Tokens, Currencies, Coins, Assets… What the Heck Are We Talking About Anyway?

If the 20th century was about building highways for cars, the 21st is about building highways for money. After a long period of building foundations for institutional-grade capability, blockchain has finally reached a point of technological and business viability. In August, Wyoming flipped the switch on one of the first government-run lanes on the blockchain From Cattle to Code Wyoming has long been known for open plains and open skies — but now it’s pioneering open finance. In August 2025, the state launched the Wyoming Stable Token (FRNT - formerly WYST) on Avalanche, marking the first U.S. state-issued stablecoin fully backed by short-term Treasury bills and managed under a transparent, legally defined framework. Each FRNT token represents a digital dollar substitute:1 token = 1 US dollar, backed by state-managed reserves. Unlike privately issued stablecoins, FRNT isn’t a speculative instrument. It’s a public utility: programmable, auditable, and backed by the full credibility of the State of Wyoming. The logic is simple but revolutionary: if states are responsible for monetary integrity within their borders, why shouldn’t they participate in digital money issuance too? Compliance by Design For regulators, the most important story here isn’t the coin, but rather the architecture. The Avalanche network was selected not because it is the loudest or most popular chain, but for its modular performance characteristics and mature tooling.  In July 2025, Wyoming showcased instant vendor payments in a state pilot using Hashfire, an Avalanche-based platform that ties authenticated contracts to programmable payouts in FRNT, cutting payment timelines from weeks to seconds. A month later, the Wyoming Stable Token Commission announced the FRNT mainnet launch, with Avalanche among the supported networks and subsequent distribution expanding to seven blockchains.  Hashfire provides the contracting and payment automation layer while FRNT provides a state-issued, over-collateralized digital dollar that can move on public chains with auditability. Rather than relying on bespoke, closed rails, Wyoming anchored the token to public infrastructure and paired it with a workflow layer that enforces approvals and creates a tamper-evident audit trail.  Avalanche is an ideal platform for government payments due to its practical advantages: finality in seconds, low settlement costs, and an energy-efficient proof-of-stake design. Furthermore, its multi-chain issuance capability prevents vendor lock-in and fosters greater interoperability, making it suitable for production-grade use. The technology doesn’t evade regulation; it operationalizes it through transparent ledgers, rule-driven disbursements, and public reporting. And that’s a blueprint more states should be watching. The Wyoming Model Since 2019, Wyoming has passed more than 30 blockchain-related laws. It created Special Purpose Depository Institutions (SPDIs) to give digital-asset companies access to banking services, established legal definitions for digital property, and built a clear framework for stable token issuance through the Wyoming Stable Token Act. The FRNT project specifically is being led day-to-day by the Wyoming Stable Token Commission (WSTC), which was established more than two years ago through the Wyoming Stable Token Act. The state government is backing the WSTC with a budget of $5.8M. FRNT is the natural culmination of that work — the bridge between state treasuries and digital finance. The token is fully redeemable, transparently backed, and non-fractional. Monthly audits are mandated, the State Treasurer oversees issuance, and every FRNT transaction settles on chain, meaning jurisdiction and compliance are crystal clear. This alignment of law, technology, and finance is rare in the blockchain world. It shows that public institutions can innovate within existing statutes, rather than outside them. Why It Matters for Policymakers Federal and state agencies have spent years grappling with one fundamental question: How do we bring digital assets under the umbrella of the existing financial system?  Wyoming’s approach offers a live blueprint. By leveraging Avalanche’s L1 architecture, the state created a sovereign, rule-abiding financial system within a broader network. A sandbox where state and federal compliance can coexist with innovation. In a post-CBDC debate world, FRNT is a political middle ground. It avoids the surveillance fears tied to central bank digital currencies while delivering the efficiency gains of programmable money. It’s the regulatory equivalent of having your cake and auditing it too. Federal regulators can view it as a “federalist pilot.” A controlled, transparent testbed that respects both state sovereignty and national compliance frameworks. FRNT could eventually integrate with FedNow or Treasury-led payment rails, creating a unified but flexible model for digital government money. The Broader Policy Context Across the United States, momentum is building toward this vision, but progress remains uneven. Texas is investigating blockchain applications for land registries and oil royalty management. California’s Department of Financial Protection and Innovation has convened a Digital Financial Assets working group to study consumer protections and licensing frameworks. Florida has piloted blockchain programs for vehicle titles and state payments. Illinois has explored distributed ledgers for Medicaid record-keeping and benefits tracking. There are important steps; but so far, they’re isolated experiments. What Wyoming has accomplished with FRNT and Avalanche is not just another pilot, it is operationalization. It is the transition from theory to production, built on sound policy and proven infrastructure. FRNT is policy that works, and code that proves it. As the federal conversation evolves, three priorities will define the next stage of U.S. blockchain regulation: standardization, transparency, and sovereignty.  Standardization will ensure interoperability between public and private systems. Transparency will guarantee that citizens and regulators can verify how digital assets move, without compromising individual privacy. And sovereignty will allow states, agencies, and regulated enterprises to retain control over their infrastructure and data. AvaCloud’s model of sovereign, customizable Layer-1 blockchains aligns naturally with all three. Conclusion The FRNT model demonstrates that public institutions can issue stablecoins without handing over control to private companies, and that transparency can be built into the code, not just the oversight process. Also, FRNT shows that states can lead in digital transformation without waiting for Washington to act. FRNT moves money faster, while also moving public finance into the future. Wyoming didn’t just launch a stablecoin: it launched a model for digital statecraft.

