discussion paper on crypto assets and stablecoins

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discussion paper on crypto assets and stablecoins

Stablecoins’ role in crypto and beyond: functions, risks and policy

Prepared by Mitsu Adachi, Pedro Bento Pereira Da Silva, Alexandra Born, Massimo Cappuccio, Stephanie Czák-Ludwig, Isabella Gschossmann, Georg Paula, Antonella Pellicani, Sarah-Maria Philipps, Mirjam Plooij, Ines Rossteuscher and Pierfrancesco Zeoli [ 1 ]

Stablecoins are in the spotlight due to their rapid growth, increasing global use cases and potential financial risk contagion channels. This article analyses the role played by stablecoins within the wider crypto-asset ecosystem and finds that some existing stablecoins are already critical to liquidity in crypto-asset markets. This could have wide-ranging implications for crypto-asset markets if a large stablecoin were to fail and could also have contagion effects if crypto-assets’ interlinkages with the traditional financial system continue rising. To date, the speed and cost of stablecoin transactions, as well as their redemption terms and conditions, have fallen short of what is required of practical means of payment in the real economy. Their growth, innovation and increasing use cases, coupled with their potential contagion channels to the financial sector, call for the urgent implementation of effective regulatory, supervisory and oversight frameworks before significant further interconnectedness with the traditional financial system occurs.

1 Introduction

Stablecoins are currently in the spotlight of policymakers due to their rapid growth, increasing global use cases and potential financial risk contagion channels. Stablecoins are a segment of the wider crypto-asset ecosystem along with what is often referred to as unbacked crypto-assets. [ 2 ] They were developed to address the high price fluctuations of unbacked crypto-assets such as bitcoin and ether, and their comparatively low price volatility predestines stablecoins for a number of functions where this property is needed. However, events in early May showed that stablecoins may not be so stable after all. Their reserve assets (in the case of collateralised stablecoins) give them a direct link to the traditional financial sector, which warrants policymakers’ attention.

Stablecoins are digital units of value that rely on stabilisation tools to maintain a stable value relative to one or several official currencies or other assets (including crypto-assets). [ 3 ] Stabilisation tools include reserve assets against which stablecoin holdings can be redeemed, as used by so-called collateralised stablecoins, and algorithms that match supply and demand to maintain a stable value, as used by so-called algorithmic stablecoins. [ 4 ]

This article discusses the financial stability implications of stablecoins stemming from their current role in the crypto-asset ecosystem. First, it analyses the importance of stablecoins within wider crypto-asset markets before going on to examine whether they fulfil the requirements of practical means of payment in the real economy. The article finishes by highlighting what the current role of stablecoins implies for financial stability and the importance of their regulation.

2 Stablecoins’ role within the crypto-asset ecosystem

The uses of stablecoins within the crypto-asset ecosystem have multiplied in recent years. Initially, stablecoins were mainly used as a relatively safe “parking space” for crypto volatility and as a bridge to trade crypto-assets. [ 5 ] But with the rise of decentralised finance (DeFi) applications, stablecoins have gained new uses. [ 6 ]

Stablecoins account for only a small part of the total crypto-asset market, but the largest ones have assumed a critical role within the crypto-asset ecosystem. Although their market capitalisation increased from €23 billion in early 2021 to just under €150 billion in the first quarter of 2022, stablecoins still only account for below 10% of the total crypto-asset market. However, they have become a critical part of the crypto-asset ecosystem due to their frequent use in the trading of crypto-assets and as liquidity providers in DeFi. This holds specifically for the stablecoins dominating the market. Tether, USD Coin and Binance USD, which are all collateralised stablecoins, account for around 90% of the total stablecoin market. Other stablecoins with meaningful shares include the algorithmic stablecoins DAI and – until its crash on 9 May, which wiped out almost its entire market capitalisation – TerraUSD.

The largest existing stablecoin, Tether, has already become critical in crypto-asset trading. One major activity for which stablecoins are used is crypto-asset trading, where they function as a bridge between official currencies and crypto-assets. Driven by Tether, the trading volumes of stablecoins surpassed those of unbacked crypto-assets in the course of 2021, reaching average quarterly trading volumes of €2.96 trillion, almost on a par with those of US equities on the New York Stock Exchange (€3.12 trillion). [ 7 ] In addition, Tether is involved in half of all trades of bitcoin and ether, which is a higher proportion than the trades of bitcoin and ether against official currencies [ 8 ] (Chart 1, panel a), and accounted for around 65% of all trading on crypto-asset trading platforms in March 2022. [ 9 ]

Tether dominates trading volumes within the crypto-asset ecosystem, and stablecoins provide most of the liquidity for decentralised trading and lending

Sources: IntoTheBlock, CryptoCompare and ECB calculations. Notes: Panel a: trading volume data are based on CryptoCompare’s real-time aggregate index methodology (CCCAGG), which aggregates transaction data from more than 250 exchanges. The chart reflects the sum of trading volumes involving bitcoin or ether (monthly average), as well as the respective percentages of the volume of trades occurring between bitcoin/ether and listed assets or asset groups. “Other stablecoins” includes USD Coin, DAI, Pax Dollar, TerraUSD and 12 other large stablecoins. “Other crypto-assets” includes 29 of the largest unbacked crypto-assets after bitcoin and ether. “Official currencies” includes USD, EUR, JPY, GBP, RUB, PLN, AUD, BRL, KRW, TRY, UAH, CHF, CAD, NZD, ZAR, NGN, INR and KZT. “Other” consists of remaining assets not included in the preceding categories. Panel b: stablecoin liquidity in DEXes is approximated based on the ten most liquid pairs on Curve, Uniswap and SushiSwap as of 17 May 2022. Curve, Uniswap and SushiSwap represent approximately 50% of total value locked in DEXes. “Stablecoins (collateralised)” includes Tether, USD Coin and True USD. “Stablecoins (algorithmic)” includes DAI, Magic Internet Money and three further stablecoins. “Other crypto-assets” includes ether, PAX Gold and FNK wallet. “DeFi Tokens” includes wrapped bitcoin, Uniswap’s governance token UNI, SushiSwap’s governance token SUSHI and 16 other tokens of different DeFi protocols.

Stablecoins provide most of the liquidity in DeFi applications such as decentralised exchanges and lending protocols. [ 10 ] Stablecoins provided around 45% of the liquidity in decentralised exchanges (DEXes) in May 2022 (Chart 1, panel b). [ 11 ] About half of this amount was provided by collateralised stablecoins. However, for collateralised stablecoins like Tether and USD Coin, liquidity provision for decentralised trading or lending is relatively low compared to their total market capitalisation (less than 8%). This suggests they are still mainly used for other purposes in the crypto-asset ecosystem. By comparison, for algorithmic stablecoins like DAI (more than 30%) and TerraUSD (more than 75% before its crash), liquidity provision in DeFi represents a substantial share of their total market capitalisation. [ 12 ] For these particular stablecoins, usage in DeFi is thus quite important.

3 Stablecoins as means of payment

Stablecoins fall short of what is required of practical means of payment for the real economy. Below, several technical aspects on how stablecoins fall short of the requirements needed for real economy payments are elaborated, although without including a detailed comparison with traditional payment systems that offer other benefits such as legal certainty, settlement finality and operational resilience.

European payment service providers (PSPs) are not very active in stablecoin markets and offer limited stablecoin payment services. One reason for this lack of activity could be regulatory uncertainty pending the adoption of the Markets in Crypto-assets (MiCA) Regulation. Most service providers active in stablecoin markets in the EU are registered in the EU, with only a few authorised as PSPs, while the majority are registered as virtual asset service providers (under the current anti-money laundering/countering the financing of terrorism (AML/CFT) framework). Activity varies considerably between EU Member States. Services related to stablecoins in the EU mainly consist of acquisition, holding or selling via different means, while the availability of services for spending stablecoins at merchants is currently limited. Most stablecoins offered by EU PSPs are still USD-pegged, with only a few offering EUR-pegged stablecoins.

Transaction speeds differ by blockchain but are slow for stablecoins issued on the predominant blockchain. Transaction speeds as measured by the confirmation time for an average transaction vary by blockchain (Chart 2, panel a) and depend inter alia on the consensus mechanism used. Other factors such as the block time and size, transaction fees and network traffic also influence transaction speeds. The Ethereum blockchain is still the predominant blockchain on which many stablecoins operate, although this is changing. [ 13 ] The duration between transaction blocks of the largest stablecoins on the Ethereum blockchain, such as Tether, USD Coin and DAI, is comparable to that of ether and faster than for transactions of bitcoin (Chart 2, panel b). However, the transaction time is not near-instant or real-time as required for usage at the physical point of sale or in e-commerce. Additionally, transaction speeds differ between stablecoins on the same blockchain with smaller and less liquid stablecoins and those pegged to real assets like gold, which have longer transaction times. [ 14 ]

It is not clear if blockchain technology will ever be able to outperform non-blockchain payment technology. Private stablecoins are argued to be technologically superior to traditional payment systems because they use blockchain platforms. However, this superiority may be temporary. As an example, during testing for a central bank digital currency, the Federal Reserve Bank of Boston showed that a non-blockchain payment technology can perform ten times more transactions per second than a high-performance blockchain technology. [ 15 ] The necessary ordering of valid transactions to prevent double spending in the blockchain creates bottlenecks that limit scalability and may ultimately hamper fast payments.

