DeFi's Security Challenges Confront Hong Kong's Efforts to Regulate for International Liquidity

DeFi protocol

experienced a major security incident on Monday, with hackers siphoning off around $128.6 million worth of assets from its vaults across several blockchains, according to blockchain security company PeckShield, as cited by . The attackers took advantage of a flaw in Balancer V2 Composable Stable Pools, enabling them to turn counterfeit fee balances into genuine assets. In reaction, Balancer halted the impacted pools and stated that its engineering team is actively looking into the breach. The platform’s native token dropped more than 4% right after the attack, signaling increased market uncertainty, according to the same source.

At the same time, Hong Kong’s Securities and Futures Commission (SFC) revealed a significant policy update, now permitting locally licensed crypto exchanges to connect with global liquidity pools, as reported by

. This change moves away from the city’s previous approach, which kept Hong Kong-based order books separate from international markets. By allowing exchanges to access worldwide trading flows, the SFC aims to boost liquidity, enhance price discovery, and strengthen Hong Kong’s role as a leading digital asset center, according to .

The new rules, outlined in a regulatory notice, bring crypto trading regulations closer to those for traditional financial assets and provide exemptions for SFC-approved tokens and stablecoins from the usual 12-month trading history rule, according to a

. SFC CEO Julia Leung highlighted that these adjustments strike a balance between regulatory protection and market competitiveness, saying, “Once we are confident in investor protection, we do ease restrictions, as we did with global liquidity,” as Bloomberg reported. The SFC also shared plans to finalize licensing systems for crypto brokers and custodians, with the Hong Kong Monetary Authority preparing to issue stablecoin licenses in 2026.

Ethereum’s stablecoin sector reached unprecedented activity in October, with monthly transaction volumes soaring to $2.82 trillion—a 45% jump from September,

noted. led the way with $1.62 trillion in transactions, followed by at $895.5 billion. Experts attribute this spike to traders searching for yield opportunities amid ongoing volatility in the crypto market. Stablecoin providers accounted for 65–70% of total protocol revenue during the month, highlighting their dominance in DeFi and international payments, according to .

These events underscore the contrasting paths within the crypto sector: while DeFi platforms contend with security threats, regulators in Hong Kong and elsewhere are actively developing policies to attract both institutional and retail investors. As the industry faces hacks, regulatory developments, and new applications, liquidity and innovation continue to drive its expansion.