Japanese Survey Finds One-Third Familiar with Web3

The Financial Services and the Treasury Bureau (FSTB) and the Hong Kong Monetary Authority (HKMA) are charting new regulatory territory with the release of a comprehensive consultation paper outlining their proposal to accept and regulate fiat-referenced stablecoins (FRS) within the Chinese autonomous territory.Photo by Ben Cheung on PexelsConsultation processThe proposal has been published to the FSTB website in the form of a consultation paper titled “Legislative Proposal to Implement the Regulatory Regime for Stablecoin Issuers in Hong Kong.” Separately, the HKMA has published a press release on the topic. This development seeks to establish a regulatory framework for stablecoin issuers and address associated risks. The consultation period is scheduled to conclude on Feb. 29 of next year. At the heart of this legislative proposal is the requirement for companies actively marketing the issuance of FRS to the public of Hong Kong to obtain a specific local license from the HKMA. The proposed criteria for obtaining this license are robust and include key elements such as maintaining reserves “at least equal to the par value” of all circulating stablecoins. This measure ensures that stablecoins remain fully backed, contributing to their stability and reliability. The legislation also places a strong emphasis on the segregation and secure safekeeping of reserve assets, enhancing the protection of users’ funds and preventing misuse. Furthermore, issuers will be mandated to provide transparent disclosure and regular reporting, fostering accountability and transparency within the stablecoin ecosystem. It is noteworthy that the proposed regulations explicitly exclude algorithmic stablecoins from obtaining an HKMA license, underlining a preference for stablecoins with solid reserve backing. No doubt the spectacular collapse of the UST algorithmic stablecoin in 2022 has informed the Hong Kong regulator’s decision to exclude consideration of algorithmic stablecoins in this instance. Need to establish Hong Kong presenceTo underscore their commitment to regulatory compliance, stablecoin issuers seeking an HKMA license will also be required to establish a registered office in Hong Kong. This office must have a chief executive, senior management team and key personnel in place, aligning with Hong Kong’s efforts to ensure that all activities related to stablecoin issuance are conducted responsibly. The proposed licensing regime for FRS aligns with Hong Kong’s broader strategy to foster the growth of the Web3 ecosystem within the region. Christopher Hui, Secretary for Financial Services and the Treasury, highlighted the significance of this move, stating: “With the implementation of the licensing regime for VA trading platforms from June this year, the legislative proposal to regulate FRS is another important measure facilitating Web3 ecosystem development in Hong Kong.” Market competitionBack in February, the HKMA signaled its intent to regulate stablecoins when it issued a discussion paper considering various regulatory approaches. Competition is on an upward trajectory relative to stablecoin issuance and use. In June, Hong Kong-based qualified custodian First Digital Trust announced that it was gearing up to launch "First Digital USD," a U.S. dollar-backed stablecoin regulated in Asia rather than the United States. Leading stablecoin issuer Circle has been active in furthering its product offering in Asia during 2023. It successfully attained licensing approval in Singapore while in Japan, it joined forces with SBI Holdings in an effort to propel further growth of its USDC stablecoin within the Japanese market.

