Chapter 2: The Role of Identity in Stablecoin Ecosystem

2.1 Regulatory Milestones

Hong Kong is undergoing a historic shift in its regulation of digital assets. On May 21, 2025, the Legislative Council passed the Stablecoin Ordinance, establishing a world-leading regulatory framework for fiat-referenced stablecoins (FRS). This legislative breakthrough marks Hong Kong’s transition from conceptual exploration to operational readiness, paving the way for compliant issuance of HKD- and RMB-backed stablecoins.

To support the implementation of the Stablecoin Bill, the Hong Kong government launched the LEAP framework in June 2025—short for Legal (regulatory), Expand (tokenised products), Advance (use case expansion and cross-sector collaboration), and People (talent development and partnership).

The legislation imposes stringent requirements on stablecoin issuers, covering capital adequacy, reserve asset management, risk controls, and audit obligations. Critically, it mandates full compliance with Anti-Money Laundering and Counter-Terrorist Financing (AML/CFT) regulations across all minting, redemption, and transfer activities. This means that every stablecoin transaction must be traceable to a verified identity—posing unprecedented challenges to traditional KYC (Know Your Customer) mechanisms at scale.

On the technical front, the regulation requires issuers to implement robust internal control systems to ensure the security and transparency of reserve assets. This aligns with the Hong Kong Monetary Authority’s 2023 Stablecoin Regulatory Consultation Summary, which emphasized the centrality of technical infrastructure in the stablecoin ecosystem. However, current KYC technology stacks suffer from efficiency bottlenecks and security vulnerabilities when handling large-scale identity verification, signaling an urgent need for innovation.

2.2 Market Opportunities

Hong Kong’s digital identity infrastructure presents both unique opportunities and constraints for stablecoin-related KYC innovation. Since its launch in December 2020, the iAM Smart platform has been central to the government’s digital transformation efforts. Built on smart identity card technology, the platform offers users unified digital authentication and secure access to online public services.

The underlying architecture of iAM Smart is based on Hong Kong’s upgraded smart ID cards. According to the Immigration Department, the full citywide replacement began in November 2018. The new ID cards feature advanced integrated circuit chips and enhanced security, providing a solid hardware foundation for digital identity services. This enables multi-factor authentication methods including biometrics, PIN codes, and smart card reading.

Despite its technological strengths, iAM Smart faces several limitations in commercial use. First, it is primarily designed for public-sector services and has limited availability to private-sector applications. Second, the identity verification process still relies heavily on document-based checks and facial recognition—methods increasingly vulnerable to AI-driven fraud. Third, its centralized data governance model stores users’ biometric and identity data on government servers. While this ensures data integrity and control, it restricts the platform’s potential integration with decentralized blockchain systems.

From a market perspective, demand for efficient and secure identity verification is growing rapidly, particularly in Hong Kong’s financial services sector. With the imminent issuance of HKD and RMB stablecoins, tens to hundreds of thousands of users may need to complete KYC checks daily. Yet whether in traditional financial institutions or crypto-native platforms, current KYC processes rely heavily on OCR-based ID scanning, facial or video liveness detection, and manual back-office review—all of which are costly and increasingly insecure.

Forged identity documents can now be reproduced inexpensively using advanced printing technology. OCR systems are prone to error due to variations in lighting and resolution. With the advent of deepfake technologies, face or voice-based liveness checks alone are no longer sufficient to detect AI-generated video or audio attacks. Industry data suggests that each KYC verification costs between USD 10 and 20 on average, with processing times ranging from 24 to 72 hours. These high costs and long wait times not only burden institutions with compliance overhead but also drive away nearly 40% of new users due to process friction—severely limiting the scalability and adoption of stablecoins.

This growing disconnect between market demand and technological readiness is precisely where Matrix’s finger vein biometric wallet and related solutions reveal their value proposition.

2.3 Matrix’s Positioning

Matrix’s strategic positioning within Hong Kong’s evolving stablecoin ecosystem is both deliberate and differentiated. Rather than issuing stablecoins itself, Matrix aims to serve as the core public chain infrastructure supporting the broader ecosystem. This allows Matrix to deliver distinct value while sidestepping the regulatory complexities tied to direct issuance.

What sets Matrix apart is its technical architecture, which is purpose-built for compliance and identity authentication. Unlike general-purpose public chains, Matrix integrates biometric authentication and privacy-preserving modules directly at the protocol layer. This enables stablecoin issuers to meet regulatory requirements without compromising user experience or security.

As an infrastructure provider, Matrix operates on a technology-as-a-service model. It creates value through several channels:

• Offering compliant KYC solutions to stablecoin issuers, lowering their technical and operational costs;

• Providing identity authentication APIs to exchanges and payment providers, improving end-user trust and safety;

• Supplying auditing and oversight tools to regulators, enhancing ecosystem-wide transparency and accountability.

A hallmark of Matrix’s technical innovation is its finger vein biometric wallet. By integrating vein recognition directly with wallet functionality, Matrix realizes a new paradigm of "identity is wallet." Users no longer need to remember complex private keys or seed phrases—transactions and authentications can be completed via a simple biometric scan. This not only enhances convenience but also fundamentally solves the security flaws of traditional crypto wallets.

From an ecosystem collaboration standpoint, Matrix’s infrastructure-centric approach enables it to partner with a wide range of stakeholders—be it traditional banks, fintech startups, or regulatory authorities. All can access Matrix’s platform for tailored technical solutions. This open and inclusive design fuels strong network effects: as adoption grows, so does the value of the platform in exponential terms.

Globally, Matrix’s infrastructure role also carries strategic significance. As regulatory clarity improves across jurisdictions, demand for robust compliance technology is expected to soar. By anchoring its presence in Hong Kong, Matrix not only delivers value locally but also positions itself to export proven models to international markets—paving the way for global expansion.