As bitcoin and other digital assets go mainstream, traditional banks want a piece of the action. Singapore’s crypto-friendly regulations are paving the way.
Institutional interest in cryptocurrencies and digital assets has increased exponentially in recent months, and in a sign of growing mainstream adoption of this nascent asset class, traditional banks are now joining in on the action.
Singapore-based DBS — the largest bank in Southeast Asia — has become one of the first traditional banks in the region to launch its own digital exchange. Following an announcement last month, the bank’s crypto trading services is now live, DBS has confirmed to Forkast.News.
The exchange leverages blockchain technology to provide tokenization, trading and a custody ecosystem for digital assets. The move follows DBS’ in-principle approval as a recognized market operator by the country’s central bank and regulator, the Monetary Authority of Singapore (MAS).
The platform facilitates spot trading between four fiat currencies (SGD, USD, HKD and JPY) and four cryptocurrencies — bitcoin (BTC), ethereum (ETH), bitcoin cash (BCH) and Ripple (XRP).
“The exponential pace of asset digitalization provides immense opportunities to reshape capital markets,” said Piyush Gupta, DBS’ chief executive officer, in a media statement. “For Singapore to become even more competitive as a global financial hub, we have to prepare ourselves to welcome the mainstream adoption of digital assets and currency trading.”
The exchange is integrated with an institutional-grade digital custody service for these assets. Companies will also be able to raise capital through the tokenization of their securities and assets, such as shares in unlisted companies, bonds and private equity funds.
“As for STOs (security token offerings), these will take some time to originate, and there will hopefully be something in Q1 2021,” a DBS spokesperson told Forkast.News.
Competition is intensifying in Singapore’s digital assets sector. Crypto-native companies such as major exchanges Binance and Coinbase already operate in Singapore under temporary exemptions from holding a license. New York-based cryptocurrency exchange Gemini also recently expanded to Singapore. While not as popular as their centralized counterparts, decentralized exchanges such as Uniswap and Sushiswap — which operate without an intermediary — have also been on the rise.
But unlike crypto-native exchanges that primarily serve retail customers, the DBS digital exchange is limited to institutional investors, accredited investors, the bank’s brokerage arm DBS Vickers and DBS Private Bank. To underscore who its target customers are, the DBS exchange currently only operates during Asian trading hours — between 9 am and 5 pm, Monday to Friday — in contrast to the retail customer-focused crypto exchanges that operate 24/7. DBS told Forkast.News that it would consider longer open hours at a later stage.
Binance, for one, does not (yet) consider DBS to be a rival.
“They’re geared towards the traditional institutional investors, which we don’t have anyway. So from a clientele perspective, there’s almost zero overlap,” said Changpeng Zhao (also known as “CZ”), co-founder and CEO of Binance.
“They’re increasing the credibility and validity of cryptocurrencies to the traditional users, which have always been somewhat skeptical and slow to adopt,” Zhao said. “They’re growing the industry–that’s good for everyone, for us and for them.”
DBS’ move to set up a digital exchange could trigger banks in other countries to do the same, leading to higher chances that other governments would approve cryptocurrency exchanges
The Singapore Exchange (SGX) has a 10% stake in the DBS digital exchange, and both parties are exploring opportunities to deepen the liquidity, scale and growth of Singapore’s capital markets for digital assets and digital currencies, according to the media statement.
SGX has also announced a joint venture with investment firm Temasek to advance its digital asset infrastructure in capital markets. The joint venture — set to be Asia-Pacific’s first exchange-led digital asset venture — will focus on capital markets workflows through smart contracts, ledger and tokenization technologies.
Asia, a node in the global liquidity network for digital assets
SGX is not the only player in traditional finance adding digital assets to its playbook. Last month, Switzerland’s SIX and Japan’s SBI Group announced a joint venture to drive institutional digital asset liquidity through a Singapore-based digital issuance platform, exchange and central securities depository that is expected to go live by 2022, subject to regulatory approval from the MAS.
