- Hong Kong will issue stablecoin regulations in 2023 following consultation
- All stablecoin issuers will have to register with the Hong Kong Monetary Authority and algorithmic stablecoins will be banned
- The move was prompted by the collapse of Terra USD last year
Hong Kong’s top financial regulator announced on Tuesday that mandatory licensing will be required for all stablecoin issuers in 2023 and that algorithmic stablecoins will not be permitted. The rules also state that any entity carrying out regulated activity in Hong Kong must obtain a license to provide stablecoin services, with the regulations aiming to avoid a repeat of the Terra/LUNA crash, which has affected Hong Kong’s reputation given that it was the home of Do Kwon’s Terraform Labs.
Tether and Terra USD Forced Authorities’ Hand
The Hong Kong Monetary Authority (HKMA) revealed its regulatory plans for stablecoins following feedback on a discussion paper published last year. This feedback has led to the regulator deciding to establish a regime to oversee stablecoins, with the rules expected to come into force this year.
Initially, the HKMA will focus on regulating the governance, issuance, and stability of fiat-backed stablecoins, requiring issuers to maintain reserves equal to the amount of the crypto in circulation. Stablecoin reserves have received increased attention from regulators globally since Tether disclosed that much of its USDT reserves consisted of unsecured short-term debt.
Other Countries Taking Similar Steps
Attention was already on the stablecoin space before the collapse of the Terra USD stablecoin and its associated LUNA cryptocurrency last year, which left Hong Kong authorities chasing down Do Kwon and looking inept for allowing the $60 billion ecosystem to implode.
The collapse of the platform prompted the major economies such as the U.S., the European Union, and Japan to take a closer look at stablecoins, and as a result are also working on their own controls.