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Circle and KuCoin are backing a Chinese yuan-backed stablecoin in a US$10 million funding round.
KuCoin Ventures are leading the investment round alongside IDG Capital and Circle Ventures.
The stablecoin is issued by CNHC, which operates as a cross-border payments service provider that covers thirty countries across LATAM, Africa and other regions. Its focus is now on facilitating transactions between Chinese export businesses and developing countries.
Over 99% of existing stablecoins are backed by USD. CNHC is backed and pegged 1:1 to the Chinese offshore yuan CNH. The currency is traded in markets outside of China's mainland. Other non-USD backed stable coins include StraitsX's XSGD, which is backed by the Singapore dollar.
Read more: Stablecoin Demand Grows After Silvergate Exodus
As well as eliminating exchange risks for Chinese exporters, CNHC offers a way for investors who value the strength of CNH to hedge against currency risk.
CNHC is built and issued on Ethereum and China-headquartered Conflux. The Chinese blockchain is allowed to operate in China despite the country's crypto ban. It partnered with China Telecom to develop blockchain-integrated SIM cards in Hong Kong. Conflux is currently being used by Chinese social media platform Little Red Book, which features NFTs.
Circle has recently drawn flak after revealing that US$3.3 billion of their reserves were sitting inside Silicon Valley Bank (SVB) when that bank failed.
Read more: Delving Deeper Into the Circle Debacle
Pro-China crypto
Although now based in Singapore, CNHC is relocating to Hong Kong. Justin Chou, the chief investment officer of KuCoin Ventures, said Hong Kong "may have been slightly more aggressive in its approach than the EU" in terms of regulatory efforts, describing the region as a "financial center of the APAC region, which makes it an important hub for the crypto industry.”
"Moreover, we have seen positive signs of traction in Hong Kong's crypto industry already. Developers from the APAC region are moving to Hong Kong because of its welcoming policies towards talent. As we all know, talent is the key to driving innovation and success in the crypto industry.”
Last month, Hong Kong regulators laid out clear plans for the development of its digital assets space both for institutions and retail customers, while maintaining its strong stance on investor protection.
Read more: Hong Kong Proposes Plan for Retail Access to Crypto
Retail investors in Hong Kong will be able to access the two largest crypto tokens - Bitcoin and Ethereum. However, retail customers are required to pass a knowledge assessment or else only be offered access after training is provided. The Securities and Futures Commission (SFC) also requires all digital asset trading platforms operating in Hong Kong or actively marketing to Hong Kong-based investors to obtain a license from the SFC.
"This is part of Hong Kong regulators’ great efforts to issue clear and coordinated guidance on how centralised virtual asset trading platforms should operate," said Patricia Ho, deputy general counsel at OKX.
US Regulators at Odds
The US has been facing a battle among its regulators as to what exactly a stablecoin is. Earlier this month, CFTC chair Rostin Behnam spoke at the Senate Agriculture committee hearing, declaring that stablecoins should be treated as commodities.
Read more: Sorry SEC, Stablecoins Are Commodities According to CFTC
The view opposes that of Securities and Exchange Commission (SEC) chair Gary Gensler, who has been considering whether the assets are securities.
The demand for stablecoins has since increased. Markus Thielen, head of research at Matrixport, noted, "We have seen an increase in stablecoin activity as a sign that crypto firms are using crypto rails to move money around."
Read more: Stablecoin Demand Grows After Silvergate Exodus
Furthermore, Thielen claimed the increased activity shows that crypto dealers are resorting to digital assets as an alternative to traditional financing, given that they are now unable to clear through Silvergate’s Exchange Network.
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