Trusts, Trustees, and Stablecoins: What Hong Kong’s New Stablecoins Ordinance Means for Trust Law

The rapid expansion of stablecoins has forced regulators to confront a fundamental private law question that predates digital finance: how should value be held, protected, and governed when it is entrusted to others? Hong Kong’s answer, set out in the Stablecoins Ordinance due to commence on 1 August 2025, is both innovative and strikingly orthodox. Rather than abandoning established legal tools, the Ordinance places trust law at the centre of its regulatory framework. In doing so, it signals that the challenges posed by stablecoins are not only technical or financial, but also deeply connected to long standing principles of asset segregation, fiduciary responsibility, and beneficiary protection.

My recent article in Trusts & Trustees examines how this new regime reshapes the relationship between stablecoins and Hong Kong trust law, and what it means for trustees and fiduciaries operating in an increasingly digital financial environment. The Ordinance introduces a licensing regime for issuers of fiat referenced stablecoins under the supervision of the Hong Kong Monetary Authority, guided by the familiar regulatory principle of same activity, same risk, same regulation. What distinguishes the Hong Kong approach is its reliance on trusts as a core consumer protection mechanism. Licensed issuers must maintain full reserve backing for their stablecoins, composed of high quality and liquid assets, and those reserves must be held on trust and segregated from the issuer’s own assets. This requirement ensures that stablecoin holders have a proprietary interest in a protected pool of assets, rather than a mere contractual claim against an insolvent issuer.

This structure has significant implications for private law. In practical terms, every holder of a licensed stablecoin becomes a beneficiary of a statutory trust. If an issuer fails, the reserve assets are insulated from the claims of general creditors and are available to meet redemption requests. Trust law is therefore deployed on a mass market scale, protecting potentially millions of users through a familiar equitable mechanism. This is an important reminder of the flexibility of trust law and its continuing relevance in modern financial regulation.

For trustees, the threshold question is whether stablecoins can be held on trust at all. Hong Kong case law has already provided clarity. In Re Gatecoin Ltd (in liquidation), the Court of First Instance confirmed that cryptocurrencies constitute property capable of being held on trust. Stablecoins, as a category of digital assets, fall comfortably within this reasoning. The Stablecoins Ordinance does not alter the law of property, but it reinforces the conclusion that properly regulated stablecoins are legally recognisable assets suitable for trust ownership. The more challenging issue is not classification, but the application of fiduciary duties to an asset that combines features of money, contractual rights, and technological infrastructure.

Trustees in Hong Kong are subject to a statutory duty of care and, for professional trustees, a heightened standard reflecting their expertise. Stablecoins present a distinctive risk profile. They are designed to avoid the extreme volatility associated with unbacked cryptocurrencies, yet they introduce counterparty risk, operational risk, and regulatory risk. The Ordinance fundamentally reshapes this analysis by requiring one to one reserve backing and by placing those reserves in a bankruptcy remote trust. This regulatory architecture transforms the nature of the asset from a speculative instrument into something closer to a regulated cash equivalent. From a fiduciary perspective, this matters. A trustee who holds an unregulated stablecoin would struggle to justify that decision in light of recent market failures, whereas a licensed stablecoin supervised by the Hong Kong Monetary Authority comes with regulatory assurances that can support a finding of prudence.

At the same time, stablecoins raise familiar trust law concerns in a new context. They do not generate income, which requires trustees to consider their impact on income beneficiaries and the duty of impartiality. Custody presents another challenge. Control over stablecoins depends on the secure management of cryptographic keys, and loss or theft can be irreversible. Trustees may therefore need to rely on specialist custodians and robust internal controls to meet their duty of safekeeping. These are not entirely new problems, but they require trustees to integrate technological competence into the performance of traditional fiduciary duties.

Hong Kong’s approach also reflects a broader international trend. Regulators in other jurisdictions, including the United Kingdom, are moving towards similar models that rely on asset segregation and fiduciary concepts to protect stablecoin holders. This suggests that trust law is becoming a key component of the regulatory infrastructure for digital finance rather than a peripheral concern. The wider lesson is that technological innovation does not render private law obsolete. On the contrary, Hong Kong’s Stablecoins Ordinance demonstrates how established trust principles can be adapted to manage new financial risks. Stablecoins may be new, but the legal foundations used to govern them remain firmly rooted in equity.

The author’s article can be found here. 

Charles Ho Wang Mak is a Lecturer in Law at the University of Bristol Law School.