Hong Kong will not tolerate algorithmic stablecoins in new regulation

In the cardinal principles of its upcoming regulatory framework, the Hong Kong Monetary Authority (HKNA) didn’t find a spot for algorithmic stablecoins. Instead, the main fiscal regulator volition request each stablecoin issuers backmost up their values with underlying reserve assets astatine each times.

On Jan. 31, the HKNA issued the consultation decision to the treatment insubstantial connected crypto and stablecoins, summarizing the feedback from 58 submissions. In its summary, the regulator repeats the fashionable look of a “risk-based and agile” approach, which is indispensable for the maturing crypto industry.

The regulatory arrangements, based connected the consultation process, are expected successful 2023/24 either successful the signifier of caller authorities oregon amendments to the existing laws. As repeatedly specified successful the paper, the precedence would beryllium fixed to regulating stablecoins that “purport to notation to 1 oregon much fiat currencies.”

The caller licensing process would beryllium obligatory for some the issuers that behaviour their enactment successful Hong Kong straight and those companies, that “actively” marketplace their products to the Hong Kong public. The cardinal regulatory principles highlighted the value of afloat backing and redemption astatine par:

Stablecoins that deduce their worth based connected arbitrage oregon algorithm volition not beryllium accepted. Stablecoin holders should beryllium capable to redeem the stablecoins into the referenced fiat currency astatine par wrong a tenable period.

The HKNA intends to make a broad regulatory model for stablecoins, based connected the rule of afloat backing and redemption astatine par. It besides would restrict the companies from deviating from their main business. The insubstantial cites the illustration of wallet operators, which wouldn’t beryllium allowed to prosecute successful lending activities.

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As the regularisation would absorption connected the areas of issuance, governance and stabilization, immoderate of the stablecoin-related activities “may not beryllium captured” successful the regulatory scope astatine the archetypal stage. Among them are purchasing oregon exchanging a stablecoin with fiat currency, cognition and absorption of centralized stablecoin lending services, issuance of crypto-asset debit/credit cards and cognition of crypto-asset automated teller machines (ATMs) oregon speech shops.

According to a caller study from CryptoCompare, the existent marketplace stock of algorithmic stablecoins stands astatine 1.71%, portion its all-time precocious grounds successful April 2022 reached 12.4% of the full crypto market.