Blockchain networks differ in their scalability, but even on the same blockchain, stablecoin transaction speeds may differ

Sources: Intotheblock, PhAmex Blog, Algorand Blog and Avalanche Support. Notes: Panel a: the left-hand scale shows the number of TPS processed on average by each network that is below the maximum capacity claimed by each network. For Mastercard, only the network’s maximum capacity of transactions per second is available (5,000 TPS), so it is not included in the chart. BTC: bitcoin blockchain, ETH: Ethereum blockchain, SOL: Solana blockchain, TRON: Tron blockchain, AVAL: Avalanche blockchain, ALGO: Algorand blockchain. The right-hand scale shows the average transaction confirmation time in seconds. Panel b: average duration between transaction blocks of bitcoin and stablecoins in the Ethereum network; ETH: ether; USDT: Tether; USDC: USD Coin; BUSD: Binance USD; DAI: Dai; GUSD: Gemini Dollar; USDP: Pax Dollar; PAXG: PAX Gold; BTC: bitcoin.

Stablecoin transaction costs can vary substantially and do not show a clear-cut advantage compared with traditional payment schemes. Transaction costs of stablecoins vary depending on a number of factors, such as the complexity of a transaction or the congestion of the network, leading to higher fees. [ 16 ] Analysis of stablecoin transaction fees by Mizrach (2022) shows that, for a large portion of stablecoins, the transaction costs are higher than those of ATM transactions or the average costs of Visa or Mastercard schemes in Europe. [ 17 ] However, there are differences across stablecoins. While the median transaction fee for Tether is similar to the cost of an ATM transaction [ 18 ] , it is three to four times higher if DAI or USD Coin is used. In addition, customers often use payment accounts with (flat) fees to cover most of their payment services. If these payment accounts remain essential for end users’ everyday payment use and end users need an additional account or wallet for stablecoins, then using stablecoins may represent another layer of fees and be unattractive for end users. [ 19 ]

Stablecoin issuers are moving to new blockchain technologies to address the scalability and efficiency issues of the current most-used blockchains. [ 20 ] The majority of stablecoins are minted on blockchains using proof-of-work (PoW) consensus mechanisms that require network participants (the so-called miners) to compete with each other on the network to solve the complex puzzles involved in validating new transactions and adding new blocks. This not only makes PoW blockchains slower and less scalable, but also highly energy-consuming. [ 21 ] New blockchain networks following proof-of-stake (PoS) or proof-of-history (PoH) consensus mechanisms increase speed by requiring less network participants (or “validators”), reducing the computational power needed to verify each block transaction. [ 22 ] These networks, including Tron, Avalanche, Algorand and Solana, enable more transactions to be performed per second than on the Ethereum or bitcoin networks, are more scalable and have lower transaction costs (Chart 2, panel a). However, there may be a trade-off between scalability, security and decentralisation. [ 23 ]

The largest stablecoins constrain users’ redemption possibilities. Users should be able to redeem their stablecoins at any moment and at par value to the referenced official currency. As is the case for traditional PSPs, users should also be able to easily access information about the redemption terms. However, stablecoin issuers constrain users in their redemption possibilities and offer insufficient public disclosure about their redemption terms. For example, the largest stablecoin issuers offer redemption only once per week or during business days. [ 24 ] In addition, the right to redeem at par value to the official currency of denomination is not always ensured, meaning redemptions are dependent on reserve valuation or must be made in-kind. [ 25 ] In some cases, holders of stablecoins also face limits or high minimum thresholds for redemptions. This makes them unredeemable for the majority of ordinary retail users. [ 26 ] In addition, consumer protection measures such as transparency requirements, refunds, protection from excessive fees and fraud compensation are currently not applicable for stablecoins.

4 Potential risks to financial stability stemming from stablecoins

Stablecoins may pose risks to financial stability through different contagion channels. These channels include: (i) financial sector exposures; (ii) wealth effects (i.e. the degree to which changes in the value of crypto-assets might affect their investors, with subsequent knock-on effects on the financial system); (iii) confidence effects (i.e. the degree to which developments concerning crypto-assets could affect investor confidence in crypto-asset markets and potentially the broader financial system); and (iv) the extent of crypto-assets’ use in payments and settlements. [ 27 ]

Issuers of collateralised stablecoins need to ensure robust reserve asset management to instil confidence, ensure the stability of the peg and avoid a run on the coin with possible contagion to the financial sector. Like money market funds (MMFs), reserve assets of stablecoins need to be liquid to allow users to redeem their stablecoins in fiat currency. Adequate management of reserve assets underpins users’ confidence in stablecoins. A loss of confidence could trigger large-scale redemption requests – especially if there are limited redemption possibilities (Section 3) – leading to the liquidation of reserve assets with negative contagion effects on the financial system. It is worth noting that the largest stablecoins have already reached a scale comparable to large prime MMFs domiciled in Europe. [ 28 ]

While the transparency of reserve asset composition has increased somewhat over the last year, details are still scarce. Reserve asset disclosures have become more transparent since early 2021, and there has been a shift towards more liquid assets. [ 29 ] However, Tether still holds large investments in commercial paper despite a 20% reduction by the end of 2021, as well as positions in MMFs and digital tokens. [ 30 ] The lack of granular information on the geographical origin or exact size of Tether’s commercial paper holdings – as they are not separated from certificates of deposits – impedes a clear view on the liquidity of these reserves and the contagion effects for short-term funding markets. In addition, it is difficult to compare the composition of reserve assets across stablecoins given the lack of disclosure and reporting standards.

Recent developments show that stablecoins are anything but stable, as exemplified by the crash of TerraUSD and the temporary de-pegging of Tether. Amid a general downturn in the crypto-asset markets, TerraUSD lost its peg to the US dollar on 9 May and crashed to a price below USD 10 cents after 16 May. At the same time, its market capitalisation fell from around €18 billion to less than €2 billion (Chart 3, panel a). Amid the ensuing crypto market stress, the price of Tether came under pressure, with the largest stablecoin temporarily losing its peg on 12 May (Chart 3, panel b). Since then, Tether has seen outflows of more than €8 billion, equivalent to almost 10% of its market capitalisation. This episode shows that stablecoins cannot guarantee their peg and, if it is lost, there is a risk of contagion within the crypto-asset ecosystem. It seems the market has differentiated between stablecoins. In the case of Tether, shortcomings in its redemption possibilities and a loss of confidence potentially related to the opacity of its reserve composition may have played a role in the de-pegging and continuous outflows observed. [ 31 ] The other two major collateralised stablecoins, USD Coin and Binance USD, have instead seen small inflows (Chart 3, panel a).

Since temporarily losing its peg to the US dollar, Tether’s market capitalisation has fallen alongside that of the failed stablecoin TerraUSD, while the market capitalisation of other large stablecoins has slightly increased

Sources: CryptoCompare, Glassnode and ECB calculations. Note: Panel b: intraday resolution of prices at ten-minute intervals.

Holders of stablecoins may face losses in the event of a run on or failure of a stablecoin. Currently, h oldings of Tether, USD Coin and DAI are concentrated among large investors, i.e. those holding more than 1 million coins (Chart 4). They account for more than 80-90% of the supply of these stablecoins on the Ethereum blockchain, [ 32 ] while retail investors, defined as having a balance of less than 10,000 units of each of these stablecoins, represent 3% or less. Data gaps do not allow for the identification of these large investors. Anecdotal evidence suggests that they may be specialised institutional investors, such as specialised crypto funds or hedge funds, in which case spillovers to the financial system would be limited. [ 33 ] In the specific case of TerraUSD, holders have suffered huge losses.

Growing interest by banks, PSPs and big techs in the issuance or use of stablecoins is likely to increase connections with the traditional financial system. In the United States, a consortium of banks insured by the Federal Deposit Insurance Corporation recently announced their plans to issue a stablecoin. [ 34 ] In the EU, banks and financial institutions may also be interested in issuing stablecoins or offering related services once the MiCA Regulation enters into force. In addition, the use of stablecoins may accelerate if large technology companies (big techs) start offering their own stablecoins or integrate existing stablecoins into their wallets. [ 35 ]

Stablecoins are mainly held by large investors

(monthly average percentage)

Sources: IntoTheBlock and ECB calculations. Note: Large investors hold a balance of over 1 million coins, investors hold a balance of between 10,000 and 1 million coins, and retail users hold a balance of up to 10,000 coins.

Insofar as unbacked crypto-assets may pose a risk to financial stability in the future, the critical function some stablecoins play in the wider crypto-asset ecosystem is a concern for financial stability. The nature and scale of crypto-asset markets are evolving rapidly, and if current trends continue, unbacked crypto-assets will pose risks to financial stability. [ 36 ] As the analysis in Section 2 shows, stablecoins are closely intertwined with unbacked crypto-assets. If, for example, Tether were to fail, a substantial amount of trading liquidity in the crypto-asset ecosystem would dry up. This could disrupt trading and price discovery in crypto-asset markets. In turn, it could have contagion effects for the financial system if at some point in the future crypto-asset markets pose a risk to financial stability.

5 Regulating stablecoins

Given the potential risks and cross-border nature of stablecoins, a granular and robust global regulatory approach is essential. Important steps have already been taken in this direction. The Financial Stability Board (FSB) published high-level recommendations for the regulation, supervision and oversight of global stablecoins in 2020. [ 37 ] However, the FSB recommendations provide only high-level guidance. They are not granular enough on the specific requirements needed to ensure the stability of stablecoins (for example, the capital and liquidity requirements necessary for the credible management of reserve assets or public disclosure) and a level global playing field.

