Hong Kong’s proposed stablecoin rule faces criticism from the Cryptocurrency Council

Key Takeaways

CCI argues that a one-size-fits-all approach may not be appropriate for the variety of stablecoins available.

CCI believes that algorithmic stablecoins have significant potential for innovation and efficiency in the DeFi sector.

The Crypto Council for Innovation (CCI) has raised significant concerns about Hong Kong’s proposed stablecoin regulations outlined in a consultation document from the Hong Kong Monetary Authority (HKMA) and the Financial Services and Treasury Board (FSTB). These regulations, specifically focused on reserve and operational requirements, have led the CCI to advocate for a balanced approach that encourages both deregulation and innovation within the cryptocurrency industry.

The advocacy group’s criticism comes amid recent developments, including the HKMA announcing plans to introduce a regulatory sandbox for stablecoin issuers.

In its critique, CCI highlighted specific concerns related to the treatment of algorithmic stablecoins under the proposed regulations. They argue that a one-size-fits-all approach may not be appropriate for the variety of stablecoins available and highlight the need for a nuanced regulatory framework tailored to the different types of stablecoins.

While the CCI acknowledged Hong Kong’s efforts to establish a regulatory framework for stablecoins, it expressed concerns about the potential regulatory burden, particularly if these requirements overlap with regulations in other jurisdictions. They emphasize the importance of creating an environment that encourages responsible innovation while ensuring appropriate consumer protection.

1/ CCI responded to Hong Kong’s proposed stablecoin regulation. This initiative is at a critical moment, so we have outlined a balanced regulatory approach that promotes innovation while ensuring consumer protection. Key Takeaways: pic.twitter.com/nKmRDmlS2B — Crypto Innovation Council (@crypto_council) February 29, 2024

The advocacy group’s detailed response, summarized in a five-page letter, provides substantive criticism of the proposed reserve and operating requirements. It also strongly defends the role of algorithmic stablecoins, which are facing skepticism from Hong Kong regulators. Despite the challenges posed by algorithmic stablecoins, CCI believes they have significant potential for innovation and efficiency in decentralized finance.

The CCI’s recommendations include advocating a risk-based approach to reserve requirements and proposing an equivalence framework that harmonizes with other jurisdictions to facilitate the smooth operation of stablecoin issuers. We also propose establishing decentralization thresholds and custom guardrails for algorithmic stablecoins to encourage responsible innovation while ensuring regulatory compliance.

These discussions come at a time when Hong Kong is actively seeking regulatory action to strengthen its position as a leading hub for cryptocurrency and blockchain technology. Along with stablecoin regulation, Hong Kong has issued guidelines for companies providing cryptocurrency custody services and is considering approving a spot Bitcoin exchange-traded fund (ETF).

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