In 2022, the cryptocurrency economy can be described as fickle at best, or undependable at worst.
Its volatility boils down to the fact that cryptocurrencies are only as valuable as what they are perceived to be, which makes them more susceptible to fluctuations and even total collapse.
After a string of insolvencies (i.e., bankruptcies) such as lender Celsius and hedge fund Three Arrows, who have come tumbling down after the crash of TerraUSD and Luna, the Monetary Authority of Singapore (MAS) is proposing a list of regulations.
On The Users’ End
Among other things, it will set a barrier of entry to digital asset trading, in part to ensure that new traders understand the risks involved before they plunge into the deep end, and to separate crypto assets from normal ones.
Similar to how people now need to test for a licence before riding a personal mobility device (PMD), customers may need to take a test to gauge their understanding about the possible risks of crypto trading.
Secondly, providers of digital payment tokens (DPT) or crypto services are prohibited from allowing retail users to borrow to purchase crypto or accept credit payments to do so.
In simpler words, retail users must directly purchase the crypto with money that they already possess.
Crypto service providers should not be allowed to use incentives like giving away free tokens or gifts to draw in retail users. Again, this goes back to knowing the risks involved instead of just being lured by the possible financial derivatives.
In the same vein, celebrity endorsements are not condoned.
Separation of Crypto Assets
For the sake of differentiating retail investors who make most of their fortune off crypto speculation from those with diverse portfolios, MAS has suggested that the investors need to have at least $1.8 million in other assets before they are considered accredited investors.
The other assets can be made out of bonds, properties or equities; it just needs to be the traditional sort of investment.
Presently, an accredited investor is defined as someone who has $2 million in net personal assets. Therefore, the regulatory will only recognise up to 10% of an accredited investor’s assets in crypto.
Another measure that MAS is proposing is to stop crypto companies licensed under the Payment Services Act from lending out DPTs to retail investors, regardless of whether it is for staking purposes or to another crypto company.
Although it sounds damaging to the entire concept of DPTs, the likely rationale behind this proposal is to prevent money laundering and reduce the risk of terrorism financing.
Crypto companies will also be expected to separate customers’ assets from their own assets.
Risk management controls for tokens held by investors also need to be introduced.
Policies and procedures of how these companies select and list tokens also need to be disclosed to investors, like an investment profile, so people can understand the inherent risks of trading crypto under a certain management.
This is to ensure transparency between the company and player.
MAS is also calling for cryptocurrency companies to make sure their feedback system works by installing the appropriate process.
Regulating Stablecoins
In better news, MAS will be regulating the issuance of stablecoins when the stablecoin in circulation exceed $5 million in value.
Stablecoins, compared to other cryptocurrencies, are literally more ‘stable’ as they are pegged to a single currency.
This will certainly ensure that the stablecoins are steadier and therefore more valuable as an interoperable currency.
However, issuers must hold reserve assets in cash or short-dated sovereign debt securities which are equivalent to the full par value or nominal value of the single-currency stablecoin in circulation.
Stablecoins issued in Singapore must either be begged to the Singaporean dollar or any currency from the Group of Ten – the 10 wealthiest country members in the International Monetary Fund (IMF) – like Japan yen, United States dollar, Switzerland franc and German euro.
Stablecoin issuers must also publish a white paper that explicitly states the redemption rights of stablecoin holders.
They must also have a base capital of $1 million or 50% of its annual operating expenses, whichever is higher.
Simultaneously, stablecoin issuers must hold liquid assets that are valued at more than half of their annual operating expenses to ensure that they have enough funds for recovery or an orderly wind-down.
It wouldn’t be surprising if TerraLuna inspired these two regulations.
MAS believes that these regulations will help develop the use of stablecoins in Singapore for value-adding payments.
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