Author: Weilin, PANews
The Central Asian country of Kyrgyzstan is quietly emerging as a country worth paying attention to in terms of crypto innovation and exploration.
On April 15, Kyrgyzstan officially announced that the National Investment Agency under the President had signed a strategic memorandum of understanding (MoU) with Binance founder Zhao Changpeng (CZ), formally appointing CZ as the official advisor on national blockchain development, cryptocurrency regulation and Web3 innovation. This news was also confirmed by Kyrgyz President Sadyr Zhaparov on the X platform as early as April 3.
CZ officially hired as consultant, Kyrgyzstan's national blockchain strategy accelerates
According to the memorandum of understanding signed this time, CZ will provide guidance on forward-looking frameworks for the Kyrgyz government in the field of digital assets, including technical support for blockchain infrastructure and policy formulation. The cooperation will also focus on promoting talent training and accelerating the construction of an innovative environment for DeFi and Web3 technologies.
Interestingly, on April 4, in response to the news spread in the community that "Kyrgyzstan intends to take the lead in opening a national cryptocurrency exchange and will use two buildings as trading floors", CZ posted a clarification on the X platform: "If no buildings were given, what digital currency exchange would use buildings as trading floors?"
On April 7, President Sadyr Zhaparov replied, “I’ve been busy with the Central Asia-EU summit these days. Today I finally had time to read the comments. I’m really happy to see that everyone is so interested in Kyrgyzstan! Someone mentioned in the comments that someone promised to cooperate in building a building. I’m not sure who promised what to whom - but if Binance needs a building, we will make sure we have one.”
Although it has not been confirmed whether the two parties will jointly build an office building, the cooperative relationship between the two parties has clearly warmed up.
According to the official announcement, the signing of the memorandum is in line with Kyrgyzstan’s overall strategy to modernize the financial system and build a regional digital innovation center. According to the official statement of the President’s Office, the development of blockchain and digital finance has been listed as a national priority.
“We welcome global leaders with deep expertise who can help build a forward-looking and secure ecosystem,” said Sadyr Zhaparov, President of Kyrgyzstan. “Blockchain and digital finance are national priorities, and this collaboration marks a meaningful step forward.”
In addition to regulatory efforts, the MoU also proposes a number of support initiatives covering education, workforce training, and cross-border knowledge exchange in blockchain-related fields. These initiatives are intended to promote the development of the country's entrepreneurial ecosystem and bring Kyrgyzstan in line with global best practices in virtual asset regulation.
Behind this cooperation is the result of Kyrgyzstan's continuous promotion of crypto-finance development in the past three years. Since the 2022 Virtual Assets Law established a clear legal framework for crypto activities, the country has demonstrated its readiness for cryptocurrency adoption by launching a national crypto bank and integrating blockchain technology into its banking system, digital payments and financial supervision. Under Kyrgyz law, Bitcoin is considered a commodity, not a security or currency. Mining, buying, selling and trading Bitcoin on local commodity exchanges are legal. However, the use of Bitcoin as a currency in domestic settlements is restricted.
According to the Central Asia Times on January 7, 2025, the interest of individuals and businesses in cryptocurrencies in Kyrgyzstan is increasing, but overall market regulation remains weak.
"Given the rapid development of digital technologies and cryptocurrencies, the establishment of a crypto bank has become an urgent need to incorporate crypto assets into the country's traditional financial system," said the Kyrgyz Ministry of Economy and Trade.
The Ministry of Economy and Commerce believes that the establishment of a licensed crypto bank will help address these challenges and increase market transparency, trust and financial security. Through this move, Kyrgyzstan hopes to attract foreign investment, promote technological innovation, and provide citizens with safe and regulated channels for the use of cryptocurrencies.
Kyrgyzstan’s strategy is unique in that it focuses on “licensed crypto banks” that will operate under a strict regulatory framework to ensure a transparent and secure system.
The decision to promote the establishment of licensed crypto banks stems from a high emphasis on risk control. These institutions will comply with strict regulatory requirements to ensure the safety of user funds and personal data. In addition, regulatory intervention will also help combat illegal activities such as money laundering and fraud. By incorporating cryptocurrencies into the banking system, Kyrgyzstan hopes to provide modern financial services to underserved populations.
Kyrgyzstan has imposed a tax on crypto mining. The country imposes a 10% tax on electricity costs for cryptocurrency mining activities, which includes VAT and sales tax. According to the Ministry of Finance, from January to November 2024, Kyrgyzstan collected a total of 46.6 million som (about $537,000) in crypto mining taxes, which is close to half of the total amount for the whole year of 2023.
