MAS unveiled three initiatives in November 2023 to ensure the safe use of digital money after finalising a regulatory framework for stablecoins in August of that year and Kenny Chan, Head and General Manager at StraitsX, has kept a keen eye on these developments.
“Singapore has emerged as a leader in this stablecoin revolution,” he says. “The city-state’s forward-looking and proactive approach to regulation has provided a clear framework for stablecoin issuers and users, fostering innovation while maintaining financial stability. The Monetary Authority of Singapore (MAS) has been at the forefront of exploring the potential of blockchain technology and digital currencies through initiatives like Project Orchid, Project Ubin, and Project Guardian.”
“Singapore has emerged as a leader in this stablecoin revolution”
Kenny Chan
This leading role comes when stablecoins are becoming more popular across Asia, spurring more development amongst fintech providers. Here’s how the stablecoin picture in Singapore is evolving and the role these developments are playing across Asia.
Stablecoin popularity and regulation
“stablecoins are gaining traction across Asia for different reasons across retail, professional traders, and institutional investors & family offices,” says Anaïs Ofranc, Founder of QualitaX, highlighting different characteristics fueling stablecoin popularity.
“stablecoins are increasingly used for cross-border remittances [since] they offer lower forex costs and 24/7 availability,” Ofranc says. “They also provide a “store of value” in economies with volatile local currencies, enabling stablecoins users to hedge against inflation.” She notes that stablecoins have utility for professional traders too. stablecoins are very liquid and useful to enter and exit positions without the need for fiat (i.e. market-neutral strategies),” she notes. “They’re good for hedging, and engaging in DeFi to maximise returns/yields—24/7 market access, unlike traditional markets.”
Singapore’s sophisticated approach to technology has played a role in pushing the city-state to the forefront of stablecoin regulation
Meanwhile Paul Kremsky, Global Head of Business Development at Cumberland, says stablecoin adoption is more than crypto hype, giving an example of their utility in cross-border transfers.
“If you’re trying to move capital from Asia to the US, there’s a pretty narrow window of overlap between their banking hours,” he says. “And then if the transaction occurs, it can take the wire hours or even days to clear, and it can fail due to any number of correspondent banks. stablecoin transfers settle immediately. It’s a superpower that has evolved past crypto markets and is growing to be part of the larger payments infrastructure.”
The right time
MAS’ efforts to lead the way in stablecoin and digital asset regulation have thus come at the right time. “Singapore plays a key role in Asian financial markets and in some aspects, it has overtaken Hong Kong in recent years,” Ofranc says. She points out that Singapore is also emerging as Asia’s wealth management hub.
“We could think that the presence of sophisticated investors continuously seeking innovative investment opportunities, creates a conducive environment for the adoption of stablecoins and yield-bearing stablecoins as digital asset classes,” Ofranc says.
“From a global perspective, Singapore’s regulatory approach could serve as a model for other jurisdictions looking to integrate stablecoins into their financial systems”
Anaïs Ofranc
Chan says Singapore’s sophisticated approach to technology has also played a role in pushing the city-state to the forefront of stablecoin regulation. “Singapore’s technological readiness is another crucial factor,” he says. “The country consistently ranks high in global technological readiness indices, boasting a tech-savvy population, high-skilled labour, and robust digital infrastructure. This technological sophistication extends to both the public and private sectors, creating an ecosystem receptive to cutting-edge financial technologies.”
Chan echoes Ofranc’s point about Singapore’s rise as a financial hub, noting that the presence of expertise in traditional finance and emerging technologies leads to fertile ground for innovation.
Despite these advances, the overwhelming majority of stablecoin trades occur in USD-denominated coins. “[These] make up about 99% of the market,” Kremsky says. “We’re excited to see non-USD stablecoins gain traction, which has started to occur over the past few months.”
Chan points to the development of the XSGD and XIDR fiat-currency pegged stablecoins as examples of promising non-USD projects geared towards satisfying the Asian market’s needs.
“Simultaneously, there’s a concerted effort to integrate stablecoins with traditional finance to build real-world use cases of stablecoins under one of MAS’ regulatory sandboxes called Project Orchid,” he continues. “Its purpose is to explore the design and technology needed to support a digital Singapore dollar, as well as how it might integrate with existing payment systems through the creation of Purpose-Bound Money.”