Deutsche Bank and Singapore fintech STACS have, this month, announced their collaboration for a proof of concept related to digital assets’ interoperability, liquidity, cross-border connectivity and smart contract templates, including the support of sustainability-themed digital bonds.
Regulatory clarity in an emerging space
Singapore is a global financial centre and a fintech hub in Asia due to its progressive regulatory environment.
New non-bank digital players are entering the market with the liberalization of the country’s banking sector. In December, MAS awarded four digital banking licenses. Two digital full-bank licenses were awarded to technology firm Sea and a consortium comprising Grab and Singtel, and two digital wholesale bank licenses were awarded to China’s Ant Group and a consortium comprising Greenland Financial Holdings Group, Linklogis Hong Kong and Beijing Co-operative Equity Investment Fund Management.
Sheila Warren, the World Economic Forum’s head of blockchain, data and digital assets, recently told Forkast News that she is keeping her eye on developments in Singapore.
“It’s one of the more innovative countries definitely in the world in terms of being on the cutting edge of technology and having an infrastructure that can support that, which is a critical prerequisite for some of this experimentation,” Warren said. “I’m really looking at Singapore very closely to see what they get up to, both in the data space, which I now lead at the Forum, but also in digital assets.”
Other crypto leaders expressed similar sentiments. “The entry of Southeast Asia’s biggest bank — DBS Bank — into the cryptocurrency space, in my opinion, validates the digital assets sector, which is still in its formative years in Asia,” said Eugene Ng, Asia Pacific head of business development at Gemini, in an email to Forkast.News. “As the saying goes, ‘a rising tide lifts all boats.’ Singapore’s thoughtful regulatory regime will only propel the industry to grow steadily with broader mainstream adoption.”
This month, the city-state passed the Payment Services (Amendment) Bill to expand MAS’ powers to regulate virtual assets service providers that facilitate the use of digital payment tokens (DPT) — commonly known as cryptocurrencies. Entities that facilitate the transfer, exchange or custody of DPT will need to be licensed, even if they do not possess the money or cryptocurrency involved.
“This will help minimize the risk of DPT service providers being exploited by criminals to launder illicit proceeds or hide illicit assets,” said Ong Ye Kung, Singapore’s transport minister and MAS board member, in a speech to Singapore’s Parliament earlier this month.
“The risks to consumers are not significant currently, because of the relatively low usage of DPTs in Singapore today. However, user adoption of DPTs could gain traction quickly as the industry comes out with products to attract customers,” Ong said.
In addition to clarifying its regulatory framework for payment services given the growth of cryptocurrencies, the country is enhancing its e-payments infrastructure and will be opening payment rails to major non-bank financial institutions (NFIs).
The NFIs will be allowed to connect directly to the Fast and Secure Transfers (FAST) and PayNow electronic funds transfer services that enable the instant transfer of Singapore dollar funds from one entity to another. This has a significant impact on e-payments interoperability as consumers can make real-time fund transfers between bank accounts and e-wallets as well as across different e-wallets. The initiative could also serve to level the playing field for non-bank players.
The Singapore government is putting its money into strengthening the blockchain ecosystem — investing US$9 million (S$12 million) in its first national effort to expand blockchain technology research to facilitate the development, commercialization and adoption of wider real-world applications. The initiative will also look at scalability and interoperability of blockchain solutions.
Other blockchain-related initiatives Singapore has undertaken include Project Ubin — a five-year multi-phase collaborative project launched in 2016 by MAS and the country’s financial services industry to explore the use of blockchain and distributed ledger technology for the clearing and settlement of payments and securities. The blockchain-based, multi-currency payments network prototype developed in collaboration with J.P. Morgan and investment firm Temasek under the fifth and final phase of Project Ubin, which concluded last year, showed the commercial applicability of blockchain technology beyond capital markets and trade finance.
With adoption trends towards digitalization and blockchain accelerating, and as the ecosystem develops, all players — new and old — may find collaboration and interoperability a driver for growth.