The Crypto Council for Innovation (CCI) recently submitted a comprehensive commentary on Hong Kong’s proposed regulatory framework for stablecoins. The proposed regime, outlined by the Hong Kong Monetary Authority (HKMA) and Financial Services and the Treasury Bureau (FSTB), aimed to introduce licensing requirements for stablecoin issuers operating within the jurisdiction.
Crypto Council for Innovation discusses stablecoin regulation
The Crypto Council for Innovation’s five-page response raised significant concerns and advocated for a more nuanced approach. While acknowledging the importance of regulatory oversight, the CCI expressed reservations about certain aspects of the proposed framework. One major point of contention was the proposed reserve requirements, which the Crypto Council for Innovation feared could pose an undue burden, especially if they replicated requirements already in place in other jurisdictions.
Additionally, the requirement for stablecoin issuers to maintain a physical presence in Hong Kong could prove challenging for globally-operating crypto businesses. To address these concerns, the CCI recommended a risk-based approach to reserve requirements and suggested the adoption of an “equivalence framework” aligned with international standards.
Advocating for algorithmic stability
Such a framework would enable issuers licensed in other jurisdictions to operate in Hong Kong under similar regulatory conditions, akin to the system in Japan. A significant portion of the CCI’s commentary focused on algorithmic stablecoins, which have faced skepticism from Hong Kong authorities.
While acknowledging past issues, such as the collapse of the Terra/LUNA ecosystem, the CCI remained optimistic about the potential of algorithmic stablecoins to drive innovation in the crypto space. The organization argued that not all algorithmic stablecoins are created equal and advocated for tailored regulatory measures to support their development.
According to the CCI, algorithmic stablecoins offer benefits such as real-time auditability and automated liquidation systems, which can improve efficiency in decentralized finance. However, the organization stressed that the benefits are contingent upon the degree of decentralization and recommended the establishment of “decentralization thresholds” by the HKMA and FSTB. In addition to algorithmic stablecoins, the CCI also highlighted the resilience of stablecoins backed by cryptocurrencies like Bitcoin and Ethereum. Coins such as Dai, RAI, and LUSD remained
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