MAS has finalised its new stablecoin regulatory framework
Under Project Orchid, StraitsX collaborated with industry partners and looked at potential use cases of Purpose-Bound Money in the form of digital vouchers and their commercial applications, Chan explains. “With XSGD embedded, the digital vouchers are programmed with certain conditions (expiration date, how, and where it can be used). Only when the conditions are met, the money will then be disbursed to the merchant instantly, reducing cost and transaction settlement time.”
He says the project’s focus in 2024 is to examine the potential of PBM applications for cross-border payments in collaboration with Ant International and Grab. “By integrating with GrabPay and Alipay+, StraitsX aims to create a seamless international payment experience for tourists, significantly reduce transaction costs, and boost regional payment efficiency,” Chan says.
Feedback from the ecosystem
When asked about the feedback developers and issuers are receiving from capital market participants, Kremsky strikes a positive note. “Early adopters who are coming from traditional finance and are building stablecoins into their workflows are seeing huge efficiency gains, so it’s just about taking that big first step,” he says. “It’s really about the network effect here.”
“Stablecoin transfers settle immediately. It’s a superpower that has evolved past crypto markets and is growing to be part of the larger payments infrastructure”
Paul Kremsky
Kremsky reckons the more businesses that accept stablecoins, the easier it will be to join the trend. “So this feels like something that will happen slowly, slowly, and then all at once,” he says.
Chan highlights four areas when discussing feedback—regulatory clarity, security, interoperability, and expanding use cases. “Regulatory clarity remains a top priority for many in the stablecoin community,” he says. “Investors and market participants are calling for clear, comprehensive regulatory guidelines to provide certainty for stablecoin operations.”
He points to MAS establishing the Single Currency stablecoin (SCS) regulatory framework in August 2023 as an example that helped StraitsX fuel innovation. “It [regulations] helps StraitsX to work towards early compliance with the finalised framework and will eventually help users better differentiate a fully-backed and regulated stablecoin, such as XSGD, from other stablecoins out there,” he says.
Chan also notes that increasing stablecoin transparency is critical as their popularity grows. “This can be addressed by more frequent and comprehensive audits and by choosing to hold the reserves with the lowest risk and highest-quality liquid assets, like on-demand cash deposits and government bonds,” he says.
The environment MAS has fostered by offering stable regulation and giving fintech firms leeway to explore innovation is leading to new stablecoin use cases. Expanding use cases brings interoperability into focus, something Chan expands on.
“Market participants need stablecoins that can function seamlessly across different blockchain platforms and easily integrate with existing financial systems,” he says. “This desire for interoperability reflects the increasingly interconnected nature of global finance and the potential for stablecoins to serve as a bridge between traditional and digital financial ecosystems.”
The purpose of Project Orchid is to explore the design and technology needed to support a digital Singapore dollar, as well as how it might integrate with existing payment systems through the creation of Purpose-Bound Money
Stablecoin growth prospects
Ofranc believes the future for stablecoins in Singapore is bright, mostly because of the regulatory picture. “From a global perspective, Singapore’s regulatory approach could serve as a model for other jurisdictions looking to integrate stablecoins into their financial systems,” she says.
Chan agrees with this point and says the integration of stablecoins with traditional finance will accelerate in Singapore. “This integration could lead to innovative hybrid financial products and services that combine the benefits of both traditional and digital finance. Singapore’s growing DeFi ecosystem is another factor likely to drive further stablecoin adoption and innovation,” he says. “As DeFi platforms and applications proliferate, stablecoins will play an increasingly crucial role as a stable medium of exchange and a foundation for various financial instruments.”
“stablecoin adoption is a way for economies to become more integrated into the global financial system, to reduce friction, and to increase the velocity of money”, Kremsky says. “Countries that have strong on-and-off-ramps from fiat into crypto will become more integrated in global trade than countries that don’t.”
As Singapore-based stablecoins like XSGD continue to grow in popularity and with stable regulations offering innovative projects a place to grow, the future for stablecoins seems bright indeed.