After a year 2022 marked by repeated bankruptcies, the year 2023 could be under the sign of regulation for the blockchain and cryptocurrency sector. In the line of sight, as the example of Hong Kong firmly demonstrates, stablecoins will be a key issue.
For less than a year, due to the collapse of the Terra Luna ecosystemTHE stablecoins are given special attention. As a reminder, during this event, the UST was unable to maintain its parity with the dollar, leading to the loss of millions of dollars. Worse, this situation had a snowball effect on the entire ecosystem by precipitating the bankruptcy of many investment funds.
Aware of the systemic place taken by stablecoins, regulators quickly seized on the subject to try to regulate it. Whether in the United States, Europe or Hong Kong, stablecoins are subject to strong supervision. Moreover, recently under pressure from the SEC and the NYDFS, the BUSD issuing company, Paxos, was forced to stop issuing BUSD.
Therefore, the evolution of the situation should be particularly important in the medium and long term development of the ecosystem. In Hong Kong, legislation is expected to come out in the coming months.
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Hong Kong is busy on its stablecoin legislation
For several weeks, the Hong Kong Monetary Authority (HKMA) has been revealing the outlines of future Hong Kong legislation. In this sense, according to increasingly pressing rumors, this regulation of stablecoins could see the light of day in Hong Kong. in the course of 2023.
Unsurprisingly, the text would like to bring within its scope all entities that actively market or operate within the territory of Hong Kong. In addition, to prevent any company from issuing stablecoins, the procedures for claiming the issuance of a stablecoin will be more numerous, but above all more complex.
Additionally, the HKMA believes that stablecoins should be fully backed by assets high-quality liquids repayable in reference fiat currencies at par. For the time being, no list detailing what a asset of high quality has yet been enacted by the institution. Nevertheless, at first glance, algorithmic stablecoins would be inherently prohibited in Hong Kong.
On the other hand, according to a representative of the HKMA, the institution continues an active discussion with the actors of the industry to “adopt a risk-based, yet pragmatic and agile approach to effectively regulate stablecoins”.
What about foreign issuers?
A big outstanding question concerns the fate of foreign companies wishing to operate in Hong Kong. Indeed, the monetary authority would consider requiring companies issuing stablecoins to maintain their main activity in Hong Kong or to have an entity incorporated locally in Hong Kong in order to obtain the appropriate licenses.
Nevertheless, according to a representative of the HKMA “the regulatory treatment of stablecoin issuers will depend, among other things, on their actual structures and operational details”. Consequently, the players in the industry, not seeing such obligation with a good eye are hopeful that the institution will soften its position.
For now, the answer to this question has not yet been decided. However, this firmness could simply be the result of the involvement of traditional economic players in the consultation process implemented by the regulator with the aim of drafting the law. However, during the final drafting, these particularly scathing opinions on the sector could be nuanced or ignored.
Hong Kong’s international influence
Indeed, beyond consumer protection and the country’s financial stability, the HKMA must also be an active promoter of the country’s economy. In this sense, Hong Kong quickly understood that THE crypto currencies could represent a great opportunity for economic growth.
For example, Ken Lo, director of strategy at HKbitEX, explains that this regulation should facilitate the implementation of the next payment era.
This position is echoed by Michael Wong, a partner in a law firm, who believes that “the regulatory authority will adopt a pro-trade position to make it work both for the industry and also from an investor protection perspective.”
In any event, many points still remain to be finalized, but the example of Hong Kong strongly demonstrates that stablecoins have a central place in the minds of regulators and that they will inevitably occupy the center of attention in the coming months.
The article Crypto: Hong Kong accelerates its regulation on stablecoins appeared first on Corner Academy
