The Monetary Authority of Singapore’s (MAS) restriction on Digital Payment Token (DPT) service providers from facilitating lending and staking cryptocurrencies for their retail customers may significantly challenge certain crypto entities, especially those with these as their primary product offering.
Staking enables investors to lend cryptocurrencies to developers for blockchain network operations. In its October 2022 consultation paper, MAS highlighted that advertised yields for these products are often significantly higher than those in traditional finance, despite potential uncertainties, unsustainability, or outright fraud in the underlying revenue sources.
The central bank clarified that while respondents opposed the restriction, MAS is worried about the risks based on recent collapses of crypto lending and staking programmes involving retail customers worldwide.
Peiying Chua, partner and head of the financial regulation group at legal firm Linklaters Singapore, says most in the crypto industry believe this restriction is challenging and have lobbied instead for a middle ground. This includes imposing restrictions on lending or staking services or requiring client consent in advance.
Others, like major financial institutions, are either supportive or generally ambivalent towards this restriction as they serve mostly accredited and institutional clients, in which case the ban does not apply.
Chua suggests that this restriction surpasses the International Organization of Securities Commissions' (IOSCO) May 2023 draft policy recommendations, which allow lending or staking with explicit client consent and proper disclosure.
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Unintended consequences?
Singapore is not alone: The Thailand Securities and Exchange Commission have also proposed a similar prohibition on staking and lending services. “The jury is out on whether unintended consequences from the lending or staking ban might arise, such as driving consumers to foreign unregulated crypto exchanges or firms with inadequate protections. It is useful that the MAS appreciates that this space is evolving and is willing to monitor developments and may revisit its stance if appropriate in due course,” adds Chua.
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In Singapore, companies that offer lending or staking services include Crypto.com and Cake DeFi. The former obtained its Major Payment Institution licence under the Payment Services Act (PSA) from the MAS on June 1, while the latter is pending the approval of its licence application.
For crypto companies in the city-state that is currently offering lending or staking, their options going forward is to either restrict these offering to only accredited and institutional investors or to set up unregulated platforms that offer lending and staking, says Nizam Ismail, founder and CEO of compliance consultancy firm Ethikom.
“The challenge for the second option is that with the implementation of amendments to the PSA, the scope of DPT services will be widened to include activities relating to the transfer of DPTs, provision of custodial wallets, or facilitating the exchange of activities. In other words, lending or staking platforms are likely to require a licence under the PSA when the amendments are implemented,” he adds.
Another option is to look overseas. Hong Kong, for example, appears keener to increase greater participation from individuals and institutions in the crypto-asset market, says Chua.
“More broadly, the global direction of travel by regulators about crypto-asset markets is clear — that useful innovation needs to occur without lessening standards of investor protection and market integrity. DPT firms would need to watch this space and adapt accordingly.”
