Hong Kong Contemplates Ban on Algorithmic Stablecoins

The example set by Terra’s collapse in May of last year has spooked regulators into taking a “risk-based approach” to regulating the stablecoin market

article-image

Blockworks exclusive art by Axel Rangel

share

Hong Kong’s Monetary Authority is weighing whether to implement or amend existing legislation that would effectively ban algorithmic stablecoins within the special administrative region.

The regulatory framework will focus on several key principles, including comprehensive regulation in areas such as ownership, governance and asset management.

Stablecoins that derive their value based on arbitrage or an algorithm will not be accepted into the region’s proposed licensing regime, the central bank said in a conclusion to a previously issued discussion paper on Monday.

The collapse of the Terra ecosystem in May 2022, after infamous algorithmic stablecoin Terra USD (UST) lost its US dollar peg, drew the ire of regulators worldwide. It’s that type of “financial stability risks” the central bank is hoping to contain, it said.

Financial resources requirements, risk management, anti-money laundering, counter-terrorist financing, user protection, regular audits and disclosure requirements are also being considered.

It comes after a discussion paper was issued on the subject in January of last year, which received 58 submissions from stakeholders. 

The new law would apply to all entities operating within the jurisdiction, including those conducting a regulated activity and those actively marketing such activity to the public. 

Stablecoins targeting the value of the Hong Kong dollar would also fall under the law’s purview.

The value of reserve assets will be required to meet the value of the outstanding stablecoins at all times, and those assets will be required to possess “high quality and high liquidity.”

“Stablecoin holders should be able to redeem the stablecoins into the referenced fiat currency at par within a reasonable period,” the regulator said.

Further detailed consultations with more precise information about the regime will be conducted sometime this year or early next year, according to the discussion paper.


Start your day with top crypto insights from David Canellis and Katherine Ross. Subscribe to the Empire newsletter.

The Lightspeed newsletter is all things Solana, in your inbox, every day. Subscribe to daily Solana news from Jack Kubinec and Jeff Albus.

Tags

Upcoming Events

Salt Lake City, UT

MON - TUES, OCT. 7 - 8, 2023

Blockworks and Bankless in collaboration with buidlbox are excited to announce the second installment of the Permissionless Hackathon – taking place October 7-8 in Salt Lake City, Utah. We’ve partnered with buidlbox to bring together the brightest minds in crypto for […]

Salt Lake City, UT

WED - FRI, OCTOBER 9 - 11, 2024

Pack your bags, anon — we’re heading west! Join us in the beautiful Salt Lake City for the third installment of Permissionless. Come for the alpha, stay for the fresh air. Permissionless III promises unforgettable panels, killer networking opportunities, and mountains […]

recent research

Research report - cover graphics (10).jpg

Research

Kinto's novel L2 prioritizes compliance, security, and the user experience.

article-image

Whether you decide to invest in bitcoin should be up to you, not the SEC or Gary Gensler

article-image

Plus, Sanctum’s upcoming airdrop for its new CLOUD token

article-image

The $887 million of net inflows was the category’s second-best total in a single day since their January launches

article-image

The industry-first general purpose zk programmable blockchain charts a fresh course

article-image

Cause of $300 million-plus “unauthorized leak” still unknown as company gets set for big fundraise

article-image

The term DePIN has become a buzzword — and many projects are misusing it to attract attention