This year the demise of crypto titans revived concerns about <a href="https://www.cryptoknowmics.com/news/the-bank-of-spain-issues-cryptocurrency-license-to-bitstamp">cryptocurrency</a> security and the implications on fiat ecosystems. According to a situational <a href="https://www.hkma.gov.hk/media/eng/publication-and-research/research/research-memorandums/2022/RM07-2022.pdf" target="_blank" rel="nofollow noopener">analysis</a> by the Hong Kong Monetary Authority (HKMA), the instability of <a href="https://www.cryptoknowmics.com/news/uk-government-amends-finance-regulatory-bill-to-add-new-crypto-rules">crypto assets</a>, especially asset-backed stablecoin, may have an impact on the traditional finance system.
<h2>Impact on Traditional Finance</h2>
According to the HKMA evaluation of asset-backed stablecoins, there is a possibility that their stability will be significantly impacted by liquidity mismatches during fire-sale occurrences.

The central bank of Hong Kong claims that because cryptocurrency assets are interconnected, the ecosystem is now more susceptible to large-scale disruptions. Additionally, the expansion of financial firms' exposure to cryptocurrencies may be prone to spillover effects from sudden price changes.
<h2>Tether Redemption</h2>
The report also brought up <a href="https://www.cryptoknowmics.com/news/terra-executive-yoo-mo-arrested-by-south-korean-authorities">Terra USD (UST)</a>, a Terraform Labs <a href="https://www.cryptoknowmics.com/news/cardano-to-introduce-new-algorithmic-stablecoin-djed-in-2023">algorithmic stablecoin</a> that had crashed and resulted in a large-scale Tether redemption. In this context, the HKMA suggested standardized periodic reports that might aid regulators in examining the risks and circumstances related to liquidity.

The second piece of advice for authorities is to improve the liquidity management of asset-backed stablecoins by placing constraints on the make-up of reserve assets.

Hong Kong Concerns Stablecoin Volatility Impact on Traditional Finance

According to a situational analysis by Hong Kong, the instability of asset-backed stablecoin may impact the traditional finance system.

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Hong Kong Concerns Stablecoin Volatility Impact on Traditional Finance

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