After last year’s collapse of Terra Luna UST, which resulted in the loss of more than $30 billion from the cryptocurrency market, the Hong Kong Monetary Authority (HKMA) is preparing to introduce regulations for the stablecoin industry. As per the HKMA’s consultation conclusion, stablecoins that operate within its jurisdiction must be fully backed by high-quality liquid assets. The HKMA is insisting that all stablecoins offered in the country must be redeemable for their referenced fiat currencies at face value.
Nonetheless, the HKMA has emphasized that algorithmic and arbitrage-based stablecoins are not permitted. This may indicate that Djed, Cardano’s over-collateralized stablecoin, will not be approved by regulators in Hong Kong.
According to a spokesperson from the HKMA, the regulatory treatment of various types of virtual assets will depend on their specific structures and operational details, among other factors. The watchdog will maintain discussions with the industry to implement a flexible, practical, and risk-based strategy for regulating stablecoins.
It has been reported that the Hong Kong Monetary Authority aims to establish a framework for regulating stablecoins by the end of this year. The stablecoin market has emerged as a crucial factor driving global cryptocurrency adoption. Stablecoins such as Circle’s USDC and Tether’s USDT are utilized to secure profits in the highly unstable cryptocurrency market. Nonetheless, the future growth prospects of stablecoins appear to be diminishing as countries prioritize the adoption of CBDCs.
Furthermore, CBDCs are subject to more stringent regulations by their respective central banks and are designed to operate on different chains for the sake of interoperability. Recently, the US regulators halted Binance-backed BUSD stablecoin, prompting a mass migration of whales out of the stablecoin market and towards the Bitcoin spot. Furthermore, allegations of insufficient collateral by Binance for existing stablecoins have brought regulatory scrutiny upon the exchange.