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Hong Kong DeFi Crowd Deflated After SFC Official Suggests Regulation

2 mins
Updated by Kyle Baird
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In Brief

  • A Hong Kong Security and Futures Commission official said that DeFi projects will have to be regulated.
  • The official made the statements at the Web3 Festival in Hong Kong.
  • Hong Kong has been growing its crypto influence, so the remarks are an anomaly.
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Hong Kong Security and Futures Commission official Cai Zhonghui said that DeFi projects will have to be regulated. The official made the remarks at an ongoing web3 festival.

Hong Kong Security and Futures Commission official Cai Zhonghui doused some of the joy in the crypto industry after stating that DeFi projects will have to be regulated by the authority. Zhonghui made the statements at the Web3 Festival in Hong Kong, saying that both DeFi and automatic trading services will need SFC supervision.

DEXs to Face Licensing Challenges

When it comes to the specifics, Zhonghui also said that decentralized exchanges would have to apply for licenses. This may be problematic, as a single centralized structure does not run such exchanges. Some exchanges have already begun the application for a license.

Decentralized systems do not lend themselves well to such processes. Their very nature makes it difficult to comply with such orders. That goes for penalties and punishments as well since there is no one person to hold accountable.

Zhonghui did also say that many DeFi projects are not decentralized and that, in these cases, only a small group was in charge of most tokens. Wu Blockchain also stated that Zhongui remarked that the “SFC must ignore their superficial statements to study the substantive content.”

The Web3 Festival is currently taking place in Hong Kong and promotes the burgeoning Web3 industry. The festival will see over 300 speakers and 80 projects attend.

Despite Statements, Hong Kong Hot on Crypto

The statements by Zhonghui are particularly notable, considering that Hong Kong has been warming up to crypto over the past six months. The region is attempting to become something of a crypto hub and has taken many steps in that regard.

Authorities in the region have also proposed rules for platforms that engage in crypto trading. Perhaps most significantly, Chinese state-owned banks are offerings services to crypto firms in Hong Kong. In terms of web3, Hong Kong’s financial chief believes that now is the best time to invest in web3.

Will DeFi in Hong Kong Slow Down?

Given the sharp rise in interest in the crypto industry, it’s interesting to see how Zhonghui’s remarks will be taken. DeFi has proven to be a pain point for regulators around the world. However, it hasn’t stopped the sector from growing.

Though it’s hard to know for certain, DeFi projects will likely continue on their path until official law comes into play. For the moment, it appears that Hong Kong, just as it is everywhere else, is focusing on forming regulations, as mainland China keeps an eye on the region.

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Rahul Nambiampurath
Rahul Nambiampurath's cryptocurrency journey first began in 2014 when he stumbled upon Satoshi's Bitcoin whitepaper. With a bachelor's degree in Commerce and an MBA in Finance from Sikkim Manipal University, he was among the few that first recognized the sheer untapped potential of decentralized technologies. Since then, he has helped DeFi platforms like Balancer and Sidus Heroes — a web3 metaverse — as well as CEXs like Bitso (Mexico's biggest) and Overbit to reach new heights with his...
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