International standards will need to cover all relevant entities and functions in a stablecoin arrangement. Stablecoin arrangements are complex, consisting of a variety of functions and activities that in turn are performed by multiple entities across a range of sectors and jurisdictions. It will thus be important to adequately cover all relevant entities and functions in a stablecoin arrangement. Global groups such as the FSB could provide granular guidance to close gaps in areas where relevant standards or standard-setting bodies do not exist. Furthermore, the standards should ensure consistency in requirements, regardless of the sectoral origin of a stablecoin’s sponsors, functions and activities (for example, if it is issued by a bank or by other entities), in accordance with the “same business, same risk, same rule” principle.

Existing international sectoral standards may leave gaps in terms of adequately mitigating the inherent risks of stablecoins. International sectoral standards were designed at a time when stablecoins did not exist. As a result, the regulatory treatment of exposures to stablecoins and the prudential requirements to be applied when assuming any stablecoin functions/activities have yet to be determined for the different financial sectors. [ 38 ]

Given the rapid growth of the stablecoin market, stablecoins need to be brought into the regulatory perimeter with urgency. A good example is the EU’s proposed MiCA Regulation, which needs to be implemented urgently. [ 39 ] The EU is leading international efforts to put in place a new, harmonised regulatory framework for stablecoins, building on the EU e-money directive and taking into account its limitations. The MiCA Regulation is a bespoke framework for the issuance and provision of services related to stablecoins and other crypto-assets. Under this regulation, stablecoin issuers and crypto-asset service providers are subject to the same set of minimum requirements, irrespective of their applicable licensing regime. For example, e-money institutions are one of two types of issuers allowed to issue stablecoins along with credit institutions. Their requirements are overlaid with additional requirements to address the bank-like risks arising from stablecoin issuance (for example, risks related to reserve assets). To address potential systemic risks, more stringent requirements are to be applied to “significant stablecoins” that could pose a greater threat to financial stability, monetary policy transmission and monetary sovereignty. Recent events around TerraUSD underline the need to distinguish between different types of stablecoins according to the risks they pose. The idea that stability can be created in an algorithmic stablecoin with no collateral or quasi-collateral consisting of unbacked crypto-assets that have no inherent value seems to be wishful thinking. Algorithmic stablecoins should be treated as unbacked crypto-assets, according to the actual risk of their collateral or lack thereof.

6 Conclusion

Financial stability risks from stablecoins are currently still limited in the euro area, but if growth trends continue at their current pace, this may change in the future. Stablecoins have grown rapidly to become an important part of the crypto-asset ecosystem, with some posing risks to liquidity in crypto-asset markets in the event of failure. The speed and cost of stablecoin transactions, as well as their redemption terms and conditions, fall short of what is required of practical means of payment for the real economy.

Effective regulation of stablecoins is critical for responsible innovation and financial stability. Appropriate regulation, supervision and oversight need to be implemented before stablecoins become a risk to financial stability and the smooth functioning of payment systems. Existing stablecoins urgently need to be brought into the regulatory perimeter, and new ones need a regulatory framework to be established. To cater for their specific risks, algorithmic stablecoins should be treated as unbacked crypto-assets. Where stablecoins are used for payment purposes, regulatory regimes need to provide further clarity with respect to other areas such as data privacy, consumer protection, market integrity, AML/CFT and tax rules. At the international level, it will be important to ensure a level playing field globally through a consistent, granular and robust regulatory approach. This includes both the regulation of stablecoins per se and the regulation of exposures of traditional financial sectors that are interlinked with stablecoins.

Adachi, M., Born, A., Gschossmann, I. and van der Kraaij, A. (2021), “ The expanding functions and uses of stablecoins ”, Financial Stability Review , ECB, November.

Basel Committee on Banking Supervision (2021), “ Prudential treatment of cryptoasset exposures ”, Consultative Document , June.

Born, A., Gschossmann, I., Hodbod, A., Lambert, C. and Pellicani, A. (2022), “ Decentralised finance – a new unregulated non-bank system? ”, Macroprudential Bulletin , Issue 18, ECB, July.

Bullmann, D., Klemm, J. and Pinna, A. (2019), “ In search for stability in crypto-assets: are stablecoins the solution ?”, Occasional Paper Series , No 230, ECB, August.

Buterin, V. (2021), “ Why sharding is great: demystifying the technical properties ”.

ECB Crypto-Assets Task Force (2020), “ Stablecoins: Implications for monetary policy, financial stability, market infrastructure and payments, and banking supervision in the euro area ”, Occasional Paper Series , No 247, ECB, September.

Financial Stability Board (2022), Assessment of Risks to Financial Stability from Crypto-assets , February.

Gorton, G. and Zhang, J. (forthcoming), “ Taming Wildcat Stablecoins ”, University of Chicago Law Review , Vol. 90, University of Chicago Law School.

Gschossmann, I., van der Kraaij, A., Benoit, P-L. and Rocher, E. (2022), “ Mining the environment – is climate risk priced into crypto-assets? ”, Macroprudential Bulletin , Issue 18, ECB, July.

Hermans, L., Ianiro, A., Kochanska, U., van der Kraaij, A. and Vendrell Simón, J.M. (2022), “ Decrypting financial stability risks in crypto-asset markets ”, Special Feature A, Financial Stability Review , ECB, May.

Liao, G. and Caramichael, J. (2022), “ Stablecoins: Growth Potential and Impact on Banking ,” International Finance Discussion Papers , No 1334, Board of Governors of the Federal Reserve System, January.

Lyons, R. and Viswanath-Natraj, G. (2020), “ What Keeps Stablecoins Stable ?”, NBER Working Paper Series , No 27136, National Bureau of Economic Research, May.

Medalie, C., Aubert, D. and Ryder, C, (2022), “ What’s Driving Tether’s De-Pegging? ”, Kaiko blog, 12 May.

Mizrach, B. (2022), “ Stablecoins: Survivorship, Transactions Costs and Exchange Microstructure ”.

Organisation for Economic Co-operation and Development (2022), Why Decentralised Finance (DeFi) Matters and the Policy Implications , January.

The authors would like to acknowledge comments and suggestions made by Anton van der Kraaij and Patrick Papsdorf.

The term “unbacked crypto-assets” as used in this article follows the terminology of the Financial Stability Board (FSB) and includes crypto-assets that are neither tokenised traditional assets nor stablecoins. However, it does not imply that stablecoins are fully backed or backed at all by assets. See FSB (2022).

See ECB Crypto-Assets Task Force (2020) and Bullmann et al. (2019).

In this article, the category of algorithmic stablecoins also includes stablecoins that are backed by crypto-assets such as DAI, sometimes called on-chain collateralised stablecoins.

See Adachi et al. (2021).

The share of investors holding their stablecoins for longer than a month but less than a year has risen recently, suggesting they are increasingly used as a hedge against unbacked crypto-assets’ high volatility and to generate interest by using them for liquidity provision in DeFi (see, for example, Lyons and Viswanath-Natraj, 2020).

Data for trading volumes of Tether comes from CryptoCompare, whereas data for US equities comes from “ Historical Market Volume Data ”, Cboe Exchange, Inc.

This includes either buying bitcoin and ether with official currency or exchanging bitcoin and ether into official currency.

See “ Share of Trade Volume by Pair Denomination ”, The Block.

For further analysis on DeFi, see Born et al. (2022) and the references therein.

Stablecoin usage in decentralised trading is approximated based on the most liquid trading pairs of the largest decentralised exchanges (DEXes) on the Ethereum blockchain, which include the Curve, Uniswap and SushiSwap protocols. Within the three DEXes under analysis, the offered trading pairs are initially ranked by liquidity, which is defined as the total USD amount supplied from both tokens in the trading pair. We then analyse the ten most liquid pairs for each decentralised exchange. As of 17 May 2022, the sum of liquidity provided by these pairs represents approximately 80% of the total liquidity provided within the DEXes. Due to the crash of TerraUSD in early May, liquidity in DEXes declined overall and equally across the different asset types used for liquidity provision (Chart 1, panel b). The share of stablecoins for liquidity provision remained relatively stable.

Shares for Tether, USD Coin and DAI are approximated based on their respective liquidity provision to the largest DEXes (Curve, Uniswap and SushiSwap) and one of the largest lending protocols (Compound) on the Ethereum blockchain. TerraUSD’s usage in DeFi primarily entails its liquidity provision to the lending and borrowing protocol Anchor, which runs on the Avalanche and Terra blockchains. Available data sources only allowed for in-depth analyses of lending protocols and DEX trading pairs running exclusively on the Ethereum blockchain.

See, for example, Chart A, panel b in Adachi et al. (2022).

Binance USD and Pax Dollar have higher transaction times in the Ethereum network, whereas the majority of transactions may happen in other platforms where they are most likely faster.

While the non-blockchain technology could perform 1.7 million transactions per second, the high performance blockchain technology could only perform 170,000 transactions per second. For more information, see Project Hamilton .

See, for example, OECD (2022) or Mizrach (2022) for a discussion of fees on Ethereum and how it relates to the increase in transactions.

In the United States, the costs of USD Coin and DAI transactions are sometimes higher compared with the average range of payment scheme fees, ranging from 1.4% to 3.5% of the total transaction value. However, in Europe, the scheme fee, merchant service fee and interchange fee combined can be below 1% of the transaction value, making the comparison even less favourable. For data on fees in Europe, see the Scheme Fee Study by CMSPI and Zephyre in 2020.

Mizrach (2022) uses an average fee of USD 3 for out-of-network ATM transactions in the United States as a reference point.

Traditional payment accounts often have a flat fee for all credit transfer, direct debit or card transactions instead of individual transaction fees for the user. There may be specific cases such as money remittances where stablecoin transactions are attractive for payments in the EU.

For example, the supply of Tether on the Tron blockchain has now exceeded that on Ethereum, and the supply of USD Coin on Solana represents almost 10% of the total circulating supply of USD Coin.

