Crypto Council for Innovation Critiques Hong Kong's Proposed Stablecoin Regulations
Summary:
The Crypto Council for Innovation (CCI) has voiced criticism and concerns about Hong Kong's proposed regulations for stablecoin issuers. The CCI praised the region's initial steps towards developing a regulatory framework but highlighted potential issues, including the mandate for physical presence of key personnel and maintaining par-value reserves. In their submission, the CCI encouraged adopting risk-based protocols for reserve requirements and an “equivalence framework” harmonized with other jurisdictions. Much of CCI's discussion centered around algorithmic stablecoins, urging for individualized regulations considering their innovation potential. They also advocated for stablecoins pegged to cryptocurrencies, mentioning their resilience during market downturns.
On the final day for submissions, the Crypto Council for Innovation (CCI) has voiced its strong opinions about Hong Kong’s proposed stablecoin control measures. The CCI’s five-page submission strongly criticizes proposed mandates including those related to maintaining reserves and operations, while also vehemently defending algorithmic stablecoins which have faced dismissive attitudes from Hong Kong authorities. A consultation paper was released by The Hong Kong Monetary Authority (HKMA) and Financial Services and the Treasury Bureau (FSTB) on December 27, outlining a regulatory framework for stablecoin issuers. They must have a local office, a senior manager present, and uphold reserves equating to “par value”. CCI commends these moves as initial steps towards a stable regulatory regime but also foresees potential issues. They highlight that reserve requirements could become an unreasonable imposition if they overlap with mandates from other nations. The physical presence of key personnel and top management in Hong Kong may be impractical considering the global scope of many digital asset enterprises. CCI proposes a risk-based protocol for reserve requirements and advises implementing an “equivalence framework” in alignment with other jurisdictions. This approach would treat issuers similarly to how they are treated in Japan. The CCI letter also engages in a detailed discussion of algorithmic stablecoins. They argue that the proposal unfairly groups all stablecoins together, including fiat-referenced stablecoins (FRS) that depend on arbitration or algorithms for their value. The CCI expresses concern that an algorithmic stablecoin will struggle to maintain the prescribed reserve requirements. In spite of the recent setback to the Terra/Luna ecosystem, CCI maintains an optimistic view of algorithmic stablecoins. It recommends policymakers to consider these as important innovations that can benefit from individualized, precise regulations and requirements. A stablecoin with overcollateralization backed by external assets can enhance the efficiency of decentralized finance through "real-time auditability and automated liquidation systems". Rejecting these innovations could be counterproductive. The CCI emphasizes that the extent of decentralization of algorithmic stablecoins is directly related to their potential benefits and recommends the HKMA and FSTB to establish decentralization benchmarks. The CCI also defends stablecoins pegged to cryptocurrencies, mentioning that coins like DAI, RAI, and LUSD, underpinned by Bitcoin and Ether, remained stable during the recent market slump.
Published At
3/1/2024 11:15:00 PM
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