💐Hong Kong Competes with the U.S. in Stablecoin Legislation and BTC/ETH Spot ETFs | #45
[BlockchainAsia #45]
Welcome back to BlockchainAsia. This is Coco. Wish you a happy and healthy 2024! I expect this year to be loaded with action and progress from both the East and the West.
In the first BlockchainAsia newsletter of 2024, you will read about Hong Kong’s legislative proposal for stablecoins and guidelines for BTC/ETH spot ETFs; my highlights of the interview with the President of the Solana Foundation, who explained why Solana was accelerating its push in Asia.
Please read on.
Hong Kong’s Legislative Proposal for Stablecoins
In December 2023, Hong Kong unveiled a consultation paper outlining a legislative proposal to regulate stablecoin issuers within its jurisdiction. Full proposal
It defines a stablecoin as “one that purports to maintain a stable value concerning one or more fiat currencies (fiat-referenced stablecoin, FRS). Issuers of FRS that derives value from arbitrage or algorithm are not allowed to apply for licenses.
The stablecoin should use DLT or similar technology that is not solely controlled by the issuer. FRS issuers are prohibited from paying interest to users or engaging in lending, financial intermediation and other regulated activities.
Any issuer of FRS pegged to Hong Kong dollar and marketed to the public in Hong Kong is required to be licensed by the Hong Kong Monetary Authority (MA), which is the de facto central bank. Financial institutions already regulated in Hong Kong such as banks can issue FRS without a license but it can only be offered to institutional investors.
The issuer must be incorporated in Hong Kong, maintain a physical office there, and have key personnel and senior management based locally. FRS issuers must seek consent from MA for their senior management personnel, meet minimum paid-up capital requirements, and disclose reserve assets and other information daily, and weekly, as well as have information audited by an independent auditor monthly.
It took MA two years to issue this legislative proposal for stablecoins. Before this, MA initiated a discussion paper for feedback in January 2022. This proposal does not specify the timeline to officially pass and implement this legislation. As indicated in the proposal, MA will be the authority to oversee all matters related to stablecoins.
What will this legislation mean to existing stablecoins already active in the region, such as Tether or USDC?
Tether, originally from Hong Kong and headquartered in BVI, is widely adopted in Hong Kong and many other countries. Tether is a popular exchange on-ramps/off-ramps medium, as well as an unofficial currency exchange vehicle. Hong Kong’s regulated exchanges such as HashKey Exchange offer USDT/HKD pair. Besides, some exchanges support P2P buy/sell USDT services, e.g. Binance and ByBit.
If Tether chooses not to pursue a license in Hong Kong, what would happen to it? Will regulated exchanges stop listing it? Will P2P buy/sell activities in Hong Kong become illegal?
If Hong Kong retail users are not allowed to use Tether by the regulated exchanges in Hong Kong or cannot access it via the P2P channel, they don’t lack choices outside of Hong Kong. Plus on some platforms users of Tether can earn interest when they are not trading, something MA will not allow for regulated stablecoins.
Circle may view the regulation of stablecoins as a competitive advantage it could gain over Tether. This past July, Circle expressed interest in pursuing a license to issue stablecoins in Japan. Japan’s stablecoin bill will take effect in July 2024.
In the end, the retail users, whom Hong Kong’s regulator tries to protect, will ultimately make their own choices, until a globally coordinated regulatory infrastructure and joint efforts are established to limit their options.
I can’t wait to see what the final legislation looks like.
Hong Kong to Launch Spot BTC/ETH ETFs
Hong Kong again. It is poised to become the first jurisdiction in Asia to offer spot BTC/ETH ETFs and to make them more attractive than those to be approved and marketed in the U.S. “Both in-kind and in-cash subscription and redemption are allowed for SFC-authorised spot VA ETFs”, as the circular specifies. The circular was issued by the SFC and Hong Kong Monetary Authority on Dec.22, 2023, with guidelines for BTC/ETH ETF applicants.
The new spot ETF products will not be offered to investors in Mainland China.
Solana and its Asia Push
Foresight News recently reposted an interview with Solana Foundation’s President Lily Liu from September 28, 2023, when Solana was trading below $20.
The interview is in Chinese. Here are some highlights:
Lily believes the growth of the blockchain & crypto industry is mostly driven by the U.S. and Chinese-speaking regions in APAC, both of which offer an extensive developer base and deep capital markets. The U.S. is where core technology and innovations come from, while the APAC Chinese-speaking regions offer significant markets and a large population of active users. Additionally, Asian exchanges are very active and liquid. The team at Solana was so surprised to notice that over 80% of SOL’s trading volume had come from Asia.
She lamented that at least half of the projects in the U.S. she talked to had little idea about the role Asia had been playing.
Around last February and March, Solana made a critical decision to put more effort and resources into Chinese-speaking and APAC in general. This decision was particularly encouraged by Hong Kong’s warm-up to this industry.
Thank you for reading. Please let me know your thoughts in the comment area.
Coco
I am Coco Kee, Co-founder of Kee Global Advisors and author of BlockchainAsia. More than 3 years ago, I started following innovations and developments in Asia’s blockchain, digital & crypto assets with the belief that this industry is inherently global and Asia is the other side of the coin. BlockchainAsia keeps readers informed of the latest developments and opportunities in Asia, a unique platform to showcase emerging Asian startups and VC funds.
Email me if you want me to include your company’s stories or interview you. Follow me on Linkedin and Twitter.
The curated content is selective and serves as information and contains personal views only, not investment advice.
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