See Gschossmann et al. (2022) for further discussion of the carbon footprint of PoW crypto-assets.

Ethereum is currently in the process of switching to PoS, which is due to be finalised by the end of 2022 (see https://ethereum.org/en/upgrades/merge/ ). For further information on PoS, see https://ethereum.org/en/developers/docs/consensus-mechanisms/pos/ . For PoH, see https://solana.com/news/proof-of-history .

For example, bitcoin owners and miners generally continue to view PoW as the more secure and decentralised consensus mechanism, and the bitcoin network so far has not experienced security flaws or been hacked. See Buterin (2021), who refers to this trade-off as the scalability trilemma.

Tether only entitles redemptions once per week and reserves the right to delay the process in case of issues with reserve assets. USD Coin only permits redemptions during business days.

For the stablecoin E-Money Euro, the value of redemptions may be made dependent on the performance of reserves, while Tether reserves the right to in-kind redemptions of assets held in its reserves.

For example, the minimum redemption threshold for Tether is USD 100,000. See also Gorton and Zhang (forthcoming).

As defined by the FSB (2022).

See Chart B, panel a in Adachi et al. (2021)

For example, in September 2021, USD Coin moved its investment entirely to cash and cash equivalents, away from commercial paper holdings (about 10%) and positions in corporate bonds and US Treasuries.

Tether’s reserve assets included the following assets as of March 2022: cash/bank Deposits: 5.0%; US Treasury bills: 47.6%; non-US Treasury bills: 0.4%; secured loans: 3.8%; corporate bonds, Ffnds and precious metals: 4.5%; commercial paper and certificates of deposit: 24.4%; money market funds: 8.3%; other investments (incl. digital tokens): 6.0%. See Tether Assurance Consolidated Reserved Report , March 2022.

See Medalie et al. (2022).

The data for this analysis are only available for the supply of these stablecoins on the Ethereum blockchain, which represents the majority of supply in the case of USD Coin and DAI but only half of the supply in the case of Tether.

On the involvement of hedge funds or crypto funds with stablecoins, see for example https://www.bloomberg.com/news/articles/2022-03-11/hedge-fund-fir-tree-bets-big-with-short-of-stablecoin-tether .

See https://www.usdfconsortium.com/

For example, Facebook’s (Meta’s) wallet, Novi, has been launched in the United States and is partnering with an existing USD-denominated stablecoin (Pax Dollar). The move may promote stablecoins for daily payments across the Facebook ecosystem. See “Pilot Version of Novi Now Available”, Novi News, 19 October 2021.

See Hermans et al. (2022) and FSB (2022).

See Regulation, Supervision and Oversight of “Global Stablecoin” Arrangements . The FSB is currently reviewing these recommendations, including how any gaps identified could be addressed by existing frameworks.

Steps are already being taken to remediate this gap. For example, the BCBS has consulted on the prudential treatment of crypto-assets, including stablecoins (see BCBS, 2021). In addition, the FSB is considering the various regulatory and supervisory approaches that are being taken in relation to unbacked crypto-assets.

See Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL on Markets in Crypto-assets, and amending Directive (EU) 2019/1937.

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HKMA issues discussion paper on crypto-assets and stablecoins

Introduction The Hong Kong Monetary Authority ( HKMA ) issued a discussion paper on 12 January 2022 in which it sets out its views on how to expand Hong Kong’s regulatory framework for crypto-assets. The discussion paper joins a number of papers that regulators across the world have issued on the subject of crypto-assets and has been prompted by the region witnessing significant growth in the market capitalisation of crypto-assets, as well as increasing investment in and/or usage by institutional and retail players. The discussion paper in particular considers stablecoins, which are generally considered a sub-set of crypto-assets, and have also been the focus of discussion across the international regulatory fora.

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Hong Kong – HKMA Conclusion On Crypto-Assets & Stablecoins.

March 28, 2023 by Rohin Pujari

On 31 January 2023, the Hong Kong Monetary Authority (“ HKMA ”) issued its “Conclusion of Discussion Paper on Crypto-assets and Stablecoins” (“ Discussion Paper ”), in which the HKMA set out its proposals regarding the development of a regulatory framework for stablecoins. The Discussion Paper was released after the HKMA received 58 submissions regarding its initial stablecoin discussion paper published on 12 January 2022 and set out its response in relation to the received feedback.

The Discussion Paper comes after the Monetary Authority of Singapore (“ MAS ”), on 26 October 2022, published its Consultation Paper on Proposed Regulatory Approach for Stablecoin-Related Activities, in which the MAS sets outs it proposed framework to regulate stablecoin issuers and intermediaries. The MAS invited submissions from interested parties and closed the submission of comments on 21 December 2022.

The Discussion Paper is published against the backdrop of the stablecoin market experiencing severe disruptions in the past year. In May 2022, TerraUSD (“ UST ”), the then-largest algorithmic stablecoin in terms of market capitalisation, lost its supposed US$1 peg due to the failure of its stabilising mechanism. The subsequent collapse of UST sent shockwaves across the cryptocurrency and stablecoin market. With increased selling pressure in the industry, this led to significant outflows from the largest stablecoin tether (“ USDT ”), which briefly lost its US$1.00 peg. Notably, USDT also briefly lost its US$1.00 peg following the bankruptcy of FTX. Especially given the increasing prevalence of stablecoins in personal and business usage, such incidents accelerated the interest of global authorities in regulating stablecoins to ensure their price stability.

The Discussion Paper is aligned with the efforts of many international regulators to regulate stablecoin-related activities. In its current form, the Discussion Paper proposes to prioritise regulating only “in-scope” stablecoins, which are stablecoins that purport to reference to one or more fiat currencies, due to the higher and more substantial monetary and financial stability risks, and delay regulating unbacked crypto-assets in the meantime. Such risks stem from stablecoins being more likely to be used in payments, and therefore have more linkages with the traditional financial system.

The HKMA believes the aforementioned market incidents are “lessons learnt from the stablecoin perspective”, as they demonstrated “certain vulnerabilities or even failures in multiple aspects including governance, management, stabilisation mechanisms, transparency and disclosure to users”. Although the HKMA encourages financial innovation, it plans to regulate the following key activities:

The HKMA will also consider addressing the issue of multiple or bundled financial services by affiliated entities – similar risks are usually minimised in the traditional finance sector for conflict of interest reasons, but not so in the cryptocurrency world. The FTX collapse is a case in point . The HKMA will adopt a “same risk, same regulation” approach when formulating the regulatory requirements for stablecoins. Instead of adopting a single type of licence covering various activities, the HKMA plans to develop appropriate regulatory requirements for each type of activities. During its formulation, the HKMA will adhere to the following key regulatory principles:

The HKMA is of the view that entities conducting stablecoin activity in Hong Kong or actively marketing such an activity to the Hong Kong public ought to hold a relevant licence. Further, such entities should be incorporated in Hong Kong, as this would allow the HKMA to effectively supervise such licensed entities and enforce the relevant regulatory requirements. Such a need is particularly relevant when a company is to be wound up, so that the company’s assets and liabilities can be separated with the rest of the group and for seizure of assets.

The HKMA will formulate the regulatory requirements and consult the market afterwards, with the target implementation date being 2023/24. In order to implement the proposed regulatory regime, the HKMA is also considering whether new legislation would be introduced or existing laws would be amended.

It will also be interesting to see the extent to which the HKMA takes reference to the Singapore MAS’ differentiated regulatory approach, which while relatively sophisticated, could also present challenges in interpretation, enforcement and compliance.

For further information, please contact:

Basil Hwang – Partner, [email protected]

Basil is a specialist in financial markets regulation, disputes and investigations, as well as contentious and complex transactions. He represents public companies, licensed intermediaries and investors.

Basil is recognized by clients for his business insight and sensible advice, his familiarity with regulations and business practices in Hong Kong and Greater China, and his ability to deliver results for clients.

Prior to founding Hauzen LLP, he founded and was the Managing Partner of a US law firm for seven years, managed and ran a Hong Kong Mainboard-listed company, and was general counsel and independent director of other companies listed in Hong Kong and Singapore.

Basil is admitted as a solicitor in Hong Kong, as a solicitor in England and Wales, and as an advocate and solicitor in Singapore. He is fluent in English, Mandarin and Cantonese.

HKUST – NYU Stern School of Business, Master of Global Finance
National University of Singapore, LL.B (Honours)
Represented several listed companies in complex disputes with bondholders, shareholders and business counterparties.
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The HKMA Published Conclusion on Crypto-assets and Stablecoins Discussion Paper

On 31 January 2023, the Hong Kong Monetary Authority (the “ HKMA ”) published a Conclusion of Discussion Paper on Crypto-assets and Stablecoins (the “ Consultation Conclusion Paper ”). This followed its earlier consultation by way of its discussion paper published on 12 January 2022 on the relevant proposals (the “ Discussion Paper ”) (see our news update on the Discussion Paper). Taking into account the feedback received, the HKMA will further proceed to bringing certain activities relating to stablecoins into the regulatory regime. The target implementation date of the regime will be by 2023/24 after considering various issues such as the volatility and risks of the stablecoins as well as the need to adopt the latest international recommendations and align Hong Kong’s regulatory regime in stablecoins with those in other major jurisdictions. 1

The Key Parameters of the Regulatory Regime

A. What to regulate

Having considered the responses received, the HKMA suggested that key activities relating to stablecoins will be subject to a mandatory licensing regime. The HKMA will take a risk-based approach by giving priority to regulating stablecoins that purport to reference to one or more fiat currencies at this stage. The focus of the regulation would be on the purported reference of a stablecoin regardless of their respective underlying stabilisation mechanism. That is, stablecoins that purports to reference to fiat currencies through algorithms or arbitrage mechanisms will be regulated. 2

Regarding the regime, the HKMA proposes that flexibility should be adopted to enable the authority to declare other stablecoin structure(s) for regulation under the regime in the future. The HKMA also acknowledges the need to exclude certain arrangements from the definition of stablecoins for certain reasons, for instance, the stablecoins which are already being subject to another financial regulatory regime. 3 As this issue has not been finalised yet, further analysis and additional consultation will be required for more information on decision making. While considering the regulation of other crypto-assets, the latest market situation and international discussion will be taken into account by the HKMA for future implementation.