On July 18, 2025, President Trump signed into law the GENIUS Act, the first U.S. regulatory framework for payment stablecoins. The law establishes a dual federal–state regime for stablecoin issuers, requires strict reserve backing, provides for redemption rights and sets rules for foreign issuers operating in the United States.  It also introduces a new category of intermediary - the Digital Asset Service Provider (DASP) - and spells out obligations for these entities.  Importantly, certain activities are excluded from the definition of DASP, in recognition of the difference between providing infrastructure and acting as an intermediary.  We have discussed this overarching point at some length in our first submission to the SEC Crypto Task Force and expanded on the “nature of the activity” test in our second submission.  This distinction between infrastructure providers and regulated intermediaries is important for the GENIUS Act and beyond. How DASPs are defined Under the GENIUS Act, DASPs are defined as entities that: Exchange digital assets for money  Exchange digital assets for other digital assets Transfer digital assets to a third party Act as digital asset custodians Provide financial services related to digital asset issuance These categories line up with various acknowledged types of intermediaries, including from the 2019 Guidance issued by FinCEN on money services business activities in convertible virtual currencies.  The federal securities, commodities and banking laws all require equivalent activities to be done in a regulated entity. What DASPs are not Congress recognized that certain activities are not those of an intermediary and excluded them from the definition of DASP in the GENIUS Act.  In particular, the DASP definition excludes:  a distributed ledger protocol; developing, operating, or engaging in the business of developing distributed ledger protocols or self-custodial software interfaces; an immutable and self-custodial software interface; developing, operating, or engaging in the business of validating transactions or operating a distributed ledger; or participating in a liquidity pool or other similar mechanism for the provisioning of liquidity for peer-to-peer transactions. These exclusions are comparable to the distinctions drawn by FinCEN about money services business activities, as well of those of some international financial regulators with respect to their intermediaries.  They reflect an understanding that providing infrastructure - such as deploying hardware, developing software, or providing communications and data - is not the same as offering regulated activities. Both of our submissions to the SEC Crypto Task Force highlighted this same principle: infrastructure that enables transactions by individual actors should not be treated the same as intermediaries that solicit or execute them on other actors’ behalf, or custody the assets.  Our second submission argued for a “nature of the activity” test that focuses on what a firm does, not the technology it builds or deploys.   Why it matters – the growth of tokenization We have long advocated for a sensible, workable token classification that recognizes the nature of the asset as paramount, including through many comment letters to regulators and other authorities around the world.  With the ongoing rise of tokenization of “real world assets” such as regulated financial instruments, we expect to see more regulated intermediaries become involved on a global basis.  In addition to common US intermediaries like broker-dealers, exchanges, FCMs and banks, this will include European CASPs and MiFID intermediaries, those regulated by the Japan FSA, the Korean FSC, the Monetary Authority of Singapore, the Hong Kong SFC and the UK FCA as well as many other financial regulators around the world as and when their regulatory regimes come on stream. In all these jurisdictions, the distinction between offering regulated activities and providing  infrastructure will grow in importance as more assets are tokenized on blockchains and more transactions are conducted via smart contracts.  This dividing line is relevant regardless of whether the network or application is centrally controlled or distributed and permissionless.    Exclusions like those in the GENIUS Act are a key milestone for crypto policy by helping regulators distinguish between intermediaries that offer services to others and the providers of infrastructure.  The text gives market participants greater clarity, sets a precedent for future legislation and rulemaking, and gives support to common sense notion that technology infrastructure should not be regulated like financial middlemen.

