Singapore Targets Stablecoin Risk With Full-Reserve and No-Yield Framework

Singapore is proposing a tougher regulatory framework for stablecoins that would require issuers to maintain reserves covering the entire value of tokens in circulation and prohibit them from offering interest or yield to holders.

The Monetary Authority of Singapore (MAS) has proposed amendments to the Payment Services Act that would require issuers to keep reserve assets equal to at least 100% of their outstanding stablecoins at all times.

Those assets would have to be segregated from the issuer’s own funds and held with licensed financial institutions. MAS said the reserve requirements are designed to ensure stablecoin users have adequate protection and that issuers can meet redemption requests when they arise.

The proposed framework would also restrict how stablecoins can be used. MAS said the tokens should primarily facilitate payments rather than function as investment products or instruments for generating returns.

Under the proposed rules, issuers would not be allowed to pay interest or provide other incentives linked to a customer’s stablecoin balance. MAS said the approach mirrors international standards, with both the US GENIUS Act and the European Union’s Markets in Crypto-Assets (MiCA) framework prohibiting stablecoins from offering interest or yield.

MAS said stablecoins can play a role in payments but should not be treated by the public as investment products or substitutes for interest-bearing bank deposits.

Ho Hern Shin, MAS deputy managing director for financial supervision, said stablecoins that are trusted and properly regulated could serve as credible settlement assets for tokenized financial markets while limiting risks to users and the wider financial system.

Foreign Stablecoins Could Be Recognized

The consultation paper also outlines a proposal to recognize a limited number of foreign stablecoins operating under regulatory regimes that MAS considers comparable to Singapore’s.

The regulator has not yet finalized how such recognition would work. Questions also remain over the allocation of responsibilities for jointly issued stablecoins and whether existing Singapore-based issuers would receive transitional arrangements.

MAS first sought industry feedback on its stablecoin framework in October 2022 and published its response in August 2023. The current consultation will remain open until Oct. 16.

A separate consultation covering subsidiary legislation is planned for a later date, and MAS has not yet set an implementation timeline.

Singapore Expands Stablecoin Testing

The regulatory proposals arrive as Singapore continues to test potential applications for regulated stablecoins.

Ripple is exploring whether its RLUSD stablecoin can replace manual procedures used in cross-border payments, potentially reducing delays in international trade. The project is being tested through the MAS regulatory sandbox, which provides companies with a controlled environment for experimenting with financial technologies.

The initiative is part of BLOOM, an MAS program designed to expand settlement capabilities for tokenized bank liabilities and regulated stablecoins.