B. Key activities to be regulated

As mentioned above, the key activities relating to an in-scope stablecoin will be regulated under the mandatory licensing regime, for instance: 4

It is noted that these activities might overlap and/or have interface with other financial regulatory regimes in Hong Kong such as the licensing regime for VASPs to be administered by the SFC. 5

For the other stablecoin-related activities that are not listed above, they may not be included in the proposed regulatory scope at this stage. Nevertheless, in order to scope in new types of regulated activities in the future, the HKMA aims to apply appropriate flexibility in the regulatory regime. This would also prepare the authority to tackle any risks associated with the unregulated stablecoin activities when such risks become concerning from a monetary and financial stability angle. 6

C. Entities that will require a license from HKMA

After the consultation, the HKMA concludes that the following types of entities will require a license from the authority:

Entities that:

D. Key regulatory principles

When formulating the regulatory requirements, the HKMA will adopt a risk-based approach. To deal with the issue where there are multiple activities that may take place regarding a stablecoin arrangement, the authority tends to customise the appropriate requirements for each type of activities. 8

For the time being, the HKMA has provided the three principles of the regulatory regime: 9

Authorised Institutions (“AI”) and Non-AI Issuers of Stablecoins

Following the consultation and considering the international standards, a risk-based, “same risk, same regulation” approach will be adopted by the HKMA, where the authority is of the view that both AIs and non-AIs should be allowed to issue stablecoins provided that the licensing and regulatory requirements could be satisfied. On the other hand, the final regulatory requirements applicable to the AI and non-AI will be calibrated according to risks of each type of issuers presents to the financial system. 10

Analysis and Takeaways

The significant potential in the use of crypto-assets in Hong Kong raises the need of investor protection and the regulation of the new financial instrument. With the introduction of the stablecoin and its regulatory parameters, the financial stability risks that may be posed by the stablecoin can be addressed for a safer crypto-asset ecosystem in Hong Kong. The proposed regulatory regime shows the initiative and determination of the regulators in Hong Kong to ensure monetary and financial stability amidst technological advancement.

Please contact our Partner Mr. Rodney Teoh for any enquiries or further information.

This news update is for information purposes only. Its content does not constitute legal advice and should not be treated as such. Stevenson, Wong & Co. will not be liable to you in respect of any special, indirect or consequential loss or damage arising from or in connection with any decision made, action or inaction taken in reliance on the information set out herein.

1 Consultation Conclusion Paper p.21 2 Consultation Conclusion Paper p.14 3 Consultation Conclusion Paper p.14 4 Consultation Conclusion Paper p.15-16 5 Consultation Conclusion Paper p.5 6 Consultation Conclusion Paper p.16 7 Consultation Conclusion Paper p.4 8 Consultation Conclusion Paper pp.17 9 Consultation Conclusion Paper pp.17-18 10 Consultation Conclusion Paper pp.22-23

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HKMA published conclusions to Crypto-assets and Stablecoins discussion paper

29 March 2023

The Hong Kong Monetary Authority (“HKMA”) has published its consultation conclusions on Crypto-assets and Stablecoins.

HKMA published conclusions to the discussion paper on Crypto-assets and Stablecoins that was issued in January 2022, highlighting feedback received.

The 2022 paper outlined the HKMA’s thoughts on the development of a regulatory framework for Stablecoins1 and invited feedback from stakeholders. The policy objectives are to safeguard Hong Kong’s monetary and financial stability while supporting financial innovation, and to adopt the relevant international regulatory recommendations.

The HKMA will start with regulating Stablecoins that aim to reference one or more fiat currencies.

Key activities that are related to an in-scope Stablecoin

Governance: establishment and maintenance of the rules governing an in-scope Stablecoin arrangement
Issuance: issuing, creation or destroying an in-scope Stablecoin
Stabilisation: reserve management arrangements of an in-scope Stablecoin
Wallets: provision of services that allow the storage of the users’ cryptographic keys which enable access to the users’ holdings of an in-scope Stablecoin and the management of such Stablecoins

Entities will require a license if they

Conduct a regulated activity in Hong Kong
Actively market a regulated activity to the public of Hong Kong
Conduct a regulated activity which concerns a Stablecoin that purports to reference to the value of the Hong Kong Dollar

Key Regulatory Principles

Comprehensive regulatory framework: appropriate regulatory requirements will be developed on areas such as but not limited to:

Governance and management
Financial resources requirements
Risk management
Anti-Money Laundering and Counter-Terrorist Financing (“AML/CTF”)
User protection
Regular audits and disclosure requirements

Full backing and redemption at par: the value of the reserve assets of a Stablecoin arrangement should meet the value of the outstanding Stablecoins at all times. The reserve assets should be of high quality and high liquidity. Stablecoins that derive their value based on arbitrage or algorithms will not be accepted. Stablecoin holders should be able to redeem the Stablecoins into the referenced fiat currency at par within a reasonable period.

Principal business restriction: the regulated entities should not conduct activities that deviate from its principal business as permitted under their relevant licenses.

HKMA’s responses

The HKMA will adopt a risk-based “same risk, same regulation” approach to regulate the relevant entities and activities
The HKMA will prioritise the regulation of Stablecoins at this stage and monitor the interconnectedness between other Crypto-assets and the mainstream financial system
The HKMA will continue to have regard for the monetary and financial stability risks that may be posed by different categories of Crypto-assets
The HKMA agrees that, regarding the possible cross border use cases of Stablecoins, there should be efficient and effective cooperation and coordination among relevant financial regulators

The HKMA intends to develop an agile, risk based regulatory regime for Stablecoins with requirements to be applied in a proportionate manner. The HKMA is also assessing whether to introduce a new legislation or amend existing laws. There is a target implementation date planned for 2023/24.

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Crypto-assets and stablecoins

The financial landscape is evolving rapidly around the world, alongside technological innovation. The HKMA is supportive of financial innovation and has been keeping up with the fast-evolving developments. For example, in 2016 we commissioned a whitepaper on distributed ledger technology (DLT). In 2019, the HKMA and the Bank of Thailand jointly initiated Project Inthanon-LionRock (later renamed as the mCBDC Bridge Project) to study the potential of wholesale central bank digital currency for cross-border payments, which was further expanded in February 2021 to include the Central Bank of the United Arab Emirates and the Digital Currency Institute of the People’s Bank of China, with strong support from the Bank for International Settlements Innovation Hub Centre in Hong Kong. Last year, we announced our “Fintech 2025” strategy to drive fintech development in Hong Kong.

Along this journey, while embracing the benefits of financial innovation, we are cognizant of the need to monitor and tackle possible risks, a topical one being the significant growth of crypto-assets and their increased interlinkages with the financial system. On this front and in line with international standards, we will adopt a risk-based, “same risk, same regulation” approach 1 to regulate the relevant entities and activities from angles including monetary and financial stability, user and investor protection, and possible fraud and money laundering activities. Let me share more details of our thoughts below.

Rapid growth of crypto-assets

There is no universal definition for crypto-assets which have a wide range of variation in terms of structure, nature and usage. They are sometimes referred to as virtual assets, and some critics already cast doubt on whether they should be labelled as assets since some of them actually do not have intrinsic value. The broad spectrum of these products covers investment-related tokens, stablecoins, utility tokens and non-fungible tokens, just to name a few.

In recent years, we have witnessed significant growth in the market capitalisation of crypto-assets (estimated to be around US$2.2 trillion), as well as increasing focus on this asset class by institutional and retail investors, which suggest its rising interconnectedness with the mainstream financial system. In Hong Kong, the Government has announced that a virtual asset service provider (VASP) licensing regime would be implemented for crypto-asset activities conducted on exchanges by amending the Anti-Money Laundering and Counter-Terrorist Financing Ordinance.

As for the HKMA, in discharging our functions to maintain monetary and banking stability and having regard to international standards, we are currently focusing on addressing the implications of crypto‑assets from three dimensions, namely stablecoins that may be used in payments, investor protection relating to crypto-assets, and Authorized Institutions (AIs)’ interface with crypto-assets.

Stablecoins

Stablecoins, as a subset of crypto-assets, are gaining market traction in recent years. Unlike other types of crypto-assets which are largely unbacked, stablecoins are generally linked or referenced to underlying assets such as securities or fiat currencies. Due to the lack of regulation or disclosure of their operational arrangements, there could be limited transparency about their backing arrangements.

International bodies and standard-setters such as the Financial Stability Board (FSB) are increasingly focused on stablecoins in the regulatory discussion, especially payment-related stablecoins, i.e. stablecoins that may be used for payment of goods, services or other financial transactions. This is because with their nature and intended usage for payment, this type of stablecoins will likely have relatively broad and frequent interconnection with the mainstream financial system and day-to-day commercial, financial and economic activities. Hence, the risks that they may pose to the financial system are more direct and imminent. For instance, operational issues undermining users’ or investors’ confidence in such assets could bring disruption to the functioning of our payment and financial systems.

