When a State Becomes a Fintech: How Wyoming’s FRNT Stablecoin Redefines Digital Governance

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.

Last time, we explored the similarities and differences between the GENIUS Act’s approach to stablecoins and the latest proposals in the UK. We showed that there were areas of broad alignment, but also some areas of clear difference. The reason for this is the different ambitions each country has for the growth of their stablecoin (and broader digital asset) sectors, set against two very different regulatory systems. In this post we will compare the US framework with the EU’s regulation around stablecoins, which can be found in its Markets in Cryptoassets Regulation (known as MiCA). MiCA covers more than just stablecoins and provides comprehensive crypto-asset regulation for Europe, including regulation of intermediaries (known as crypto-asset service providers or CASPs).  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 rulemakings by the CFTC and the SEC to cover intermediaries’ activities with respect to crypto-assets, specifically protocol tokens.  Verdict:  For now, Europe is somewhat ahead of the US in terms of comprehensive intermediary regulation. We expect stablecoins to have implications for payments, banking and commerce more generally, so it seems appropriate that they have their own set of regulations, as is the case in both the US and the EU.  As a quick reminder, on 18 July 2025, President Trump signed the GENIUS Act into law, establishing the first US federal framework for so-called “payment stablecoins” (which include pretty much any existing stablecoin). In the EU, however, MiCA’s stablecoin provisions came into force across all 27 EU member states much earlier, in June 2024. It creates a bespoke regime for stablecoins, which it separates into two types: e-money tokens (EMTs) and asset-referenced tokens (ARTs) depending on what basket of assets the token refers to. Although the two regimes were developed in very different political and economic circumstances, there are - just like with the UK - certain areas of core overlap. But there are also, of course, some notable differences. Let’s unpack it. Scene Setting Both regimes regulate the issuance of stablecoins as well as the issuers and intermediaries who support them. They start from slightly different definitions: in the US, “payment stablecoins” broadly include any fiat-denominated token used for payments, while in the EU, the split is explicit between EMTs (tokens referencing a single fiat currency) and ARTs (tokens referencing multiple currencies or non-fiat assets). Stablecoins linked to other assets are left to other, as yet undefined regulation in the US, but captured as ARTs in the EU. In both frameworks, 1:1 backing of fiat-denominated coins is a core principle, with detailed reserve, disclosure, and redemption requirements.  Verdict: For now, Europe is ahead of the US by recognizing other types of stablecoins beyond fiat-linked. Keeping It In Reserve In the EU, MiCA requires that EMTs be fully backed by assets denominated in the same currency as the reference, held in custody with an authorized credit institution or central bank. Eligible assets are limited to: Cash deposits. These must be at least 30% of reserves held as commercial bank deposits (or 60% if the stablecoin is deemed ‘significant’); Government securities with minimal market and credit risk; and Other highly liquid instruments approved by the EBA. ARTs have similar prudential and governance requirements varied just to reflect that they reference value other than a non-single, non-fiat currency (though to date no ARTs appear to have been issued in the EU). In the US, an issuer’s stablecoins must be backed one-to-one by eligible instruments, such as: US currency, demand deposits or deposits held at Federal Reserve Banks; Treasury bills or bonds with a maturity of 93 days or less; Repo funding secured by T-bills cleared at a registered CCA; Securities issued by registered money market funds; Other liquid federal government assets approved by regulators; and Tokenized versions of eligible instruments. Both jurisdictions prohibit commingling of reserve assets with operational funds. Verdict: Broadly aligned, though the EU mandates more commercial bank deposit-backing and have provision for stablecoins beyond fiat-linked. A Shot At Redemption In the EU, EMT issuers must grant holders the right of redemption at par value, at any time, in fiat currency. Redemption must occur “promptly,” and for free, though MiCA allows some operational flexibility (no fixed T+1 requirement, unlike the UK). For ARTs, redemption rights exist but are subject to additional conditions given the potential volatility of the reference basket. In the US, customers must have a clear, enforceable right to redeem stablecoins for fiat on demand. The GENIUS Act requires issuers to publish a redemption policy promising “timely redemption” with capped and disclosed fees. Verdict: Aligned, though the EU requires redemption to be without fees. What’s The Issue(ance) Under MiCA, only authorized credit institutions (banks) or electronic money institutions may issue EMTs. ARTs can be issued by other regulated entities, but must meet additional governance and capital requirements. Importantly, MiCA applies uniformly across the EU, with no national discretion (so-called ‘EU passporting’).  