SINGAPORE proposed to ban retail investors from borrowing to fund cryptocurrency purchases, part of a slew of suggestions to further tighten the city-state’s regulatory regime for digital assets. 

Other potential steps in a Monetary Authority of Singapore consultation paper include stopping companies from using tokens deposited by retail investors for lending or staking to generate yields. Stak- ing is the process of earning rewards by deploying coins for crypto applications. 

Crypto prices are “highly volatile” and leverage can saddle customers with big losses, the central bank said in the paper last Wednesday, adding the retail sector shouldn’t be able to use credit cards or other credit facilities to buy tokens. 

The restrictions don’t apply to high-net-worth investors, who can qualify for a wider range of investments in the city-state. 

Stablecoins — tokens that are meant to have a constant value — would need to be pegged to the local dollar or a Group of 10 currency and be fully backed by reserve assets of the same denomination, according to the document. Minimum capital requirements would be imposed on issuers too. 

Singapore has been hit by a series of crypto blowups following a US$2 trillion 

(RM8.91 trillion) rout in digital assets, a selloff that took down the TerraUSD algorithmic stablecoin. Regulators globally are grappling with how to protect consumers, while harnessing the innovation crypto offers. 

The latest proposed steps “could affect trading volumes and revenues of crypto exchanges and lenders who have large retail exposure”, said Michael Wu, co-founder and CEO of the Singapore-based Amber crypto platform. Still, the rules “will be good in the long term”, he added. 

Locking out retail investors from lending tokens or staking will limit their access to decentralised finance or DeFi, which is often touted as important for crypto adoption. But DeFi has been dented by a series of hacks as well as the higher yields now available in conventional investments like Treasuries. 

Before the consultation, Singapore had already taken steps like clamping down on crypto marketing. It also requires virtual-asset providers to be licensed locally even if they only do business overseas. 

The central bank said in last Wednesday’s paper that it rejected entirely banning cryptocurrency services for retail consumers because that could lead them to unlicensed platforms. — Bloomberg 

• This article first appeared in The Malaysian Reserve weekly print edition