We are grateful for the expertise of Urszula McCormack and Grace Qiu of King & Wood Mallesons on the Hong Kong law aspects of this post. Our embrace of 2025 as “the Year of the Stablecoin” continues. Previously, we compared emerging regulation in the UK and the US as well as the EU and the US. Now we turn our attention halfway around the world to look at Hong Kong as compared with the US. If you read our previous notes, you will already be familiar with the US points. On July 18, President Trump signed into law the long awaited the Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act, establishing the first regulatory framework for so-called “payment stablecoins” (seemingly just about any stablecoin). Hot on the heels of this development, the Hong Kong Stablecoins Ordinance (Cap. 656) (Stablecoins Ordinance) came into effect on August 1st. Hong Kong’s banking regulator - the Hong Kong Monetary Authority (HKMA) – is the primary licensing body and regulator for stablecoins issuers and has issued the following guidance: Guideline on Supervision of Licensed Stablecoin Issuers” (Supervision Guideline). Guideline on Anti-Money Laundering and Counter-Financing of Terrorism (For Licensed Stablecoin Issuers) (AML/CFT Guideline). Collectively, these three documents comprise the regulatory framework for the regulation of issuers and their “specified stablecoins” (currently, stablecoins linked to any official currency).  Understanding the differences between the Hong Kong and US approaches to regulating stablecoins provides insights not just for issuers, but for global market design and those thinking broadly about the potential impacts of a world full of stablecoins in multiple currencies. We briefly compare and contrast key aspects of the two regimes and suggest what this means in practice. Scene Setting Both regimes regulate the issuance of stablecoins and the issuers and intermediaries who support them. In Hong Kong, the regulation of the licensing and conduct of intermediaries remains with their primary regulators (e.g., the Securities and Futures Commission (SFC) regulates multiple financial services and “virtual asset” (i.e., crypto) intermediaries).  We recently commented on consultations by the Hong Kong regulators concerning the regulation of virtual asset dealers (e.g., market makers) and virtual asset custodians.  The US does not yet have a comprehensive federal regulatory regime for crypto-assets or the associated intermediaries. In Congress, the House of Representative has passed the CLARITY Act, which would provide such a regime.  However, the Senate has yet to pass legislation on the topic, although the Senate Banking Committee has provided a discussion draft and request for information.  The relevant regulators, the Commodity Futures Trading Commission and the Securities and Exchange Commission, have each started the information gathering process that is a precursor to rule making.  We have submitted proposed frameworks for rule-makings by the CFTC and the SEC to cover intermediaries’ activities with respect to crypto-assets, specifically protocol tokens. The two stablecoin frameworks start with similar definitions of stablecoins:  essentially those fiat-denominated tokens that can be used in payments.  In Hong Kong, the definition of “specified stablecoins” also extends to stablecoins that reference “units of account” or “stores of economic value” specified by the HKMA. While the HKMA has not specified any as of the date of this post, we consider that the Hong Kong regime may, in the future, extend to stablecoins that reference physical commodities like gold. In the US, stablecoins linked to other assets are left to other regulation.  We Owls have explained how regulation of these other assets might work, including to the SEC Crypto Task Force in our April 23 submission.  In Hong Kong, several exemptions apply, including assets that are “securities”, leaving open the prospect of stablecoins being regulated under different regimes based on the legal structure of the asset, an approach we have long endorsed.  Verdict: For now, Hong Kong is somewhat ahead of the US in terms of comprehensive intermediary regulation but on the remaining points the two regimes are aligned. Let’s dig a bit into the details, comparing and contrasting the two approaches. Both include the requirement that issuers maintain 1:1 backing of their stablecoins with high-quality, liquid reserve assets (essentially cash and cash equivalents), and standards for who may issue a stablecoin, redemption rights, disclosures, and custody of the backing assets.   Keeping It In Reserve In Hong Kong, an issuer must hold reserve assets (referred to as “eligible assets”), which include the following:  Cash. Bank deposits with a term of no longer than three (3) months. Marketable debt securities issued or guaranteed by a government, central bank, public sector entity etc that have residual maturity of no longer than one (1) year that meet certain criteria (e.g. calculation of credit risk). Cash receivable from overnight reverse repurchase agreements with minimal counterparty risk, collaterized by marketable debt securities.  