How Singapore’s crypto ambitions are taking shape and what other nations can learn
Singapore’s intention to become a global crypto hub will see greater realization this year by evolving as a special kind of hub: one aimed at institutional and industry participation. Inherent in this strategy is the intentional facilitation of certain aspects of growth, along with the limitation of other facets. Singapore seeks to leverage accredited investors and institutions that have sufficient assets and expertise to participate in this high-risk environment, particularly at early stages of development. While this may mean hampered retail participation, this approach provides much-needed clarity for businesses from a perspective that remains relatively rare in the rest of the world.
As a recognized financial center on the global map, Singapore’s efforts remain steadfast in maintaining leadership in the space. Through deliberate policy and regulatory efforts made in 2022 and before laying the groundwork for this year, Singapore’s approach to crypto can act as a blueprint for other nations looking to leverage key stakeholders for industry growth and build effective use cases for their broader financial markets.
The goal is a balance
In November 2021, the Monetary Authority of Singapore (MAS), Singapore’s central bank and financial regulator, shared Singapore’s ambitions to become a hub for sound and well-regulated digital assets with value-added use cases. Efforts have been continually made to strike a delicate balance between encouraging blockchain innovation and protecting investors from the risks of participating in a promising but nascent market.
Initiatives were introduced to enable institutions to explore decentralized finance applications (DeFi) and the concept of a digital Singapore dollar through Project Ubin, Project Orchid and Project Guardian.
Singapore’s strength in bringing together financial sector professionals was highlighted through the TOKEN2049 conference. Held in Singapore, the conference attracted over 7,000 attendees including venture capitalists, financial institutions and crypto, DeFi and infrastructure projects to discuss the future of crypto and facilitate new and ongoing developments.
In terms of private sector blockchain investment, Singapore ranks second in the world after the leading player in the US in terms of number of deals, with Singapore-based projects making 566 deals and raising $3.9 billion over the past six years , according to research from The Block. Only the United States and the United Kingdom, at $38.6 billion and $5 billion respectively, had deals that collectively raised more.
Investments from within Singapore through Temasek, the nation’s sovereign wealth fund, also highlighted its seriousness in being a key player through investments in gaming, NFTs and other ecosystem players.
We have started to see a physical relocation of projects to Singapore, as it is attractive, not only because of a favorable business climate due to taxes, but also the legal certainty and security of business continuity. For example, crypto projects have left China after greater restrictions around business and Covid. Blockchain node operators are also increasingly making Singapore their home as projects seek to decentralize their operations in trusted hubs around the world.
These strengths in technical development, institutional participation and investment will shape Singapore as a crypto hub for years to come.
Works with the private sector
Last year saw a significant global shift in institutional interest towards crypto and DeFi. BlackRock, the world’s largest asset manager, began trading digital assets, and HSBC planned to move the settlement of US$20 billion in assets to a new blockchain-based custody platform.
Just last month, Société Générale, a France-based bank, withdrew USD 7 million of MakerDAO’s stablecoin DAI from its vault, which had been credited with a limit of USD 30 million in DAI. The vault is backed by 40 million euros in bonds in the form of “OFH tokens” – tokenized securities issued on Ethereum and secured by AAA-rated French mortgages.
This year will see greater exploration of permissioned DeFi that could increase transparency among involved stakeholders and potentially facilitate industry-level, near-instant settlements across borders.
Permissioned DeFi, which includes a whitelisting process through identity and background checks such as know-your-customer (KYC) and anti-money laundering (AML) procedures, can help institutions following strict compliance rules to ensure that their trading counterparts have been vetted. This approach stands in contrast to the majority of DeFi, which is completely permissionless, giving virtually anyone access to liquidity pools. Promising zero-knowledge developments in 2023 that help preserve data protection through zk-STARKs and zk-SNARKS will help counter objections to KYC and AML use that exposes information to centralized parties.
Aave Arc, a permissioned version of the lending protocol, Aave was released in early 2022. Just last November, we saw a major bank, for the first time, tokenize deposits on a public blockchain. This historic moment was led in Singapore, under the supervision of MAS, where banks including DBS Bank and JPMorgan conducted currency and government bond transactions on Polygon, using a modified version of Aave Arc.
Project Mariana, which includes the central banks of Singapore, France and Switzerland in the study of the integration of DeFi functions with central bank digital currencies (CBDC), is also underway. These projects could see more progress this year.
Presses for real-world use
Better integrations of crypto with the real world can also help to better reveal its value such as lower costs, increased efficiency and reduced risk in financial transactions.
Project Orchid, a government industry initiative that aims to develop the infrastructure and technical expertise needed to issue a digital Singapore dollar, was rolled out last October with industry players including DBS Bank, Central Provident Fund (CPF), Grab , UOB and OCBC. Wealth management products are also developed by HSBC, Marketnode and UOB in collaboration with MAS. Continuous efforts like this push progress locally toward useful implementation in the broader economy.
Beyond finance, we see examples in industries such as property, education and healthcare. Tokenization of real estate development is made possible through Fraxtor’s digital platform, which bridges the gap between investors and real estate investment opportunities coming from private equity managers. In October 2022, Fraxtor, a qualified real estate tokenization issuer, tokenized two redevelopment projects involving a real estate and bungalow plot in Singapore. This marked important efforts to transform property, which historically has been a fundamentally indivisible and illiquid category of assets.
In addition, the education and health sectors see traditionally complex processes simplified through solutions such as Accredify, which issue verifiable documents that are tamper-proof and with IDs stored on the blockchain. Beyond an initial focus on making educational credentials easy to store and share, as late as 2022 the technology used to issue more than 1 million covid-19 rapid antigen test results partnered with an IOT startup, Beep. We have also seen other platforms rise such as Opencerts, a platform that generates cryptographic protection for educational credentials, and HealthCerts that help provide tamper-proof, secure and digitally transmitted health certificates for convenient global travel.
These use cases can help foster organic growth and more useful applications of crypto in industries that are significantly valuable in the broader economy.
Conclusion
Industry and institutional engagement will continue to be key to the flourishing of Singapore as a crypto hub this year, with a strong foundation built in 2022. Beyond the convergence of DeFi and TradFi, we may see more integrations of real-world products connected to blockchain and DeFi. Robust government support to the industry and the continued participation of several blockchain experts will contribute to an accelerated rate of growth. Singapore’s approach should be seen as a blueprint for other nations looking to grow their crypto industry and build their wider economy.