The Financial Services Regulatory Authority (FSRA), a regulatory body within the Abu Dhabi Global Market (ADGM) economic free zone and financial center in the United Arab Emirates (UAE), has fully approved USD₮, the world’s leading U.S. dollar stablecoin by market cap, as an accepted virtual asset (AVA).Photo by DrawKit Illustrations on UnsplashPre-approved USDT servicesUSDT issuer Tether publicized details of the approval via a statement published to its website on Dec. 10. The company outlined that the approval means that “Authorised Persons” operating and licensed by the FSRA can offer pre-approved services related to USDT. The company stated that the approval facilitates the integration of USDT into regulated financial ecosystems in Abu Dhabi while also claiming that the move helps to advance the region’s leadership relative to digital asset innovation. The FSRA has acknowledged acceptance of the leading stablecoin with recognition of its issuance on various blockchains including Ethereum, Solana and Avalanche. Validating the importance of stablecoins With the ADGM regulator now fully accepting and recognizing the stablecoin, Tether CEO Paolo Ardoino said that the move goes beyond just “validating the importance of stablecoins as critical tools for modern finance,” as he believes it opens the door for collaboration and growth across the Middle East. Stablecoins are increasingly playing a significant role in bridging the gap between traditional finance (TradFi) and the Web3 sector. In October, crypto asset fund manager Bitwise identified a number of key insights that point to the ongoing development and use of stablecoins.  It outlined that the top five stablecoin projects are currently holding more U.S. Treasury bonds than some G20 countries. Tether recorded profits last year that surpassed those of BlackRock, the world’s largest asset manager. Bitwise identified that leading payments firms like Visa are adopting stablecoins and incorporating them into their platforms for the purpose of effecting transactions. A month prior to that, Wall Street investment bank Bernstein highlighted the fact that stablecoins are playing an increasingly important role relative to the global financial system as a whole.  It’s thought that this latest development in Abu Dhabi may act as a further driver of USDT’s market cap. At the time of writing, the stablecoin asset had a market cap in excess of $140 billion. Its inclusion as an AVA reinforces the crypto asset’s position as the most used stablecoin within the industry. AE Coin licensing In a further boost for further roll-out of stablecoins in the Middle East, the Central Bank of the UAE (CBUAE) awarded the final license to fully approve AE Coin, a UAE dirham-denominated stablecoin. Commenting on the development, AE Coin General Manager Ramez Rafeek said, "AE Coin harnesses the speed and efficiency of blockchain technology, offering instant, secure, and cost-effective transactions. It simplifies transfers, making them faster and more seamless." In an effort to bring about greater adoption of the stablecoin, the AE Coin project intends to engage in partnerships with payment gateways, financial institutions and technology providers going forward. Tether also has plans to launch a dirham-backed stablecoin, having recently partnered with UAE-based entities to bring that about.

SBI and Saudi Aramco to explore digital asset business partnershipsJapanese financial services conglomerate SBI and Saudi Arabia’s state-controlled energy giant Saudi Aramco have jointly announced their exploration of potential collaboration in the realms of digital assets and semiconductors.Photo by Chris Liverani on UnsplashDigital asset portfolio co-investingThe partnership, which was publicly disclosed last week, aims to delve into co-investing in each other’s digital asset portfolios. Such an arrangement will leverage SBI’s substantial holdings and the formidable position of Aramco as the world’s second-largest company by revenue, boasting a staggering $604 billion figure. The partnership will mark a strategic alliance that goes beyond geographical boundaries, underscoring the global impact of digital asset investments.The collaboration between SBI and Aramco extends beyond mere investment, with SBI actively seeking to identify Japanese digital asset startups keen on expanding their operations into Saudi Arabia. The joint effort aims to provide comprehensive support to these startups, facilitating their integration into the Saudi market and contributing to the growth of the digital economy.SBI Middle EastIn addition to this venture, SBI is set to establish “SBI Middle East” in Riyadh, serving as a central hub for its operations in the Middle East. This move aligns with SBI’s recent announcement of a $100 million joint fund with Standard Chartered, based in Dubai, solidifying its commitment to fostering financial partnerships in the region.When contemplating cryptocurrency activities in the Middle East, Saudi Arabia might not be the first destination that comes to mind, given Turkey’s significant crypto adoption rate and the UAE’s well-established crypto regulatory authorities, such as Dubai’s VARA and Abu Dhabi’s ADGM.However, Chainalysis data reveals that Saudi crypto activity is steadily gaining ground, experiencing the most significant year-on-year growth (12%) to June 2023. Additionally, the country’s Vision 2030 initiative involves efforts to diversify its economy. With that, blockchain and Web3 are being embraced.TokenizationWhile lacking a formal crypto regulatory regime, recent reports suggest that Saudi regulators are warming up to the idea, indicating a shift in approach. A recent collaboration has emerged between the central banks of Saudi Arabia and Hong Kong which will explore tokenization and payments infrastructure.It is noteworthy that both SBI and Aramco explicitly referred to “digital assets” in their collaboration, avoiding the mention of cryptocurrencies. This emphasis raises the possibility that the focus might extend to tokenization, an area where SBI has a robust presence, notably through the establishment of the Osaka Digital Exchange (ODX), set to commence trading tokenized securities later this month.As part of its digital asset investments, Saudi Aramco has previously engaged in blockchain initiatives, including investments in VAKT, a post-trade solution for the oil sector. Additionally last year Aramco invested in blockchain startup Data Gumbo, which utilizes blockchain in order to bring about operational efficiencies. The collaboration extends to the approval of electronic bill of lading (eBL) providers like TradeGo.In February, Aramco signed an agreement with droppGroup to build out a range of Web3 technologies. Furthermore, Aramco’s investments in companies like Red Date Technologies and IR4LAB underscore its interest in developing blockchain-based services, including document and supply chain solutions.