In view of the above, it is crucial to ensure that the relevant arrangements and activities of payment-related stablecoins are safe and sound. As observed in the market, payment-related stablecoins and their wallets may perform functions similar to those of stored value facilities. Therefore, based on the “same risk, same regulation” principle, the HKMA has been reviewing the need to adjust the existing regulatory framework e.g. under the Payment Systems and Stored Value Facilities Ordinance to ensure that payment-related stablecoins are properly regulated in Hong Kong.

As part of the aforesaid efforts, we issued the Discussion Paper on Crypto-assets and Stablecoins earlier today to share our thoughts on the regulatory framework for payment-related stablecoins, and look forward to receiving feedback from stakeholders by 31 March 2022. We aim to introduce the new regime no later than 2023/24.

Investor protection

As mentioned above, some crypto-assets may have no intrinsic value and are subject to significant price fluctuations. This prompts questions such as whether these products are suitable for retail investors and how their selling process should be regulated. There is a clear need to promote investor education and enhance product disclosures on this front. The HKMA and the Securities and Futures Commission are working together to set out our supervisory expectations on the investor protection aspects of AIs’ provision of intermediary services to customers related to crypto-assets.

AIs’ interface with crypto-assets

The HKMA is also deliberating its regulatory approaches regarding AIs’ growing business interface with crypto-assets. Depending on the form of AIs’ engagement with crypto-assets and the underlying structure and nature of such assets, the key supervisory issues are wide ranging and include user protection, credit risk, market risk, operational risk, financial crime risk including fraud and money laundering/terrorist financing risk (ML/TF), as well as prudential treatment of any direct exposures of AIs to such assets according to relevant international standards recommended by the Basel Committee on Banking Supervision. The Financial Action Task Force has also updated its Recommendations to take account of the ML/TF risks of virtual assets, including stablecoins. AIs should critically evaluate their exposures to different types of risks and put in place appropriate risk-mitigation measures before establishing their relationship with crypto-asset service providers. The HKMA will soon issue a circular to provide more detailed regulatory guidance on these issues.

Looking ahead

The HKMA is committed to striking the right balance between maintaining a safe and efficient financial system in Hong Kong and supporting financial innovation. Our issuance of the Discussion Paper on Crypto-assets and Stablecoins today marks an important milestone of our engagement with stakeholders on the relevant issues. We will closely monitor the evolving landscape, stay open-minded and remain agile in drawing up the details of our regulatory framework. We are also actively participating in the relevant international discussion. Among others and as a member jurisdiction of the FSB, we are expected to have a plan in establishing a new, or adjusting the existing, regulatory framework, in line with FSB recommendations by July 2022. Last but not least, we will continue to keep an ongoing dialogue and closely coordinate with other regulators along our journey to contribute to the coordinated efforts internationally and locally.

Eddie Yue Chief Executive Hong Kong Monetary Authority

12 January 2022

1 This means that authorities should focus on the functions performed and risks posed by an activity, and apply the appropriate regulatory framework in the same manner as they would apply it to entities performing the same functions or activities, and posing the same risks.

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HKMA Issues Proposals for Regulating Payment-related Stablecoins

On 12 January 2022, the Hong Kong Monetary Authority (the HKMA ) published a Discussion Paper on Crypto-assets and Stablecoins 1 seeking feedback on its proposed regulation of “payment-related stablecoins”, being those crypto-assets most likely to become widely accepted as a means of payment and thus most likely to intersect with mainstream finance 2 (the HKMA Stablecoin Discussion Paper ). The proposed regulatory framework aims to address the risks posed to users and the financial system by the increasing use of crypto-assets while encouraging the potential benefits of financial innovation.

The HKMA has identified two main areas in need of review: (i) the HKMA’s regulation of Authorised Institutions’ ( AIs ) 3 interface with crypto-assets and their provision of crypto asset-related services to customers; and (ii) the adequacy of existing regulations to deal with the risks arising from the growing use of stablecoins and other crypto-assets. The first area has now been addressed in the HKMA’s circular “ Regulatory approaches to Authorized Institutions’ interface with Virtual Assets and Virtual Asset Service Providers ” 4 issued on 28 January 2022. The second area, and the need to regulate stablecoins in particular, are the subject of the HKMA Stablecoin Discussion Paper.

AIs intending to offer investment services in relation to crypto-assets are already required to notify the HKMA and the Securities and Futures Commission (the SFC ) in advance. In respect of non-payment-related (including unbacked) crypto-assets, the HKMA has been working with the SFC on their regulatory expectations for the investor protection to be provided by AIs’ offering crypto asset-related services as intermediaries. On 28 January 2022, the HKMA and SFC published a Joint circular on intermediaries’ virtual asset-related activities setting out their requirements for intermediaries conducting virtual asset-related activities, such as providing virtual asset advisory and dealing services and distributing virtual asset-related products, replacing the SFC’s requirements set out in its 1 November 2018 circular to intermediaries on the distribution of virtual asset funds.

The HKMA Stablecoin Discussion Paper sets out the HKMA’s proposed regulatory regime for entities conducting activities in relation to payment-related stablecoins in Hong Kong. Responses should be submitted on or before 31 March 2022 by email to [email protected] .

Hong Kong’s Current Regulatory Regime for Crypto and Regulatory Gaps

The HKMA notes that while stablecoins may be or become an accepted means of making payments, they may fall outside the scope of current Hong Kong regulation.

SFC Licensing Regime under the Securities and Futures Ordinance (SFO)

The SFC published its Position Paper 5 on the regulation of virtual asset trading platforms in November 2019 introducing a licensing regime for the operators of centralised virtual asset trading platforms which trade at least one virtual asset which is a security as defined under the SFO. To date, the SFC has licensed just one virtual asset trading platform. Once a platform operator becomes licensed, the SFC will monitor its trading activities in relation to all virtual assets traded, not only those that are securities.

Proposed Licensing Regime for Virtual Asset Service Providers (VASPs)

In May 2021, the Financial Services and Treasury Bureau (the FSTB ) published consultation conclusions on proposals to require the licensing under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance of operators of centralised virtual asset trading platforms as VASPs. When implemented, the new regime will require exchanges providing trading in virtual assets which are not subject to the SFO licensing regime to apply to the SFC for a licence. Operators of platforms already providing trading services will have 180 days to obtain the new licence. The licensing regime will extend only to the operators of virtual asset exchanges and not to other types of VASPs such as custodians and crypto wallet providers. The FSTB has said that the law drafting exercise would be commenced with a view to introducing the necessary legislation to the Legislative Council in 2022. For further information on the proposed regime, please see Charltons’ newsletter “ FSTB Concludes on Licensing Regime for Virtual Asset Exchanges ” 6 .

The HKMA notes in the Discussion Paper that various key functions involved in typical stablecoin arrangements may not be covered by the proposed VASP licensing regime. These functions include: (i) the issue and redemption of tokens; (ii) transaction execution: (iii) token custody and operation; (iv) value stabilisation and reserve management; (v) transaction validation; and (vi) fund transmission.

HKMA Regulation of Payment Systems and Stored Value Facilities

The HKMA regulates: (i) stored value facilities, such as e-wallets and pre-paid cards; and (ii) clearing and settlement systems and retail payment systems under the Payment Systems and Stored Value Facilities Ordinance (Cap. 584) (the PSSVFO ).

Under the PSSVFO, a facility is a stored value facility if:

the facility may be used for storing the value of an amount of money that:

is paid into the facility from time to time; and
may be stored on the facility under the rules of the facility; and

the facility may be used for either or both of the following purposes:

as a means of making payments for goods or services under an undertaking (express or implied) given by the issuer of the facility;
as a means of making payments to another person (other than payments mentioned in subparagraph (i)) under an undertaking (express or implied) given by the issuer of the facility.

A stablecoin or any other crypto-asset which meets the above criteria and constitutes the issue of a stored value facility in Hong Kong is required to apply for a licence from the HKMA and comply with the PSSVFO and other requirements set out in the guidelines, practice notes and supervisory requirements issued by the HKMA for the purpose of licensing and ongoing supervision.

However, the HKMA notes that the PSSVFO’s definition of stored value facility may not cover certain types of stablecoins and/or their activities in the market. For a facility to be a stored value facility, the two limbs of: (i) taking stored value by a facility issuer; and (ii) the same issuer giving an undertaking for making person-to-merchant or person-to-person payments using the stored value, must be satisfied. In a stablecoin arrangement, different entities may perform the respective functions of stablecoin issuance and wallet operations, and the issuer will not necessarily undertake to use the stablecoin as a means of payment for a third party. This may mean that a stablecoin arrangement falls outside the scope of the stored value facility licensing regime, notwithstanding that it operates in a manner very similar to that of a stored value facility.

Rationale for Stablecoin Regulation

The HKMA discussion paper identifies seven key risks relating to stablecoins:

Financial stability risks

Payment integrity – if stablecoins were to become widely used by individuals and businesses as a means of payment, operational disruptions or failures relating to stablecoins could significantly impact economic activity, normal functioning and public confidence in the financial system.
Banking stability – if financial institutions were to increase their exposure to stablecoins, and/or adopt multiple roles in the relevant ecosystem (e.g. acting as issuers or custodians), the integrity of the ecosystem and players might affect financial institutions’ financial health, business model and stable operation. A significant shift from bank deposits to funds held in the form of stablecoins could affect banking stability.

Monetary stability risks

Currency substitution – stablecoins which are pegged to a single or a basket of fiat currencies might come to replace certain fiat currencies, particularly in jurisdictions where the domestic currency is volatile and payment infrastructures are underdeveloped.
Monetary policy transmission mechanism – the issuance and redemption of Hong Kong dollar-backed stablecoins may affect interbank Hong Kong dollar demand and supply. If there are rapid and massive redemptions of stablecoins for a foreign currency, the stablecoin operators may have to sell the backed Hong Kong dollar against the foreign currency to satisfy redemption requests.

