New Regulations for Hong Kong Stablecoins: The Pain and Necessity of KYC

When Hong Kong announced the new regulations requiring stablecoin KYC implementation, the reaction from the crypto community was almost overwhelmingly one of disappointment and ridicule. As an old user who has experienced multiple stages of cryptocurrency development, I completely understand this sentiment. It is not only dissatisfaction with the additional procedures but also a defense of the ideals of cryptocurrency.

However, setting aside emotions, let us objectively analyze this uncomfortable KYC scheme to see whether it is poison or a remedy.

Why do we instinctively dislike KYC for ###?

The aversion of cryptocurrency users to KYC can be said to be deeply rooted:

1. Philosophical Divergence: The original intention of Bitcoin's creation was to establish a permissionless, censorship-resistant peer-to-peer electronic cash system. However, KYC requirements return trust to centralized institutions, which is contrary to the spirit of cryptocurrency.

2. Regression of Experience: Web3 aims for a seamless and convenient global financial experience. The cumbersome processes brought by KYC are undoubtedly a significant disruption to this experience.

3. Concerns about Privacy: In the crypto world, "anonymity equals security". Handing over personal information to centralized platforms feels like "running naked" in the digital world for many users.

Therefore, in the face of KYC requirements, our first reaction is resistance and sarcasm, which is perfectly normal.

Why do we need this bitter medicine?

However, from a more macro perspective, Hong Kong's move is not without profound meaning:

1. Systemic Risk Prevention: We all remember the impact of the Terra/Luna collapse. The core of the Hong Kong proposal is to regulate the "issuer", requiring 100% high-quality reserves, asset isolation, and regular audits. This means that compliant stablecoins issued in Hong Kong in the future will be safer and more reliable than most stablecoins currently on the market.

2. Attracting Traditional Finance: Real "big money" such as pension funds and insurance companies will not easily enter a market that lacks regulation. KYC and compliance pave the way for these institutions' funds to enter the crypto world.

3. Improving the industry image: For a long time, the association of cryptocurrency with illegal activities has been a hindrance to its development. While KYC sacrifices some anonymity, it greatly increases the flow cost of illegal funds and helps crypto assets gain broader social recognition.

Hong Kong's strategy is clear: sacrifice a part of the decentralized ideal in exchange for financial stability, institutional trust, and a global Web3 hub position.

Far-reaching Impact: A Fragmented Crypto World

The implementation of this plan will have a profound impact on the crypto world:

• Formation of two parallel worlds:

  • Compliant World: represented by Hong Kong, consisting of licensed exchanges, compliant stablecoins, and KYC users. Large capital scale, secure trading, but subject to regulatory constraints.
  • Native World: Continuing to develop freely on public chains like Ethereum. No permission required, highly anonymous, and innovation is active, but it also faces more risks.

• Tightening of deposit and withdrawal channels: In the future, the conversion between fiat and cryptocurrency will likely have to pass through KYC "checkpoints". Anonymity will be more limited to on-chain transactions.

• Stablecoin Tiering: Stablecoins in the market will be categorized. Licensed and reserve-transparent "premium stablecoins" will become the preferred choice for institutions and large-scale applications, while the survival space for other stablecoins may be squeezed.

Conclusion: Painful but necessary growth

This transformation feels like a "rite of passage" for the crypto industry. It makes us old users uncomfortable, but it also clears obstacles for the industry's "breakout" and "growth."

In the future, we may need to flexibly switch between two worlds: pursuing the ideals of decentralization while not giving up broader development opportunities.

The proposal from Hong Kong may not be perfect, but it at least provides a possibility. For us, understanding the logic behind it is more valuable than simply opposing it. After all, in the world of investment and survival, understanding the rules is always the first step.