In the ongoing Web3 festival in Hong Kong, Cai Zhonghui, an official of the Hong Kong Security and Futures Commission (SFC), spoke on the regulator’s plan. He said that decentralized finance (DeFi) projects will have to be regulated.
The Web3 Festival at the moment is taking place in Hong Kong and seeks to promote the emerging Web3 industry. Notably, the festival is going to witness the attendance of over 300 speakers and 80 projects.
Speaking at the Web3 festival, Zhonghui made the statements at the Web3 Festival in Hong Kong, saying that both DeFi and automatic trading services will need SFC supervision. Reportedly, the regulator’s comment reduced some joy in the crypto industry.
Explaining the regulator’s plans, Zhonghui said that under the regime decentralized exchanges would also be required to apply for licenses. However, this may be problematic, as a single centralized structure does not run such exchanges. Notably, some exchanges have already begun the application for a license.
Sources reveal that decentralized systems do not cater to such processes that well and their nature itself makes it difficult to comply with such orders. The same goes for penalties and punishments as well since there is no one person to hold accountable. Zhonghui also acknowledged that many DeFi projects are not decentralized and in those cases, only a small group was in charge of most tokens.
Moreover, Zhonghui’s statements are particularly important as the region has been warming up to cryptocurrencies over the past six months. Additionally, the authorities also stated that the region is attempting to become something of a crypto hub and has taken many steps in that regard.
Their approach also succeeded in attracting companies towards expanding business in the region. Considering the rise in interest in the crypto industry, it is going to be interesting to see what impact Zhonghui’s remarks have on the larger industry.
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.
In February, authorities in the region also proposed rules for platforms that engage in crypto trading. The new licensing regime is expected to take effect in June this year and proposes that all centralized cryptocurrency trading platforms operating in Hong Kong must be licensed with the regulatory body.
DeFi has proven to be a sensitive point for regulators around the world. Recently, the Autorité de contrôle prudentiel et de résolution or ACPR (a division of the French central bank that supervises insurers and banks), the arm of the central bank that supervises banks and insurers, released a report highlighting the need for new regulatory frameworks for DeFi due to its disintermediated nature.
While the increased scrutiny of DeFi projects could have significant repercussions, the sector has continued to grow and received attention from financial firms across the globe. Banks and firms have been experimenting and trying out new technology to advance their mechanism and retort to more efficient ways.