The Hong Kong securities regulator has taken a new step towards DeFi regulations. Officials say AVAX and certain altcoin companies may be subject to licensing requirements and regulation.
Hong Kong imposes new requirements on AVAX and these crypto companies
Decentralized finance (DeFi) projects may be subject to licensing requirements and regulation, a Hong Kong regulator said on Wednesday.
Cai Zhonghui, interim head of brokers at the Hong Kong Securities and Futures Commission (SFC), says that as long as DeFi activity falls under the Securities and Futures Regulation (SFO), it will be subject to the same regulatory requirements as traditional finance.
Decentralized exchanges (DEX) will be regulated
According to Zhonghui, automated trading services such as decentralized exchanges fall under the jurisdiction of the regulator. Therefore, any DEX listing cryptocurrencies will also need to apply for a license.
Zhongui noted that most DeFi projects are not decentralized because only a few people tend to control most tokens. He added that the financial regulator needs to look beyond the definition of these projects to their essential context.
AVAX and these altcoins under the spotlight
While the Commission talks about the DeFi market as a whole, many altcoin projects can be included in the descriptions for DEX platforms. Here is the list of the market’s largest DeFi and DEX projects by volume, as of April:
- Avalanche (AVAX)
- Dai (DAI)
- Wrapped Bitcoin (WBTC)
- Chainlink (LINK)
- Uniswap (UNI)
- Lido DAO (LDO)
- Internet Computer (ICP)
- Phantom (FTM)
- Stacks (STX)
- The Graph (GRT)
- AAVE (AAVE)
- Conflux (CFX)
- Frax (FRAX)
- Theta Network (THETA)
- Tezos (XTZ)
- Rocket Pool (RPL)
- Curve DAO Token (CRV)
- Terra Classic (LUNC)
- Maker (MKR)
- PancakeSwap (CAKE)
Other countries planning DeFi regulation
cryptocoin.comAs you follow, regulators in the US and France have issued reports highlighting the need to regulate DeFi. The French Central Bank recommended that DeFi altcoin protocols be forced to include and validate the security of their smart contracts. “Players exercising effective control over sensitive services may need to be involved in order to be subject to scrutiny,” the report said.
The US treasury also recommended that DeFi services comply with anti-money laundering and terrorist financing rules. According to the US report, “Currently, DeFi services generally do not implement AML/CFT checks or other processes to identify customers, allowing for immediate and pseudonymized tiering of revenues.”
Hong Kong imposes license requirement on DeFi platforms from this date
Choy made these comments during his speech at the Web3 Festival in Hong Kong, as the US and France have also recently published reports on DeFi regulation. The SFC had previously highlighted DeFi as an area in need of regulation, but did not take its stance.
“Providing automated trading services is a regulated activity under the SFO,” Choy said. “If a decentralized platform allows trading of cryptocurrencies that create securities or futures as defined under the SFO, the platform and operators must hold a Type 7 license.”
Meanwhile, the SFC issued a statement in December 2022 warning investors of the risks associated with cryptocurrency platforms. Hong Kong’s new licensing regulation for cryptocurrency platforms will come into effect in June 2023, although there is a grandfathering period.
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