The crypto-bro notion of a decentralized future may be less hokem that originally thought.
According to a Sept 17 report from cryptocurrency analysis firm, Chainanalysis, stablecoins and cryptocurrencies are starting to gather impetus in a bid to replace fiat currencies in some Eastern Asian countries.
Eastern Asia emerged as the sixth-largest crypto economy in 2024, accounting for over 8.9 per cent of the global cryptocurrency value received between June 2024 and July 2023.
Maruf Yusupov, the co-founder of Deenar, a digital stablecoin backed by physical gold, states that countries experiencing constant fiat currency devaluation and high inflationary rates partly drive the growing adoption of crypto and stablecoins.
“In most emerging markets, stablecoins are gradually replacing fiat because of lower barriers to entry, low cost, and ease of use. If the current adoption trend is sustained, the asset might fuel lower patronage to traditional banks as we have it today,” said Yusupov.
Stablecoins are emerging as a cheaper and faster alternative to traditional bank transfers, particularly for cross-border transactions, which can be expensive for emerging economies. In 2024, remittance fees averaged 7.34 per cent of transfers involving a bank account, according to marketing firm, Statista.
Between June 2024 and July 2023, Eastern Asia received over USD$400 billion in on-chain value. Institutional and professional investors likely lead most of the cryptocurrency activity in the East Asian region. Most of this came from institutions, based on the large average digital asset transfer size, according to the report.
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Hong Kong has experienced high crypto adoption
Institutional investors mainly use decentralized exchanges (DEXs) and other decentralized finance (DeFi) services, while professional investors continue to opt for centralized exchanges (CEXs). The report attributes this trend to DEXs typically offering more arbitrage opportunities than CEXs due to their diverse asset coverage.
Hong Kong’s efforts to become a global cryptocurrency hub are starting to yield results, evidenced by the increased digital asset activity in the region. In terms of cryptocurrency adoption, Hong Kong experienced over 85.6 per cent growth, making it the largest year-over-year growth among Eastern Asian countries, followed by South Korea.
Stablecoins have accounted for over 40 per cent of the total value received in Hong Kong. Naturally, however, Yusupov says this growing usage will likely open the door for more regulatory scrutiny.
In July 2024, Hong Kong’s regulators unveiled the first proposal for a new stablecoin licensing regime for issuers of fiat-backed stablecoins.
The move forms part of a broader strategy to integrate digital assets into Hong Kong’s financial ecosystem while ensuring stability and regulatory oversight. The proposal follows extensive consultations and feedback from market participants and the public, building upon previous discussions such as the Hong Kong Monetary Authority’s (HKMA) “Discussion Paper on Crypto-assets and Stablecoins” from the previous year.
This indicates a methodical approach to crafting a regulatory environment that is both agile and robust, capable of accommodating the rapid evolution of digital currencies.
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Hong Kong authority sets guidelines to protect investors
Stablecoins have become the official currency of the Web3 and virtual asset (VA) ecosystems. Their relative stability compared to volatile crypto like Bitcoin is what makes them attractive for transactions and investments. This is why they serving as a bridge between traditional finance and digital assets. However, this integration also poses risks to monetary and financial stability. By regulating stablecoin issuers, Hong Kong aims to manage these risks effectively.
The regulatory proposal seeks to mitigate potential risks associated with stablecoins, such as liquidity risks if backing assets are not adequately managed or systemic risks if a major stablecoin fails, potentially causing broader financial disruption. By setting clear guidelines for issuers, Hong Kong aims to ensure that these digital tokens maintain their peg, are backed by sufficient reserves, and do not pose undue risk to the financial system.
Hong Kong’s approach reflects a dual commitment to fostering innovation and maintaining regulatory oversight. The HKMA has proposed the introduction of a sandbox arrangement, which would allow potential issuers to test their products under regulatory supervision. This ensures compliance with standards before full-scale implementation. The sandbox not only aids in refining the regulatory framework based on real-world application but also helps nurture a sustainable crypto environment.
Furthermore, Hong Kong’s stablecoin licensing regime forms part of a strategy to attract blockchain and fintech companies. By providing a clear, albeit strict, regulatory pathway, Hong Kong aims to differentiate itself from regions with less defined or overly restrictive crypto regulations, potentially attracting more business, innovation, and capital.
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