead August, Beijing instructed local firms to stop publishing research or hosting events related to stablecoins, signaling a wider chill from the mainland. The developments suggest that Hong Kong’s stablecoin ambitions may be constrained not just by local regulators, but also by the broader political environment.
DBS’s Broader Digital Asset Push
Despite the restrictive stance on derivatives, DBS has been steadily expanding its digital asset offerings. The bank manages the U.S. dollar reserves for the Global Dollar (USDG) stablecoin and recently launched tokenized structured notes on the ETH blockchain. In partnership with Franklin Templeton and Ripple, DBS rolled out tokenized trading and lending services for institutional investors earlier this month, using the XRP Ledger.
DBS is also Southeast Asia’s largest bank, with assets of $620 billion as of last year, and its Hong Kong branch alone manages nahead $63.2 billion. Its size and credibility make it one of the most significant potential players in Hong Kong’s regulated stablecoin market, even as its CEO remains cautious about derivatives adoption under the new rules.
In late 2024, DBS unveiled a suite of blockchain-powered services for institutional clients, including over-the-counter crypto options and a system that uses blockchain to streamline government grant disbursements. This track record suggests that while derivatives may be off the table, DBS views tokenization and regulated stablecoin services as a core growth area.
Investor Takeaway
Future of Stablecoins in Hong Kong
Hong Kong’s stablecoin framework was designed to establish the city as a trusted digital asset hub while reducing risks from fraud and speculative trading. Yet ahead evidence suggests the rules could drive some firms out of the market entirely. Reports from Caixin claimed that Chinese firms active in Hong Kong might be forced to withdraw from crypto-related business, though the article was later removed.
Whether Hong Kong can strike a balance between investor protection and innovation remains uncertain. For now, institutions like DBS are prioritizing regulated, infrastructure-oriented services over high-risk trading. But without a more flexible regulatory environment, Hong Kong risks losing momentum to competitors such as Singapore, Dubai, and Abu Dhabi, which have actively courted stablecoin projects with more adaptive frameworks.
The next 12–18 months will reveal whether Hong Kong’s restrictive framework cements its reputation as a compliance leader or limits its role in shaping the global stablecoin market.
