Hong-Kong has unveiled its regulatory plans for the cryptocurrency industry. The Special Administrative Region does not allow algorithmic stablecoins and requires licenses to do so stable coins publishers.
Following comments on a discussion paper released last year, the Hong Kong Monetary Authority (HKMA) released the most recent regulatory targets. The HKMA said it would build a system to regulate stablecoins based on the 58 responses received.
The HKMA intends to regulate the creation, distribution and stabilization of fiat-backed stablecoins. Issuers must have a backup equal to the amount of cryptocurrency available. Since Tether’s revelation that much of its backing will be unsecured short-term debt in 2021, stablecoin backings have been called into question.
Major players, including the United States, the European Union and Japan, are also working on restrictions on stablecoin issuers. The official release stated,
“The reserve assets must be of high quality and high liquidity. Stablecoins that derive their value based on arbitrage or algorithms will not be accepted.”
Algorithmic stablecoins have taken a beating after the fall of Terrace UST. According to CryptoCompare, such tokens only make up 1.71% of the total market share.
In addition, the new rules would deter companies from leaving their core businesses. The article uses as an example wallet operators who are not allowed to participate in lending operations.
When Will Hong Kong’s Cryptocurrency Rules Take Effect?
According to the statement, Hong Kong’s new cryptocurrency rules will go into effect sometime this or next year. The region is one of the largest financial centers in the world, so it is not surprising that it wants to regulate the nascent industry. The fall of the Terra UST stablecoin in 2022 was one for the history books. The decline led many investors to lose their savings and investments.