In its new regulatory framework, the Hong Kong Monetary Authority (HKNA) will require all stablecoin issuers to back up their underlying value with reserve assets at all time, thus leaving no place for algorithmic stablecoins.

Algorithmic stablecoins are governed by algorithmics such as smart contracts to significantly decrease price volatility of a specific asset, like the US dollar or gold.

The Asian nation’s chief financial regulator noted that “Stablecoins that derive their value based on arbitrage or algorithm will not be accepted. Stablecoin holders should be able to redeem the stablecoins into the referenced fiat currency at par within a reasonable period.”

The regulation focuses on issues including issuance, stabilization and governance, and will take effect by 2024 as Hong Kong joins other nations in their efforts to achieving cashless payment infrastructures.

Sources:

https://cointelegraph.com/news/hong-kong-will-not-tolerate-algorithmic-stablecoins-in-new-regulation

https://www.investing.com/news/cryptocurrency-news/hong-kong-will-not-tolerate-algorithmic-stablecoins-in-new-regulation-2992143