The Council for Cryptocurrency Innovation (CCI) has submitted extensive feedback on Hong Kong's proposed stablecoin regulatory framework, offering both commendations and critiques in its five-page letter. The advocacy group expressed appreciation for the initiative taken by the Hong Kong Monetary Authority (HKMA) and the Financial Services and the Treasury Bureau (FSTB) in developing the regulatory regime but voiced concerns regarding certain aspects of the proposal.
One of the key points of contention highlighted by the CCI pertains to the reserve and operating requirements outlined in the consultation paper. The group warned that these requirements, if overly stringent or duplicative of those in other jurisdictions, could pose a significant burden to stablecoin issuers operating in Hong Kong, particularly considering the global nature of the crypto-asset industry.
To address these concerns, the CCI proposed a risk-based approach to reserve requirements and advocated for the adoption of an "equivalence framework" aligned with international standards. Drawing parallels with regulatory practices in countries like Japan, the group suggested that issuers holding licenses from recognized jurisdictions should be permitted to operate in Hong Kong without undergoing redundant regulatory scrutiny.
A significant portion of the CCI's letter was dedicated to advocating for algorithmic stablecoins, which it believes warrant specialized regulatory treatment. Despite past incidents like the collapse of the Terra/LUNA ecosystem, the CCI remains optimistic about the potential of algorithmic stablecoins, emphasizing their role as innovative financial instruments that could enhance efficiency in decentralized finance.
However, the proposal under review would subject all stablecoins, including algorithmic ones, to the same regulatory regime, raising concerns about the feasibility of meeting licensing criteria for issuers relying on arbitrage or algorithmic mechanisms. The CCI underscored the importance of tailored regulations for algorithmic stablecoins and urged regulators to consider the nuances and benefits associated with different types of stablecoin models.
In addition to algorithmic stablecoins, the CCI expressed support for cryptocurrency-pegged stablecoins such as Dai, RAI, and LUSD, highlighting their resilience amid market volatility. The group stressed the need for regulatory frameworks that accommodate various stablecoin models while promoting innovation and safeguarding investor interests.
