Reflections on the New Regulations for Stablecoins in Hong Kong: The Growing Pains of the Encryption Industry

Recently, the new regulations for stablecoins launched in Hong Kong require the implementation of KYC (Know Your Customer) measures, which has sparked widespread controversy in the encryption community. Many users have expressed strong dissatisfaction, believing that this is a deviation from the spirit of decentralization. As an experienced user who has gone through multiple cryptocurrency cycles, I deeply understand this sentiment, but I also want to analyze the impact of this policy from a more macro perspective.

Why do we instinctively resist KYC?

The aversion of cryptocurrency users to KYC can be said to be deeply rooted. This resistance mainly stems from the following aspects:

1. Conceptual Conflict: The original intention of Bitcoin's creation was to establish a permissionless, censorship-resistant peer-to-peer electronic cash system. KYC requires users to provide identity information to centralized institutions, which contradicts the core principles of cryptocurrency.

2. Deterioration of User Experience: Web3 seeks a seamless and convenient global financial experience. However, the cumbersome KYC process significantly reduces user experience.

3. Privacy and security concerns: In the world of encryption, personal privacy is crucial. Providing real identity information to centralized platforms poses security risks, especially considering the historical data breach incidents that have occurred.

Strategic Considerations for KYC Implementation in Hong Kong

Despite the controversy surrounding KYC policies, this initiative has its rationale from the perspective of regulators:

1. Enhance system stability: By implementing strict management of stablecoin issuers, such as requiring 100% high-quality reserves, asset segregation, and regular audits, systemic risks can be significantly reduced, avoiding a recurrence of events similar to the Terra/Luna collapse.

2. Attracting traditional financial institutions: A compliant regulatory environment is a necessary condition to attract large institutional investors (such as pension funds and insurance companies) into the crypto market. KYC and compliance measures provide an entry channel for these funds.

3. Improve the industry's image: For a long time, cryptocurrencies have often been associated with illegal activities. Implementing KYC helps to change this negative perception, making encryption assets more easily accepted by mainstream society.

The Far-Reaching Impact After Policy Implementation

Once the new regulations in Hong Kong are implemented, they will have a profound impact on the entire encryption ecosystem:

1. The divergence of the encryption world: In the future, there may be two parallel worlds - one represented by Hong Kong as a compliant world, and the other continuing to develop freely on public chains as a decentralized world.

2. Capital control for deposits and withdrawals: The conversion channels between fiat currency and encryption will be subject to stricter regulations, and users may need to go through KYC procedures when exchanging encryption for fiat currency.

3. Stablecoin Classification: Stablecoins in the market will be classified into different tiers based on their compliance levels and reserve transparency. Compliant stablecoins may become the preferred choice for institutions and large-scale applications.

Conclusion

The KYC policy implemented in Hong Kong is a "growing pain" for the encryption industry. Although it may cause some discomfort for users, it also clears obstacles for the long-term development and mainstream acceptance of the industry.

In the future, we may need to switch flexibly between two worlds: one is a regulated but more stable world, and the other is a free but higher-risk decentralized world. Understanding this trend and learning to make wise choices in different scenarios will be a new challenge faced by every encryption user.