Foreign issuers can issue EMTs or ARTs in the EU only if they establish an authorized entity within the Union. Foreign-issued stablecoin usage (for stablecoins that would be deemed EMTs under MiCA) are capped at 1 million transactions per day and 200 million EUR value for stablecoins not pegged to an EU-currency. The GENIUS Act’s general rule is that only U.S.-regulated issuers can directly issue stablecoins to U.S. users, with a narrow exception for foreign issuers from “comparable” jurisdictions, provided they register with the OCC and maintain reserves in U.S. institutions.   Unlike Europe, which does not allow member states to regulate any type of crypto-asset, the GENIUS Act allows for stablecoin issuers to choose either federal or state regulation, so long as the dollar amount of stablecoins issued remains below $10 billion.  The law sets the minimum standards for both federal and state regulation, but state regulators may impose greater standards and in any event have the ability to set the detailed requirements of the regulations.  In Europe, those details are handled by MiCA. Verdict: Not aligned. The US provides a possible route for foreign issuers (although future rules from the regulators might narrow the realistic opportunity for foreign issuers in the US). The EU requires a fully in-scope local entity for EU issuance or limits on usage. Additionally, the US allows for state regulation, while MiCA prohibits member states from regulating on matters that are within its scope. No Interest In That Both the GENIUS Act and MiCA prohibit stablecoin issuers from paying interest or yield directly tied to holding or using the token. MiCA is explicit that EMTs cannot generate returns, to preserve their similarity to e-money. ARTs are also prohibited from offering yield unless linked to other activities approved by regulators. Verdict: Aligned. What About Implementation? In the EU, MiCA was written into law in 2023, with the stablecoin provisions (Titles III and IV) applying from June 2024. However, supervisory enforcement only builds up gradually: By 2025, all EMT and ART issuers must be authorized. Existing operators had a limited grandfathering period but must transition to full compliance by end-2025. The EBA and ESMA are expected to refine technical standards through 2026. The GENIUS Act becomes effective the earlier of January 18, 2027, or 120 days after implementing regulations are finalized. Proposed rules are due by mid-2026, with full compliance required by early 2027. By mid-2028, all payment stablecoins offered in the U.S. must be issued by permitted entities. Verdict: Not yet aligned. The EU regime has already started, with stablecoin rules already live, whereas the US regime will not fully be in force until 2027–2028. The View From The Nest While both jurisdictions have moved to bring stablecoin activity within the regulatory perimeter, their paths diverge in meaningful ways. The EU’s MiCA regime cements a highly harmonized framework across 27 member states, with tighter prudential and governance requirements. This regime is also notably protective of EU monetary sovereignty and seeks to limit the ability of non-EU currencies to circulate inside the EU. This implies a fundamental global fragmentation of the stablecoin market.  The US approach is more focused on payment system stability and creating federal-state coherence around issuers, but leaves significant discretion for regulators in implementation. In terms of international stablecoin usage within the US, the GENIUS Act is (perhaps unsurprisingly given the global role of the US dollar) more relaxed. Whether this divergence ultimately fosters beneficial jurisdictional competition, interoperability or simply friction and fragmentation will depend on how these rules are enforced, and how responsive the two jurisdictions are to a rapidly evolving market. There is still scope for both regimes to treat each other as equivalent for practical purposes and so create interoperability between the two jurisdictions. But it is just as possible that questions of monetary sovereignty and infrastructure independence will lead to persistent fragmentation between the two great Transatlantic markets. -----– 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.