DefiCoins Stays Ahead of the Curve Amidst Potential DeFi Licensing Requirements in Hong Kong

Updated: 13 April 2023

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The decentralized finance ecosystem is growing continually with the emergence of diverse, innovative projects. DeFi Coins have maintained steady progress amid several challenges within the crypto market and other macroeconomic influences.

As the call for regulating the crypto industry continues, some nations have commenced diverse plans to initiate DeFi regulation. The United States and France have already released reports on DeFi regulation moves.

Hong Kong has joined the train with licensing requirements and regulations for DeFi projects.

Hong Kong Extends Regulation To DeFi Projects

The special administrative region of China, Hong Kong, has been taking progressive actions toward its goal of becoming a crypto hub in Asia. The city’s government officials stated that the crypto regulation in the city would extend to DeFi projects.

The Financial Secretary Paul Chan Mo-po revealed this new development at the four-day Web3 Festival on Wednesday, April 12.

Further, Keith Choy, the interim Head of Intermediaries at Hong Kong’s Securities and Futures Commission (SFC), confirmed the regulatory extension. Choy mentioned that SFC sees DeFi activity with the same regulatory framework as other financial activities.

So, if DeFi activity lies within the scope of the Securities and Futures, it will receive the exact regulatory requirement as traditional financial ones.

Before now, the SFC had indicated the DeFi space for possible regulation in Hong Kong. However, the regulator was yet to map out its position regarding such a move.

Since last year, Hong Kong has been setting plans to make the country comfortable for crypto firms. It became more involved in crypto operations and Web3. However, the Web3 industry has been monitoring Hong Kong’s new regulatory framework for digital assets.

Some crypto enthusiasts have been comparing Hong Kong’s advancement and shift in crypto policies to Singapore’s. The latter is believed to have a crypto-friendlier market before Hong Kong’s new quest in the crypto space.

Choy highlighted some crypto activities under the Securities and Futures Ordinance (SFO) jurisdiction as regulated activities. These include providing automated trading services, trading digital assets that are securities or futures, and others.

According to Choy, DeFi platforms that offer such services are expected to get a Type 7 license. The Interim Head noted that providers of a collective investment scheme to the public in the city must also get authorization requirements.

DeFiCoins And Benefits To Users

DeFi Coins are developed to support the growing activities in the decentralized finance ecosystem. Their operations are based on blockchain technology, just like most crypto assets. Users can engage in financial services using the tokens without any central authority or third parties.

Users can perform several activities, such as accessing loans, investing, insurance, staking, etc., with DeFi projects. Holders of DeFi Coins can receive more rewards than traditional investments based on the purpose the token serves.

Benefits of DeFi Projects

Decentralization: DeFi Coins function on decentralized platforms without the influence of a central entity. The activities of DeFi projects are completely different from that of banks, other financial institutions, and even governments. This prevents issues of control from a single source which could impact the overall performance of the tokens. Hence, DeFi projects provide high transparency and trust for users.
Security and Safety: DeFi projects are designed with blockchain technology, ensuring that transaction records remain immutable. This cuts off issues of manipulation from any source on the DeFi platform. Also, it ensures maximum security for all operations, promotes the safety of users’ data and funds, and reduces threats from fraud and hacks.
Flexibility in Financial Services: Users can access various financial services with DeFi projects. These include staking, lending, investing, borrowing, and others. Also, users can customize their financial products and services based on their needs.
Utility Cases: Many DeFi projects have been used in different cases. These include Play-to-Earn projects, ecology-focused projects, Web3 coins, and Vote-to-Earn projects. There is still growth potential for more use cases for DeFi coins.

Regulation Will Mitigate DeFi Challenges, Choy

During the four-day Web3 Festival, Choy stated that decentralized finance creates issues of financial instability and limited transparency for regulators. According to the SFC’s Interim Head, such issues emanate from several factors. These include a lack of data and unregulated activities and firms in DeFi.

Choy added that there are also market issues associated with DeFi, like price oracle manipulation, breaches of investor protection, and front-running transactions.

The new DeFi regulation will take effect in June 2023. According to the rules, the SFC must license all crypto exchanges operating in Hong Kong. So far, two exchanges have indicated an interest in getting the license approval.

OKX confirmed its acceptance and planned to establish two local firms in Hong Kong. Also, the adviser of Huobi, Justin Sun, reported that the exchange would soon file for the license.

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