There’s an eagerness among both investors and companies to see the Singapore government develop its stance on blockchain technology.
Since 2020, the country has been primed to become a global crypto hub. With the introduction of the Payment Services Act, there were hopes that Singapore would be a place to find stability — for digital asset companies to operate with a license, and without fears of being blindsided by policy changes.
As it stands, only a few companies — 14 out of almost 200 applicants — have been able to realise this vision thus far. Singapore’s approach to Web3 — once solely described as “progressive” — is now also met with adjectives such as “strict” and “cautious”.
For some, this has been a reason to jump ship. In December, Binance withdrew its application to be licensed in Singapore and began talks to set up its headquarters in Dubai instead. Bybit — once a locally-based crypto exchange — followed through on a similar move this March as well.
During this time, the Monetary Authority of Singapore (MAS) doubled down on its stance that crypto investments are not suitable for retail consumers. Cryptocurrency ATMs were banned and companies were no longer allowed to advertise their crypto trading services to the public.
On face value, it might seem as if Singapore is backing out of its blockchain ambitions. However, speaking to MAS’ Chief FinTech Officer Sopnendu Mohanty, it becomes apparent that the mission is the same as it has ever been: responsible growth of Web3 technology.
The hunt for economic value
“I’m looking for real economic benefit. Use cases that have value in the real world,” says Mohanty, at a roundtable discussion organised by digital asset platform Fireblocks.
For all the different concepts which Web3 has birthed — DeFi, GameFi, SocialFi, SimpFi — the question still remains the same from a regulatory perspective: “Why is there a need for Web3?”
If you remove all the noise and distraction in this space, we’re at a very early stage of building blocks. Today, if you look purely at financial services — capital markets, payment services, remittance services — all of these activities are already happening with existing technology. Why is there a need for Web3?
– Sopnendu Mohanty, Chief FinTech Officer of MAS
Although Web3 offers apps and protocols which mimic traditional finance (TradFi) services, it’s important to consider whether they add any benefits. Are these new solutions which conventional technology doesn’t offer?
“The focus should be to objectively look at real, existing problems,” says Mohanty. “For example, the provenance of trade documents.” Only after the problem is identified do further considerations come into play.
“Is there a Web3 tech stack that can solve this? If so, which project is it? What infrastructure is it built on? And what is the utility token that will power the provenance of trade documents?”
For a Web3 service to be of value, it must have a more efficient solution to an existing problem. “This shows improvement of the underlying processes of an existing activity, and that’s a real economic shift.”
Once such a service is established — say, a provenance solution for trade documents — it’d set a precedent for the use of Web3 in this field. On this basis, other business models could follow suit.
Mohanty cites carbon credit tokenisation and music copyright tokenisation as examples. “They would start riding on the same infrastructure because the credibility has been built to support a real shift of operations.”
Web3 and retail consumers
Only after such real-world applications are built — which Mohanty believes is a long way down the road — will it become appropriate to advertise Web3 and crypto services to retail consumers.
“Eventually, we’ll see retail customers correlate what they’re buying with the underlying activity behind it. At the moment, it’s very hard to see that,” he says.
Mohanty uses the dot-com crash to further illustrate why this space isn’t ready for retail adoption.
“There were three variables open back then: consumer adoption, business models, and infrastructure. All of them were new. When you [try to introduce] all of this at once, it’s very likely to end up with a bad outcome.”
“It took over a decade before infrastructure got fixed, business models became commercially viable, and consumers finally began to understand the space.”
With Web3, infrastructure has picked up, business models are still questionable and evolving, and consumer adoption is still very very fragile. The same thing is playing out.
– Sopnendu Mohanty, Chief FinTech Officer of MAS
Building on the same example, Mohanty explains that it will take time for regulations to shape out in the Web3 space.
“When did the internet start and when did the [General Data Protection Regulation (GDPR)] come out? Imagine the two coming out at the same time. How different would the regulations look?”
Patience before regulations
“We can’t regulate when we don’t know what the outcome will be,” explains Mohanty.
Binance CEO Changpeng Zhao echoed a similar thought at the Point Zero Forum last month, stating that it was unreasonable to expect regulators to comment on the metaverse when it isn’t even clear what the metaverse represents.
“We have to be very thoughtful of the use cases,” Mohanty continues. “Regulations will respond progressively as things are clarified.”
The call-and-response process is inevitable. Future policies and regulations can only be shaped in accordance with how the Web3 space grows, meaning companies can’t plan in advance for these changes.
That being said, in Singapore, companies do have the advantage of working with the MAS and engaging in discussions to guide the future of Web3 in the country.
Speculating on how long it’ll take before there’s a sense of clarity and stability, Mohanty says, “It took 20 years with GDPR. I don’t expect it to take that long, but that’s how it works.”
“If Web 3.0 is the future, you have to navigate through this process. The market participants need to constantly work with regulators – this partnership will lead to evolution.”