TAKEAWAYS
Part 1 of this article provides an introduction to stablecoins: what they are, their market value, and the two biggest stablecoins by market share. This Part 2 continues the discussion with a look at the stablecoin companies in Singapore, their use cases, and the regulatory and risk landscape.
Singapore has established itself as a global hub for blockchain and cryptocurrency innovation, including the development and issuance of stablecoins. The country’s progressive regulatory framework, coupled with its strategic location and robust financial infrastructure, has attracted numerous stablecoin companies.
Here are some key players in Singapore’s stablecoin ecosystem.
StraitsX offers stablecoins such as XSGD, XUSD, and XIDR, pegged to the Singapore dollar, US dollar, and Indonesian rupiah respectively. These stablecoins are fully backed by reserve assets and provide multi-chain support, enhancing accessibility to global financial systems.
Paxos has introduced the Global Dollar (USDG), a USD-backed stablecoin issued through its local entity, Paxos Digital Singapore. This stablecoin is designed to meet enterprise needs and is compliant with Singapore’s regulatory framework.
Circle created USDC, a digital currency backed by the USD and always redeemable at 1:1. Circle works closely with regulators to ensure that the digital dollar guides and surpasses the standards for stablecoins. By doing this, USDC has the potential to change how money moves around the world.
Payment systems
Stablecoins have revolutionised payment systems by providing a fast, efficient, and cost-effective alternative for conducting transactions across borders. By bypassing traditional banking intermediaries, stablecoins drastically reduce the time and fees typically associated with cross-border payments. This makes them particularly valuable in situations where the conventional financial infrastructure is slow or expensive, such as remittances to developing countries. Moreover, stablecoins offer unparalleled accessibility, enabling unbanked or underbanked populations to participate in the global financial ecosystem through nothing more than a smartphone and internet access.
DeFi integration
In the rapidly evolving world of decentralised finance (DeFi), stablecoins have become a cornerstone, acting as a medium of stability and liquidity within volatile cryptocurrency markets. These digital assets facilitate a wide array of financial activities, including lending, borrowing, and yield farming. For instance, stablecoins are often used as collateral in DeFi protocols to secure loans or to provide liquidity in decentralised exchanges, where their stability ensures consistent trading pair values. This foundational role underscores the importance of stablecoins in creating a robust and scalable DeFi ecosystem that attracts both institutional and retail participants.
Hedging and remittances
Stablecoins serve as a critical tool for investors and individuals looking to protect their wealth from market fluctuations. By converting volatile assets into stablecoins, users can effectively hedge against sudden drops in value without exiting the digital asset ecosystem entirely. Additionally, the efficiency and low cost of stablecoins make them an ideal choice for remittances, particularly in regions where local currencies are prone to inflation or devaluation. For families relying on money sent from abroad, stablecoins offer a reliable and accessible means to receive funds quickly and securely, often at a fraction of the cost associated with traditional money transfer services.
Governments and regulatory bodies around the world exhibit a diverse range of responses to the rise of stablecoins, shaped by their unique economic priorities and technological readiness. Some nations have chosen to adopt outright bans, viewing stablecoins as a potential threat to monetary sovereignty and financial stability. Conversely, other jurisdictions are actively developing regulatory frameworks to harness the innovative potential of stablecoins while mitigating the associated risks. For instance, countries like Singapore and Switzerland are fostering innovation through clear guidelines, aiming to position themselves as global leaders in digital finance.
Risks and concerns
Scalability and adoption
Achieving widespread global adoption of stablecoins requires addressing significant technological and infrastructural hurdles. Blockchain networks must scale up to handle a massive volume of transactions while maintaining speed, security, and low costs. Additionally, stablecoins must overcome trust issues among traditional financial institutions and end-users unfamiliar with digital currencies. Broader adoption hinges on interoperability, ease of use, and integration into existing financial systems, ensuring a seamless transition for users across diverse economic contexts.
Stablecoins have established themselves as a vital component of the cryptocurrency landscape, offering a bridge between volatile digital assets and traditional financial systems. However, their evolution will depend on technological advancements, regulatory clarity, and market trust. With continued innovation and oversight, stablecoins have the potential to revolutionise global finance.
Chan Wei Xiang, CA (Singapore), is Chief Growth Officer, SOAS.
© 2024 Institute of Singapore Chartered Accountants
