HKMA official says blockchain use cases need more work as it readies new stablecoin consultation paper
- Blockchain use cases are ‘still in the throes of creation’ where many issues need to be resolved, says HKMA official
- HKMA official also noted that de facto central bank will launch another round of consultation on the regulation of stablecoins
Blockchain technology has a “powerful” value proposition but there are a “large spectrum of issues” involved in current use cases, according to a senior Hong Kong Monetary Authority (HKMA) official who was speaking at a digital summit in the city.
The comments come as the city’s de facto central bank prepares a new consultation paper on the regulation of stablecoins amid Hong Kong’s push to be a Web3 hub.
The underlying technology for virtual assets has the potential to benefit the real economy and everyone in society, HKMA executive director Clara Chan said on Friday at the Digital Economy Summit 2023. But blockchain use cases are “still in the throes of creation” where many issues need to be resolved before they can scale up to reach mass adoption and operate in a sustainable manner, she said.
The problems span “user journey, governance, accounting and reporting, data privacy and security”, according to Chan, who added that people should also be cautious that many use cases “may not involve intrinsic value”, and could therefore be subject to extreme price and valuation volatility.
“It’s very important to distinguish between the underlying technology and different use cases,” Chan said.
Chinese officials pledge support for Hong Kong’s tech, Web3 ambitions
On Wednesday, at the opening of the four-day Hong Kong Web3 Festival, Financial Secretary Paul Chan Mo-po urged people to view the development of Web3 through a “calm and cautious” lens, while the Securities and Futures Commission (SFC) suggested more oversight of decentralised finance (DeFi) platforms would be necessary.
People “operating or performing” DeFi activities should be subject to Hong Kong’s licensing requirements, Keith Choy, interim head of the intermediaries division at the SFC, said on Wednesday at the same event, noting that “providing automated trading services” is a regulated activity whether decentralised or not.
However, the HKMA’s Chan also said people should not automatically jump to the conclusion that virtual assets are “very dangerous just because they are new or they are different”.
“The evolution journey for use cases will be bumpy,” said Chan. “But with each step we walk, whether it’s a market rally or market correction, and whether we see success or failure in a product or industry, we are actually moving forward.”
Chan also noted that the HKMA will launch another round of consultation on the regulation of stablecoins. In February, the city’s de facto central bank said in a paper concluding a consultation launched in January last year, that it will put in place a mandatory licensing regime for activities relating to stablecoins before 2024 which could require fully-backed reserves.
Web3, a loosely defined term referring to a potential next-generation internet based on decentralised technologies such as blockchain, has been a key focus at events in Hong Kong this week amid the city’s push to become a virtual asset hub.