Investment funds that invest in the assets set out above; where such investment funds are set up for the sole purpose of managing the reserve assets of a licensee. Other types of assets which are acceptable to the HKMA. Tokenized representations of the eligible assets.  In the US, an issuer’s stablecoins must be backed up one-to-one by eligible instruments, such as the following: US currency, demand deposits or deposits held at Federal Reserve Banks. Treasury bills or bonds with a maturity of 93 days or less. Funding secured through a repurchase agreement backed by T-bills and cleared at a registered Central Clearing Agency (CCA). Securities issued by a registered investment company or other money market fund. Any similarly liquid federal government-issued assets approved by the issuer’s regulators. Tokenized versions of eligible instruments that comply with applicable laws. Both jurisdictions require that the reserves be segregated and not commingled with the issuer’s operational funds. In Hong Kong, reserve asset pools for each type of stablecoin (e.g., for different currencies) must also be segregated from other reserve asset pools, and adequately protected against claims by other creditors of the licensee. Verdict: Overall aligned, with in-principle greater flexibility in Hong Kong due to the slightly wider range of permitted backing assets. Both regimes also expressly permit using tokenized versions of permitted backing assets. A Shot At Redemption In Hong Kong, licensees must provide each holder a right to redeem at par value, and must not attach any condition restricting redemption that is “unduly burdensome” or charge a fee in connection with redemption unless it is “reasonable.” A licensee must honor a valid redemption request “as soon as practicable.” The Supervision Guideline indicates that, unless otherwise approved, valid redemption requests should be processed within one (1) business day after the day on which they are received. In addition, a licensee must make adequate and timely disclosure to the public on redemption rights for stablecoins issued (e.g. fee, conditions, procedures and time within which a request may be processed). In the US, customers must have a clear, enforceable right to redeem stablecoins for the reference currency (e.g., U.S. dollars) on demand. The GENIUS Act requires issuers to publish a redemption policy that promises “timely redemption” of stablecoins for fiat, with any fees disclosed in plain language and capped (fees can only be changed with seven days’ notice). Regulators are expected to formalize operational expectations in the required implementing rule-makings. Verdict: Very similar, though with some differences such as the GENIUS Act not expressly requiring “reasonable” fees. The HKMA’s guidelines has also expressly specified a one (1) business day processing timeline for redemption requests. What’s The Issue(ance) Hong Kong’s Stablecoins Ordinance has a relatively novel territorial scope.  Specifically, issuers require a licence – and their stablecoins subject to stringent rules – where they: issue any fiat currency-referenced stablecoin in Hong Kong in the course of business;  issue HKD-referenced stablecoins anywhere in the world, in the course of business; or actively market to the public that they carry on any of the above activities, unless exempt. In this post, we refer to this as the “Hong Kong nexus test”. There is no express exemption in the Stablecoins Ordinance for foreign issuers (e.g. if subject to “comparable” or “reciprocal” regulation). In addition, an application may only be made by a company incorporated in Hong Kong, or an authorized institution (e.g. bank) incorporated outside Hong Kong.  That said, an offshore issuance may not violate the Stablecoins Ordinance if the Hong Kong nexus test summarized above is not met.  This introduces complexity for intermediaries who need to then assess carefully whether the issuance required Hong Kong approval. In turn, stablecoins can only be offered by regulated intermediaries.  Currently, as there are not yet any HKMA-approved stablecoins, these offers must only be to “professional investors”.  More on this in our commentary further below. The GENIUS Act’s general rule is that only U.S.-regulated issuers can directly issue stablecoins to U.S. users, but it creates a possible exception for foreign issuers that meet strict criteria and obtain a form of U.S. approval. Foreign issuers may issue stablecoins in the U.S., and digital asset service providers may offer or sell such issuer’s payment stablecoin, if the foreign issuer: Is subject to regulation and supervision by a foreign regulator that the U.S. Treasury determines is “comparable” to the regulatory and supervisory regime under GENIUS, a determination which Treasury has 210 days to make; Is registered with the OCC; Holds reserves in a U.S. financial institution sufficient to meet liquidity demands of U.S. customers; and The foreign jurisdiction in which the issuer is based is not subject to comprehensive economic sanctions.  