The Monetary Authority of Singapore (MAS) has blasted unregulated stablecoins, which it says “have a patchy record of keeping their peg.”
In his speech at the Singapore Fintech Festival, MAS’ managing director Chia Der Jiun touted tokenized assets as the next evolution of the financial services industry, while criticizing public permissionless blockchain networks and unregulated stablecoins.
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Stablecoin adoption has skyrocketed in recent years, with the combined market cap adding $100 billion this year alone. However, Singapore’s de facto central bank still perceives unregulated stablecoins as a threat to the country’s financial stability.
Jiun drew parallels between stablecoin depegs and the 2008 financial crisis, where the collapse of some money market funds triggered runs on the rest of the market.
“Such unregulated stablecoins would not be suitable as safe settlement assets for large wholesale transactions,” he stated.
Singapore has a fraught history with digital asset collapses. The city-state was the corporate home of Terraform Labs, the company behind UST, the algorithmic stablecoin whose collapse (along with its sister token LUNA) wiped out over $55 billion directly and triggered wider market losses. The city is also home to Three Arrows Capital, a ‘crypto’ hedge fund that was at the heart of the resulting 2022 capitulation.
The MAS believes that newer, well-regulated stablecoins offer value without sacrificing stability. It wants Singapore to become a global leader in establishing enabling policies for stablecoin issuers, and it’s now working on new guidelines for the sector, Chiun revealed.
“MAS recognises this and has finalised the features of our stablecoin regulatory regime and will be preparing draft legislation. Under our regime, we have given importance to sound reserve backing and redemption reliability,” he told the attendees.
The upcoming framework will lay a solid foundation, but it’s not exhaustive, he added. If these regulated stablecoins eventually become systemic, Singaporean policymakers will need to further strengthen the frameworks and enhance cooperation with other global regulators to protect users.
While stablecoins have a vital role to play in the future of payments, MAS believes that tokenized bank liabilities and central bank digital currencies will be central to Singapore’s digital economy.
Tokenized liabilities, in particular, “benefit from current central bank and regulatory arrangements that underpin value stability and singleness of money.”
Ultimately, any settlement method for Singaporeans must guarantee a deep pool of safe and reliable settlement assets, Jiun says.
“In the established financial system, everyday corporate and retail transactions are settled with commercial bank money. This arrangement anchors the singleness of money, and finality of settlement,” he stated.
MAS: Tokenized assets “on the cusp of a take-off”
The top bank backed tokenized assets to become a mainstream vehicle for digital finance, supercharged by “greater regulatory clarity and substantial investment and innovation in this space.”
MAS has been exploring asset-backed tokens for years under Project Guardian, whose members include Citi (NASDAQ: C), BNY Mellon (NASDAQ: DMF), Ant International, Franklin Templeton (NASDAQ: FTGTX), and the German central bank.
The regulator says that in the time it has been experimenting with the technology, hundreds of commercial products have launched globally, ranging from digital bonds and tokenized money market funds to cash management services and corporate treasuries.
However, the sector is still nascent and requires “significant progress on several fronts.” Crucially, any new tokenized product must offer value to users and build participation and liquidity.
Overall, the sector is in dire need of standardization and interoperability, Jiun told the attendees.
Currently, financial institutions are locked in a race to build and scale their individual networks. All these networks have varying technical specifications, which makes it impossible to port an asset from one network to another.
“At best, the friction would limit the benefits of transacting on-chain. Or worse, we could see a fragmented landscape of sub-scale walled gardens, or even a small number of monopolies posing concentration risks,” he pointed out.
The industry needs to build a unified marketplace for tokenized assets and then compete to build new products and functionalities. This requires industry standards that pave the way for interoperability.
Singapore’s largest lender, DBS (NASDAQ: DBSDF), is making strides towards token interoperability, recently announcing that it would connect its DBS Token Service blockchain platform to JPMorgan’s Kinexys.
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Source: https://coingeek.com/singapore-mas-slams-unregulated-stablecoins-pledges-new-law/