The Hong Kong Monetary Authority (HKMA) said in a recent consultation paper that stablecoins that derive their value "based on arbitrage or algorithm" will not be allowed in the region as the market still feels ripples of Terra's notorious crash.
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The HKMA said it would build a new regulatory framework starting with stablecoins that "purport to reference to one or more fiat currencies" as they pose more risks to monetary and financial stability. The financial regulator will particularly focus on stablecoin's governance mechanisms, their issuance and monitor wallets that can store these assets.
Those entities that would like to offer stablecoin-related services in Hong Kong would be required to register their business with the HKMA by 2024. The regulatory body received a total of 58 submissions in response to the discussion paper on crypto and stablecoins. The HKMA says the respondents were "supportive of regulating stablecoins with a risk-based and agile approach."
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