Verdict: The GENIUS Act has more inherent flexibility by including an express exemption for foreign issuers that meet relevant criteria. Hong Kong’s regime will require every stablecoin issuer to assess whether licensing is required, based on whether they meet the Hong Kong nexus test set out above. No Interest In That Both the GENIUS Act and the Stablecoins Ordinance do not allow stablecoin issuers to pay their holders any form of interest or yield (whether in the form of cash, tokens or other consideration) if it is solely related to holding, retention or use of the coins.  Both are silent on other types of programs such as rebates to intermediaries that might be passed on to consumers, although in Hong Kong, incentives are generally covered by (separate) conduct requirements imposed by the relevant regulator. In both instances, it seems that the boundary between prohibited yield and permissible rewards tied to other activity may be subject to future rule-making and regulatory interpretation.  Verdict: Aligned What About Implementation? In Hong Kong, the Stablecoins Ordinance came into effect on August 1, 2025. The implementation timeline is as follows: Pre-existing issuers must apply for a license within 3-months for transitional relief. Issuers that do not apply will enter into a 1-month closing down period at the end of the 3-month period. Issuers who successfully apply within the 3-month period can continue to operate while their license application is under review.  Distributors and other intermediaries do not have a transitional period (ie restrictions are live). No offering of specified stablecoins is allowed unless a person is a “permitted offer.” The GENIUS Act becomes effective on the earlier of 18 months after enactment - that is, January 18, 2027, or 120 days after the primary federal payment stablecoin regulators (e.g. Federal Reserve, OCC, FDIC, SEC/CFTC) issue final implementing regulations. Additionally, within 1 year of enactment (i.e. by July 18, 2026), Primary Federal payment stablecoin regulators, The Secretary of the Treasury, and each state payment stablecoin regulator must issue proposed and final rules via notice-and-comment. Three years after enactment (by July 18, 2028) it becomes unlawful for any digital-asset service provider (e.g., exchanges, custodial wallets) to offer or sell payment stablecoins in the US unless those stablecoins are issued by a permitted payment stablecoin issuer under the Act. So, what does that actually mean for firms? Market participants have roughly 12 months (until mid‑2026) to prepare for proposed regulatory standards. Full compliance requirements kick in by early 2027, unless regulators finalize rules sooner. Digital-asset platforms must ensure that all payment stablecoins offered in the U.S. are issued by authorized entities by mid‑2028. Up until then, platforms may continue to offer and sell stablecoins that have not been issued by permitted stablecoin issuers. Verdict: Hong Kong’s shorter time frames will mean a race for issuers to comply. The View From The Nest While both jurisdictions bring stablecoin activity within the regulatory perimeter, their paths diverge in meaningful ways. Hong Kong’s regime focuses on financial market stability, and bank-level safeguards on reserve assets, while the US approach is more explicitly centered on payment system stability and state–federal alignment around issuer regulation. Whether this divergence ultimately fosters jurisdictional competition, interoperability or friction will depend on how these rules are implemented - and how responsive they remain to a market still evolving at speed. A key challenge for Hong Kong is the highly restrictive approach to offering stablecoins.  To do so, one must be a “permitted offeror” – that is, either a regulated issuer (none yet) or in one of the stated classes of intermediaries already regulated by the HKMA or the SFC.  Given the scope of Hong Kong’s current laws, this leaves one critical class out of the mix - OTC dealers of virtual assets – who are currently waiting for their regulatory regime to be finalised and implemented.  In addition, retail investors are left out in the cold for now.  Until the HKMA approves a stablecoin, even “permitted offerors” can only offer to “professional investors”.  However, the devil is always in the detail – not every interaction with a stablecoin is an “offer” that falls within the Stablecoins Ordinance restrictions. -----– We intend to host some local invite-only events in various locations around the world in the coming months to learn more about how the experts are thinking about stablecoins and their impacts on payments, banking and the overall digital economy. We will share the key themes from each event with everyone.