Launch of gold-backed stablecoin, what are the highlights of USDKG?
In addition to efforts at the regulatory and policy levels, Kyrgyzstan is also exploring the combination of technology and assets. An important case is the launch of the gold-backed stablecoin USDKG. This stablecoin project, supported by the Ministry of Finance and anchored by gold reserves, is regarded as one of the pillar projects in Kyrgyzstan's blockchain strategy.
In a recent AMA, two advisors of the project, William Campbell and Gabriel Guerra, gave a more detailed introduction to the project. USDKG's credibility comes from its state-backed structure. Stablecoins are only issued on the basis of new gold reserves, thus preventing arbitrary issuance and inflation risks. The total value of gold collateral is $500 million in the initial stage, which is expected to increase to $2 billion within 24 months, further consolidating its long-term stability.
Transparency is a core principle of USDKG design. Each USDKG is backed by physical gold, which is stored in audited and secure vaults. Regular third-party audits and a public reserve proof system ensure full transparency. This distinguishes USDKG from private stablecoins that have been questioned for their opaque reserve management.
The spokesperson clearly outlined the state’s role in the project. “The role of the Kyrgyz Ministry of Finance is limited to providing the gold reserves. The rest of the development, auditing and maintenance is done by private companies and individuals,” Campbell clarified.
USDKG will be launched on Ethereum first, with plans to expand to other chains as adoption grows. “We are creating an international asset with the long-term vision of competing with major stablecoins like USDC and USDT,” Campbell said.
USDKG is not only a means of storing value, but is also expected to become an important tool for trade, cross-border transactions and remittances. For countries like Kyrgyzstan that are highly dependent on overseas remittances, USDKG provides a low-cost, high-efficiency alternative to traditional banks. In addition, USDKG is designed to run on centralized and decentralized exchanges, ensuring that it can be widely accessed and used by institutions and retail investors.
The Kyrgyz stablecoin is positioned as a solution for cross-border payments, as remittances account for approximately 30% of the country's GDP. By integrating into the financial ecosystem, USDKG enables instant, low-cost international transactions, making it easier for overseas workers to send money home.
The first step to integrate USDKG into the local financial system will be to connect it to Kyrgyz banks and institutions and make it legal tender in the country. Once this foundation is established, it will be expanded to other Central Asian markets. "The Central Asian market is definitely the target, but we are also interested in Southeast Asia and the Middle East, where gold backing has important economic and cultural value," said Guerra.
USDKG will also be listed on global cryptocurrency exchanges, allowing for lending, yield farming, and other activities. According to Campbell, users will have three redemption options: "Anyone holding USDKG can redeem it for physical gold in Kyrgyzstan, redeem it for cryptocurrencies such as USDT, or withdraw fiat currency through the traditional banking system."
Competing with neighboring countries, crypto regulatory framework becomes a new focus of economic policy in Central Asian countries
It is worth mentioning that Kyrgyzstan is not the only country in Central Asia that has taken the step of regulatory exploration. A member of the lower house of the Kazakhstan Parliament recently called on the government to set up a national crypto bank as a centralized platform for the custody and trading of legal digital assets. Member of Parliament Azat Peruashev said that the lack of a clear regulatory infrastructure has led to the continuous growth of illegal crypto activities, and most transactions occur outside the official regulatory system. He believes that state-led institutions will help curb tax evasion, fraud and capital outflows through unregulated platforms.
Peruashev proposed that the national bank and licensed financial institutions should participate in the project, defining it as a necessary measure to deal with the widespread abuse of crypto assets. He cited unofficial data that up to 90% of crypto transactions in Kazakhstan are conducted in the "grey area", and huge amounts of capital flow out of the country without scrutiny.
Meanwhile, Uzbekistan has legalized crypto trading and established a national regulatory mechanism to manage the industry. Another thing to look forward to in the future is whether Kyrgyzstan will follow El Salvador and make Bitcoin a legal tender as the regulation and friendly attitude towards cryptocurrencies are established.
The accelerated investment in the crypto industry and related regulatory policies by many Central Asian countries marks a change in the country's attitude towards digital infrastructure - it is no longer just a financial tool, but is also seen as a means of national governance. Blockchain technology is being incorporated into the overall planning of national modernization and geostrategy, and subsequent developments deserve further attention.