Settlement risks

Settlement finality – “forks” in a stablecoin arrangement may reverse technical settlement and lead to a misalignment with legal finality.

User protection

Recourse – users could suffer losses from operation disruptions or failures of a stablecoin arrangement with little or no resource unless the recourse mechanism is legally stipulated.
Information adequacy – users may not fully understand the risks associated with stablecoins given their complexity and novelty.

Financial crime and cybersecurity risks

Money laundering/terrorist financing ( ML/TF ) and other illicit activities – stablecoins may be the means of payment demanded in ransomware attacks, posing risks to both users and the broader society.

International compliance

As an international financial centre, Hong Kong is obliged to comply with internationally agreed standards and best practices where appropriate.

Regulatory arbitrage

Need to update the HKMA’s regulatory regime – an update to the HKMA’s regulatory framework is needed to prevent Hong Kong from becoming a safe haven for crypto-assets owing to under-regulation.

HKMA’s Policy Objectives and Principles

Given the risks, the HKMA sees a need for an appropriate regulatory framework for stablecoins, the objectives of which would be maintaining monetary and financial stability, ensuring investor protection and minimising the risk of regulatory arbitrage. The regulatory regime would adopt:

an agile regulatory approach to ensure the regime can accommodate evolving market developments and relevant international discussions; and
risk-based and proportionate regulation addressing the key risks presented by stablecoins and prioritising the areas posing greater risks, while allowing room for financial innovation.

HKMA Proposals for Regulating Stablecoins

Payment-related stablecoins

The HKMA proposes to regulate payment-related stablecoins only, at least initially. “Stablecoins” are crypto-assets whose values are linked or referenced to an underlying asset or assets, such as a security or fiat currency or a basket of securities of fiat currencies. They are typically described as being “pegged to” or supported by a single or a basket of fiat currencies or other assets. Depending on the referenced assets, stablecoins are used for investment or payment purposes. Given these characteristics, they are often differentiated from other types of crypto-assets with the result that they are more likely to be perceived as a widely acceptable means of payment and/or store of value (as compared to other crypto-assets) and thus have greater potential for being incorporated into the mainstream financial system or day-to-day commercial and economic activities. This explains why the Financial Stability Board (the FSB) has urged financial regulators to prepare to regulate stablecoins, particularly those with the potential to be applied to payments across jurisdictions, which the HKMA refers to as global stablecoins.

The market capitalisation of stablecoins has grown rapidly in the past two years and stood at US$150 billion in December 2021, representing about 5% of the total crypto-asset market. Tether accounts for roughly half of stablecoins’ market capitalisation, while other major stablecoins include USD Coin, Binance USD, Dai, Terra USD and Fei.

Regulatory Scope of Stablecoin-related Activities

The Discussion Paper’s first discussion question is:

“Should we regulate activities relating to all types of stablecoins or give priority to those payment-related stablecoins that pose higher risks to the monetary and financial systems while providing flexibility in the regime to make adjustments to the scope of stablecoins that may be subject to regulation as needed in the future?”

The HKMA is proposing a risk-based approach, which will initially focus on activities relating to payment-related stablecoins. The regulatory emphasis will be on asset-linked stablecoins (e.g. a stablecoin whose value is linked to a specific fiat currency) rather than algorithm-based stablecoins which typically use protocols altering stablecoin supply in response to changes in demand to maintain a stable value. This is because most stablecoins are currently asset-linked and are mainly pegged to the US dollar. Asset-linked stablecoins also appear to be more popular than algorithm-based stablecoins and more likely to become widely adopted as a means of payment, therefore having greater potential for being incorporated into mainstream finance. Recognising the possibility that other types of stablecoins (e.g. algorithm-based stablecoins) may need to be regulated in future because of the potential risks they might pose to Hong Kong’s monetary and financial stability, the HKMA wants a flexible regime that can be modified in future as necessary.

Regulated stablecoin-related activities

The second discussion question raised is:

“What types of stablecoin-related activities should fall under the regulatory ambit, e.g. issuance and redemption, custody and administration, reserves management?”

The HKMA proposes that certain activities relating to stablecoins will require HKMA licensing. This would require expanding the scope of existing legislation (e.g. the PSSVFO) or enacting new law. Since stablecoin arrangements usually involve more than one entity, multiple entities in a stablecoin arrangement may need to seek HKMA authorisation.

The proposed regulated activities relating to stablecoins include:

issuing, creating or destroying stablecoins (i.e. the issuer minting and burning stablecoins);
managing reserve assets to stabilise the value of stablecoins (i.e. managing the reserve assets that back the value of the stablecoins and providing custody or trust for these assets);
validating transactions and records (including authorising or verifying the validity of transactions and records);
storing the private keys providing access to stablecoins (i.e. safe-keeping of the keys used to digitally sign transaction instructions on behalf of stablecoin holders);
facilitating the redemption of stablecoins (i.e. facilitating stablecoin holders’ redemption of their stablecoins for fiat currencies or other assets);
transmission of funds (i.e. ensuring the accurate and final settlement of transactions to minimise the risk of default by counterparties); and
executing transactions in stablecoins (including conducting transactions on behalf of others).

HKMA authorisation and regulatory requirements

The HKMA’s third discussion question is:

“What kind of authorisation and regulatory requirements would be envisaged for those entities subject to the new licensing regime?

The HKMA proposes to apply high-level regulatory requirements to stablecoin-related activities. These would be applied using a risk-based approach, rather than on a one-size-fits-all basis. Since multiple entities are often involved in a stablecoin arrangement, the entities involved could be subject to part or all of the requirements, depending on the actual stablecoin-related services they offer.

Authorisation requirements

Under the new licensing regime, entities wishing to conduct certain activities crucial to the operation of a stablecoin arrangement will need to be authorised by the HKMA. The HKMA will develop these authorisation requirements in law, and relevant licensed institutions will be expected to comply with the authorisation requirements on an ongoing basis after authorisation to ensure the safety and soundness of the scheme at all times.

Regulatory requirements

The HKMA proposes to impose regulatory requirements on entities conducting stablecoin-related activities, which may be varied where appropriate, including:

Prudential requirements

Licensed entities will be required to have adequate financial resources and liquidity and will be required to manage capital and liquidity adequately and effectively to protect users and financial stability.

Fit and proper test for management and owners

The controllers (including shareholder controllers and indirect controllers) and senior management of licensed entities will need to meet a fit-and-proper test.

Maintenance and management of reserves of backing assets

Licensed entities will be required to comply with requirements regarding the nature and sufficiency of the stablecoin arrangement’s reserve assets to support and stabilise the value of the outstanding stock of stablecoins. They will also be subject to requirements to ensure the clarity and enforceability of legal claims, the titles, interests and other rights of stablecoin holders in relation to the stablecoin issuer and the reserve assets backing it.

Systems, controls, governance and risk management requirements

Licensed entities will be required to put in place a sound risk-management framework to comprehensively manage legal, credit, liquidity, operational, AML and other risks of the stablecoin arrangement. The stablecoin arrangement’s ownership structure and operation will need to feature clear and direct lines of responsibility and accountability, especially when it is owned and administered by one or more responsible legal entities.

AML/CFT requirements

Licensed entities will be required to comply with AML/CFT rules.

Redemption requirements

Licensed entities will need to ensure the clarity, robustness, and timeliness of the process for redeeming stablecoins for other liquid assets.

Financial reporting and disclosure requirements

Licensed entities will be required to make disclosures to regulator(s) and users and grant specified rights to users.

Safety, efficiency and security requirements

Licensed entities will be required to put in place sufficient safeguards against cybersecurity, operational and business continuity risks.

Settlement finality

Licensed entities will need to ensure that a stablecoin arrangement provides for clear and final settlement irrespective of the operational settlement method adopted.

Licensing requirement

The HKMA’s fourth discussion question is:

“What is the intended coverage as to who needs a licence under the intended regulatory regime?”

The HKMA is proposing that any entity wanting to conduct any of the regulated stablecoin-related activities (listed under paragraph 2 above) in Hong Kong will need to be incorporated in Hong Kong and licensed by the HKMA to conduct the relevant activity. Like section 115 of the SFO, the new regulatory regime will also prohibit the active marketing of stablecoin-related activities to the Hong Kong public by an unlicensed entity. Accordingly, a non-Hong Kong company will need to incorporate a Hong Kong company to apply for an HKMA licence to provide regulated stablecoin-related activities in Hong Kong. A mere Hong Kong branch or office of a foreign corporation will not be licensed by the HKMA.

Regime implementation and supervisory cooperation

The fifth discussion question raised is:

“When will this new, risk-based regime on stablecoins be established, and would there be regulatory overlap with other financial regulatory regimes in Hong Kong, including but not limited to the SFC’s VASP regime, and the SVF licensing regime of the PSSVFO?”

Implementation of the HKMA stablecoin regulatory regime

After receiving feedback on the Discussion Paper, the HKMA will consider whether there is a need to issue additional documents on specific features of the regulatory framework in 2022/23. The HKMA aims to implement the new regime no later than 2023/24.

Potential overlap with other financial regulatory regimes

The HKMA notes the existence of multiple regulatory regimes in Hong Kong administered by various financial regulators which may apply to crypto-assets. In developing the stablecoin regulatory regime, the HKMA will therefore work with other interested parties (including stakeholders in the Hong Kong Government and other financial regulators) to avoid regulatory arbitrage and to determine potential areas for further collaboration and coordination.

