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Gungun Bhatia
Nov 22, 2022
by Gungun Bhatia

Hong Kong Concerns Stablecoin Volatility Impact on Traditional Finance

Hong Kong Stablecoin

Table of contents

  1. Impact on Traditional Finance
  2. Tether Redemption
This year the demise of crypto titans revived concerns about cryptocurrency security and the implications on fiat ecosystems. According to a situational analysis by the Hong Kong Monetary Authority (HKMA), the instability of crypto assets, especially asset-backed stablecoin, may have an impact on the traditional finance system.

Impact on Traditional Finance

According to the HKMA evaluation of asset-backed stablecoins, there is a possibility that their stability will be significantly impacted by liquidity mismatches during fire-sale occurrences.

The central bank of Hong Kong claims that because cryptocurrency assets are interconnected, the ecosystem is now more susceptible to large-scale disruptions. Additionally, the expansion of financial firms' exposure to cryptocurrencies may be prone to spillover effects from sudden price changes.

Tether Redemption

The report also brought up Terra USD (UST), a Terraform Labs algorithmic stablecoin that had crashed and resulted in a large-scale Tether redemption. In this context, the HKMA suggested standardized periodic reports that might aid regulators in examining the risks and circumstances related to liquidity.

The second piece of advice for authorities is to improve the liquidity management of asset-backed stablecoins by placing constraints on the make-up of reserve assets.

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Hong Kong Concerns Stablecoin Volatility Impact on Traditional Finance
Gungun Bhatia
Gungun is an enthusiastic writer that likes to create content for various aspects of the blockchain and crypto industry. She carries out extensive research and provides readers with informative and high-quality material.

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