We sat down with Swisstronik’s marketing director and advisor Alexandra Serebrennikova to discuss the implications of Hong Kong’s recent moves to regulate crypto, and in particular, stablecoins. According to Serebrennikova, Hong Kong is looking to position itself as a pioneer in the crypto and Web3 spaces, so it can play a leading role in the future of global finance.
Question: Why, in your opinion, is the recent introduction of regulations in Hong Kong, which are generally viewed as being “crypto-friendly”, good for the industry?
Alexandra Serebrennikova: It depends on what you consider to be “good for the industry”. I think the industry is mature enough so what would be good at this stage is to shift to more serious use cases that would be ingrained in our everyday lives. But to achieve that, we need an environment that would nourish both innovative startups, users, investors and other industry participants.
Will the introduction of regulatory frameworks in Hong Kong and other states help with that? Certainly, yes. But I believe it won’t be enough. We can do at least two more things to support sustainable growth:
- We need to balance the compliance procedures – in particular, the KYC and AML checks – with user privacy and data security. As of today, most of these checks are done in a centralized way with little care for user privacy, which scares crypto users away. Hence by imposing such checks on users, crypto companies often lose their market shares to other companies which don’t play by these rules – and today, these are the majority. But luckily, more solutions for decentralized, private, and even monetizable KYC checks, like our own at Swisstronik, are being launched. With them, users will be able to both use safe compliant products and keep their data private – and that’s when the true adoption could come.
- We need such legal frameworks to be in sync between each other across states. The crypto community is global by default and most activities happen cross-border, so it’s important to understand how they should be regulated. But today, even though crypto startups can choose between a few regulated countries to use as their base, it’s still hard and costly to keep up with the global regulations and stay 100% compliant. This is also something that my team and I are aiming to address with the tools we create.
Question. It’s notable that HK’s new regulations apply certain restrictions on stablecoins. Why have they been singled out for special treatment? Do these restrictions make it more or less likely that Hong Kong may introduce its own CBDC?
Alexandra: Stablecoins are special in a way that they act like a bridge between the world of traditional finance and the crypto world. Most crypto users rely on them as the only way to “fix” their crypto gains without actually cashing out to fiat. No surprise the third-largest cryptocurrency by market capitalization is a stablecoin, USDT.
On the other hand, by setting regulatory standards for stablecoins, governments establish interoperability with traditional banking systems, payment networks, and other financial infrastructures. This collaboration, indeed, can pave the way for the seamless integration of CBDCs into existing financial systems. In my opinion, whether Hong Kong will launch its own CBDC is more of a “when” question, and what we see now is certainly one of the preparatory steps for that.
Question: Hong Kong’s new rules require asset trading platforms to perform a lot of due diligence and beef up their security to certain standards. How difficult will this be in practice, and who can these platforms look to for guidance/assistance in complying with HK’s rules?
Alexandra: In practice, some of these requirements are already being met by several major exchanges, and adaptation doesn’t seem so complicated. The smaller and less established organizations will have more difficulties because such procedures require a lot of resources and time. However, these companies will find those who can help them adapt faster, and we are one of such organizations.
Question: What do you think prompted Hong Kong’s recent moves to open up to crypto?
Alexandra: There are several reasons for this. First, the prospects of using such tools as smart contracts are undoubtedly visible to companies in traditional finance. Second, the launch of CBDCs requires the security and consistency of compliance in the cryptocurrency space. And third, of course, the cryptocurrency industry itself has grown tremendously and it looks extremely attractive to investors. So the countries that will be the first to establish themselves as a crypto hub will have the highest chance of becoming the “home” for large crypto holdings and massive asset inflow.
Question: Hong Kong is seen as being bullish on the wider world of Web3, not just crypto. By taking this stance, what advantages and benefits does Hong Kong hope to achieve? Are there any risks in taking such a progressive approach?
Alexandra: Enhanced consumer protection and market integrity are obvious benefits. But what’s more interesting is that Hong Kong stands in line with very few other first movers. So as a pioneer, it can harness the growth of the crypto sector and position itself as a new financial hub for the Web3 era. It can also play a leading role in the global standard setting and affect the global financial system in the long run.
As per the risks, the key one that I see is the same for all these pioneering jurisdictions, and unfortunately, there’s not much they can do about it. Since most of the world is still unregulated, we will likely face market fragmentation and barriers to cross-border activities. The good news is that my team & I have been working hard to solve this issue. Crypto apps that will use Swisstronik’s blockchain or our Compliance Suite will be able to adapt to local laws with minimum costs and coding. This way, we aim to help bridge this gap between jurisdictions and let the industry shift smoothly to a more compliant state without compromising user privacy and decentralization.
Question: There has been some speculation that China might be using Hong Kong as a kind of test bed for crypto. Assuming Hong Kong is successful, what are the chances China will follow suit and embrace crypto and Web3 itself?
Alexandra: In China, digital yuan is already in use and there is no doubt that they want to integrate it into the global infrastructure. Plus overall, crypto seems to be widespread in China even despite the official ban. So I believe that soon, we’ll see more holistic regulations in China but they will be much stricter than those in Hong Kong. Therefore, Hong Kong can be considered as a reference, but not as a future project of Chinese legislation.
Question: And if that happens, and China becomes more crypto-friendly, what will it mean for the wider crypto industry, especially in the U.S. where legislators have recently appeared less than welcoming?
Alexandra: I believe that a country’s role in the global financial system in the near future will depend on how quickly it joins the cryptocurrency market. However, mistakes in this process can lead to a catastrophe for local CBDC initiatives so rushing forward might also not be the best idea. I wouldn’t discount the USA, but China is undoubtedly showing good prospects in this direction.
Alexandra Serebrennikova is a crypto marketing expert that has worked with a dozed of international crypto startups in the past 7 years. Today, she is the Marketing Director at Swisstronik – the first blockchain platform that lets anyone build compliant yet private dApps with minimum coding and zero legal expertize. She is also a Global Shaper at the World Economic Forum and a frequent attendee and speaker at industry events.