- Industry executives say the proposed rules by the Monetary Authority of Singapore are timely and will boost investor confidence
- Recent moves by Hong Kong and Europe on rules governing stablecoins will also spur wider adoption of cryptocurrencies, according to the executives
The unpredictable price fluctuations of cryptocurrencies have been a make-or-break game for myriad investors across Asia for months.
However, only a handful of regional policymakers have ventured to integrate these volatile assets into the mainstream financial landscape.
Now, the latest move by Singapore’s central bank to introduce regulatory guidelines for stablecoins could prove to be a milestone for its rapid adoption in traditional channels like banks, analysts say.
Unlike other cryptocurrencies, stablecoins are viewed as safe haven assets as their values are pegged to traditional currencies or other assets such as government bonds and gold.
The Monetary Authority of Singapore’s (MAS) regulations announced last week will apply to nonbank users of single-currency stablecoins pegged to the Singapore dollar, or any currency from the world’s 10 biggest economies, and would require issuers to maintain low-risk reserves and return par value to investors within five days of receiving a redemption request.
“The MAS seems to be paving the way for greater trust and potential formal integration of stablecoins into the banking system.
However, as these regulations are scheduled to come into effect in 2024, their precise impact on bank transactions will [need to] be monitored closely,” said Chen Zhuling, founder and CEO of crypto finance gateway RockX.
The central bank would need to hold legislative consultations before Parliament passes amendments that would bring the framework into force. The coins will be labelled as MAS-regulated stablecoin.
Stablecoins have been the backbone for cryptocurrency trading and can potentially slash transaction costs associated with traditional banking systems to a nominal amount, while speeding up processing times to seconds.
But stablecoins have in the past failed to make inroads into mainstream financial systems because of a lack of transparency about their reserves.
Anndy Lian, author of the book NFT: From Zero to Hero, said Singapore’s guidelines could bridge the gap between fiat currrencies and digital assets.
“But this should not necessarily mean that banks will start to accept all kinds of cryptocurrencies. The volatility of other cryptocurrencies is still a red flag for many,” he said.
Popular cryptocurrencies like bitcoin and ether tend to suffer from high price volatility, whereas stablecoins tend to hold steady since they are linked to fiat currencies and other such assets.
Despite their relative safety, clamours for regulation of stablecoins grew after two such sister currencies – Terra and Luna, whose values were algorithmically pegged to the US dollar and not backed by cash – suddenly collapsed in May last year.
Singapore’s strict guidelines are meant to reassure both investors and institutions that could open new avenues for the asset class, industry executives say.
“Banks may even issue stablecoins for tokenised bank deposits as part of their rapidly developing digital transformations,” said Gerald Goh, co-founder and CEO of Sygnum Singapore, a digital assets fintech group.
“This model – fully regulated, traditional-asset backed and pegged to a high-quality ‘stable’ fiat currency like the Singapore dollar – has the potential to become a blueprint for the industry,” he added.
First among digital equals
Singapore’s stablecoin framework will put it among the first jurisdictions to have rules to prevent mishaps.
Rival financial hub Hong Kong is, meanwhile, undergoing a public consultation on stablecoins and seeks to introduce regulation for them next year.
The European Commission set the ball rolling with the Markets in Crypto-Assets (MiCA) regulation, which it introduced with the purpose of establishing a global benchmark for governing cryptos.
After being proposed by the commission in September 2020, the European Parliament approved the MiCA regulation on April 20. It is due to come into force for stablecoins from June 2024, and for other assets from December.
Anne-Sophie Cissey, head of legal and compliance at crypto firm Flowdesk, said the European legislation has set the tone for markets. “With clarification on the legal status, all crypto actors will feel more at ease to deal with those.”
“Regulators now collaborate with international entities, for example, MiCA’s announcement in Europe led to similar guidelines in various countries,” said Danny Chong, co-founder of online asset tracker Tranchess.
“This trend suggests that financial hubs like Singapore and Hong Kong should move towards converging rules. This convergence might take a few years to materialise, rather than happening immediately,” he said.
Hong Kong’s regulations are likely to follow Singapore’s soon, as it has been earnestly trying to woo crypto investors. In June, it introduced retail trading and licensing guidelines for crypto.
Many investors have already begun to gravitate towards tokenised assets.
“We are increasingly seeing more stablecoin adoption in Asia,” said Henry Zhang, founder and CEO of DigiFT, a Singapore-based decentralised digital asset exchange, adding that they were looking forward to introducing MAS-regulated stablecoins.
The digital assets have also started making inroads past intermediaries in traditional financial channels, he said.
“We are already seeing applications taking tokenised forms of cash and financial products that cut out the middleman. In this new world, financial institutions will need to rethink financial product design that puts consumers at the heart,” Lehes said.
Central banks have laid the groundwork for cyptocurrency adoption with countries like China, India and Australia either planning to or having launched a central bank digital currency that can compete with stablecoins, said an industry executive.
“This will drive the choice and innovation needed in the market that will lead to mass adoption,” said Vincent Chok, CEO of Hong Kong finance firm First Digital.
Anndy Lian is an early blockchain adopter and experienced serial entrepreneur who is known for his work in the government sector. He is a best selling book author- “NFT: From Zero to Hero” and “Blockchain Revolution 2030”.
Currently, he is appointed as the Chief Digital Advisor at Mongolia Productivity Organization, championing national digitization. Prior to his current appointments, he was the Chairman of BigONE Exchange, a global top 30 ranked crypto spot exchange and was also the Advisory Board Member for Hyundai DAC, the blockchain arm of South Korea’s largest car manufacturer Hyundai Motor Group. Lian played a pivotal role as the Blockchain Advisor for Asian Productivity Organisation (APO), an intergovernmental organization committed to improving productivity in the Asia-Pacific region.
An avid supporter of incubating start-ups, Anndy has also been a private investor for the past eight years. With a growth investment mindset, Anndy strategically demonstrates this in the companies he chooses to be involved with. He believes that what he is doing through blockchain technology currently will revolutionise and redefine traditional businesses. He also believes that the blockchain industry has to be “redecentralised”.