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In the key principles of its upcoming regulatory framework, the Hong Kong Monetary Authority (HKNA) didn’t find a place for algorithmic stablecoins. In lieu of this, the Chief Financial Regulator will at all times require all stable issuers to maintain their values with the underlying reserve assets.
On Jan. 31, the HKNA issued the consultation conclusion to the discussion paper on crypto and stablecoins, summarizing the feedback from 58 submissions. In his summary, the regulator repeats the popular formula of a "risk-based and agile" approach, which is necessary for the crypto industry in the process of maturation.
Regulations, based on the consultation process, are expected in 2023-24 as new or amended legislation. As stated several times in the document, priority would be given to the regulation of stabilities which "claim to refer to a fiat currency or currencies."
The new licensing process would be mandatory both for emitters operating directly in Hong Kong and for these companies, who "actively" sell their products to Hong Kong audiences. The key principles of the regulation stressed the importance of a full guarantee and an au pair reimbursement:
Stablesoins which derive their value according to the arbitration or algorithm will not be accepted. Holders of a stability certificate should be able to buy back the stability certificates in the par denomination within a reasonable time.
Hkna intends to develop a comprehensive regulatory framework for stabilitiesbased on the principle of full guarantee and at-par repayment. It would also prevent enterprises from moving away from their main activity. The document mentions the example of portfolio operators, who would not be authorised to engage in lending activities.
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As the regulation would focus on the areas of issuance, governance and stabilization, some of the stablecoin-related activities “may not be captured” in the regulatory scope at the initial stage. Among other things, buy or trade a stable with a fiduciary currency, operating and managing central housing loan services, issuing cryptoal debit or credit cards and operating ATMs (ATMs) or foreign exchange offices.
According to a recent report from CryptoCompare, the current market share of algorithmic stablecoins stands at 1.71%, while its all-time high record in April 2022 reached 12.4% of the whole crypto market.