Should stablecoin issuers be regulated as Authorized Institutions?

The Discussion Paper’s sixth question is:

“Stablecoins could be subject to run and become potential substitutes of bank deposits. Should the HKMA require stablecoin issuers to be AIs under the Banking Ordinance, similar to the recommendations in the Report on Stablecoins issued by the US President’s Working Group on Financial Markets?”

The HKMA proposes to draw reference from relevant international standards and recommendations such as those of the Financial Stability Board and the Bank of International Settlements. Given the payment-related nature of stablecoin arrangements, the HKMA expects that the proposed regime’s rules and requirements would take relevant aspects of Hong Kong’s current approach to SVF and payment regulation as a minimum to avoid regulatory arbitrage. Under a risk-based approach, the HKMA considers that stablecoin issuers should be required to be subject to higher prudential requirements to protect users.

Will the HKMA regulate unbacked crypto-assets?

The seventh discussion question is:

“Would the HKMA also have plan to regulate unbacked crypto-assets given their growing linkage with the mainstream financial system and risk to financial stability?”

The HKMA acknowledges the need for continued monitoring of the risks posed by unbacked crypto-assets and the possible need to regulate unbacked crypto-assets in the future. It also notes that certain activities in relation to unbacked crypto-assets will be covered by the new licensing regime for virtual asset service providers or VASPs to be implemented through amendments to the Anti-Money Laundering and Counter-Terrorist Financing Ordinance. For details of the new licensing regime, please see Charltons’ newsletter “ FSTB Concludes Consultation on Licensing Regime for Hong Kong Virtual Asset Exchanges ” 7 . The HKMA will continue to monitor the development of crypto-assets and will maintain dialogue with stakeholders in the Hong Kong Government, other financial regulators and international standard-setting bodies on the need to strengthen regulation of these assets as needed given international regulatory developments and the need to avoid regulatory arbitrage in these activities.

Responding to the HKMA Discussion Paper

The eighth question asks:

“For current or prospective parties and entities in the stablecoins ecosystem, what should they do before the HKMA’s regulatory regime is introduced?”

The HKMA encourages those currently involved or considering involvement in stablecoin-related activities to submit their views on the Discussion Paper to the HKMA so that these can be taken into account in formulating the regulatory framework for payment-related stablecoins. The HKMA hopes to introduce the new framework no later than 2023/24. In the meantime, the HKMA will supervise AIs’ activities in relation to crypto-assets and implement the SVF licensing regime according to its current supervisory powers and policies.

1 HKMA “Discussion Paper on Crypto-assets and Stablecoins” (January 2022) at https://www.hkma.gov.hk/media/eng/doc/key-information/press-release/2022/20220112e3a1.pdf

2 Discussion Paper at section 2.2

3 Under section 2 of the Banking Ordinance (Cap. 155), an authorised institution means a bank, a restricted licence bank, or a deposit-taking company.

4 HKMA. “Regulatory approaches to Authorized Institutions’ interface with Virtual Assets and Virtual Asset Service Providers”. (28 January 2022) at https://www.hkma.gov.hk/media/eng/doc/key-information/guidelines-and-circular/2022/20220128e3.pdf

5 SFC. “Position paper: Regulation of virtual asset trading platforms” (6 November 2019) at https://www.sfc.hk/-/media/EN/files/ER/PDF/20191106-Position-Paper-and-Appendix-1-to-Position-Paper-Eng.pdf

6 Charltons. “FSTB Concludes Consultation on Licensing Regime for Hong Kong Virtual Asset Exchanges” (May 2021) at https://www.charltonslaw.com/fstb-concludes-consultation-on-licensing-regime-for-hong-kong-virtual-asset-exchanges/

7 Charltons. “FSTB Concludes Consultation on Licensing Regime for Hong Kong Virtual Asset Exchanges” (May 2021) at https://www.charltonslaw.com/fstb-concludes-consultation-on-licensing-regime-for-hong-kong-virtual-asset-exchanges/

This newsletter is for information purposes only. Its contents do not constitute legal advice and it should not be regarded as a substitute for detailed advice in individual cases. Transmission of this information is not intended to create and receipt does not constitute a lawyer-client relationship between Charltons and the user or browser. Charltons is not responsible for any third party content which can be accessed through the website. If you do not wish to receive this newsletter please let us know by emailing us at [email protected]

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Payment-related stablecoin

Crypto regulation hong kong, stablecoin regulation hong kong, regulated activities, hkma authorisation, payment systems and stored value facilities ordinance, virtual asset service providers licensing, anti-money laundering and counter-terrorist financing ordinance licensing, fstb concludes on licensing regime for virtual asset exchanges, algorithm-based stablecoins hong kong, asset-backed stablecoins hong kong, discussion paper on crypto-assets and stablecoins, ch-019466 (webpage portal), 2022-02-03 (published), 2022-02-04 (updated).

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Discussion paper on crypto-assets and stablecoins
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Discussion Paper: Crypto-assets & Stablecoins
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HKMA issues discussion paper on crypto-assets and stablecoins
Introduction. The Hong Kong Monetary Authority (HKMA) issued a discussion paper on 12 January 2022 in which it sets out its views on how to expand Hong Kong's regulatory framework for crypto-assets. The discussion paper joins a number of papers that regulators across the world have issued on the subject of crypto-assets and has been prompted by the region witnessing significant growth in the ...
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On 12 January 2022, the Hong Kong Monetary Authority ("HKMA") issued a discussion paper on crypto-assets and stablecoins (the "Discussion Paper"), inviting views on potential regulatory ...
The HKMA Published Conclusion on Crypto-assets and Stablecoins
On 31 January 2023, the Hong Kong Monetary Authority (the "HKMA") published a Conclusion of Discussion Paper on Crypto-assets and Stablecoins (the "Consultation Conclusion Paper").This followed its earlier consultation by way of its discussion paper published on 12 January 2022 on the relevant proposals (the "Discussion Paper") (see our news update on the Discussion Paper).
Regulatory: HKMA's conclusions on Crypto-assets and Stablecoins
HKMA published conclusions to the discussion paper on Crypto-assets and Stablecoins that was issued in January 2022, highlighting feedback received. The 2022 paper outlined the HKMA's thoughts on the development of a regulatory framework for Stablecoins1 and invited feedback from stakeholders.
PDF IFPHK's Response to the Hong Kong Monetary Authority s Discussion Paper
On 12 January, the Hong Kong Monetary Authority (HKMA) issued a discussion paper on crypto-assets and stablecoins (the "Paper"), inviting views from the industry and public on the relevant regulatory approach. The Paper sets out the HKMA‟s thinking on the regulatory approach for crypto-assets particularly payment-related stablecoins.
Stablecoins: What Are They Used For?
The three most frequently cited use cases for stablecoins are as a medium of exchange, as a store of value, and as a trading asset. As a medium of exchange, stablecoins are used for payments.
Crypto-assets and stablecoins
As part of the aforesaid efforts, we issued the Discussion Paper on Crypto-assets and Stablecoins earlier today to share our thoughts on the regulatory framework for payment-related stablecoins, and look forward to receiving feedback from stakeholders by 31 March 2022. We aim to introduce the new regime no later than 2023/24. Investor protection.
HKMA's Conclusion on Crypto-assets & Stablecoins
Hauzen. On 31 January 2023, the Hong Kong Monetary Authority (" HKMA ") issued its "Conclusion of Discussion Paper on Crypto-assets and Stablecoins" (" Discussion Paper "), in which ...
Holder and Issuer Perspective
How should crypto-assets (liabilities) be accounted for under IFRS? This discussion paper explores the main features, types and uses of crypto-assets (liabilities) and analyses the existing and potential accounting models. It also invites comments from stakeholders on the accounting issues and possible solutions.
10 takeaways from Matt Levine's 'The Crypto Story'
Wait a sec—Crypto runs on trust! "Crypto is in a way about rejecting the institutions of society, about being trustless and censorship-resistant," Levine writes. "But it quietly free-rides ...
HKMA's Conclusion on Crypto-assets & Stablecoins
On 31 January 2023, the Hong Kong Monetary Authority (" HKMA ") issued its "Conclusion of Discussion Paper on Crypto-assets and Stablecoins" (" Discussion Paper "), in which the HKMA set out its proposals regarding the development of a regulatory framework for stablecoins. The Discussion Paper was released after the HKMA received 58 ...
Real World Assets (RWAs) In Crypto Including Stablecoins Have
Real World Assets (RWAs) in crypto have a long history, starting with fiat-backed stablecoins such as Tether (USDT), according to an update shared by CoinGecko. However, since the introduction of ...
HKMA Issues Proposals for Regulating Payment-related Stablecoins
On 12 January 2022, the Hong Kong Monetary Authority (the HKMA) published a Discussion Paper on Crypto-assets and Stablecoins 1 seeking feedback on its proposed regulation of "payment-related stablecoins", being those crypto-assets most likely to become widely accepted as a means of payment and thus most likely to intersect with mainstream ...
Digital Money, Carefully Managed, Can Aid Pacific Island Growth and
We do not include unbacked crypto assets in our discussion as they do not meet the definition of money. In an increasingly interconnected world, digital money and related innovation offer advantages such as efficiency, accessibility, and security. ... foreign currency-based stablecoins could be a realistic alternative for countries without ...
Cryptocurrencies and other digital assets
For a nation's economy to function effectively, its citizens must have confidence in its money and payment services. The Federal Reserve, as the nation's central bank, works to maintain the public's confidence by fostering monetary stability, financial stability, and a safe and efficient payment system. Download PDF.