A look at the three different types of crypto assets and how they’re regulated in S’pore

10 stycznia, 2022 Wyłączone przez admin

For most people, the first introduction to blockchain technology is through cryptocurrencies.

Today, blue chip coins such as Bitcoin and Ethereum have become household names. They have emerged as digital counterparts to fiat money and are being used for all the same purposes — to store value, facilitate transactions, and measure worth. 

That’s not all that crypto assets can be used for though. Over the past few years, new forms of tokens have been created on the blockchain, each with their own unique purpose.

Broadly, crypto assets can be classified into three main categories. These include the following:

1. Cryptocurrency

A cryptocurrency refers to the standard currency tied to any particular blockchain. For example, ether (ETH) is the native cryptocurrency used on the Ethereum blockchain. When a user makes transactions on Ethereum, any resulting fees need to be paid in ether.

A cryptocurrency doesn’t hold any utility beyond that of fiat money. It derives its appeal from being decentralised, as a result of which, it’s relatively anonymous. Users are able to trade in cryptocurrency without an external authority actively tracking their transactions.

2. Utility token

Utility tokens are used by the applications which exist on an existing blockchain. Their primary purpose is to offer access to a product or a service. They can play different roles depending on the nature of their parent application.

Games such as Axie Infinity and Gods Unchained — which are hosted on Ethereum — feature their own utility tokens. These tokens grant holders voting rights within the games’ respective ecosystems. They can also be used to purchase in-game items.

Although games have long had virtual currencies, the difference here is that the tokens can be exchanged for real money as well.

Users are able to earn Axie tokens while playing Axie Infinity / Screenshot of Axie Infinity homepage

Ethereum also hosts finance and technology apps which use their own utility tokens. For example, Uniswap is an app designed to facilitate exchange between the different tokens hosted on Ethereum. Users who hold Uniswap’s UNI token are able to submit and vote on proposals for the app’s development.  

3. Security token

Security tokens represent an investment in an underlying asset. They’re the digital equivalent of products such as stocks, bonds, and mutual funds. 

While utility tokens can be used to offer holders voting rights and profit-sharing, they don’t grant the holder ownership of the issuing company. On the other hand, security tokens are designed for that very purpose. 

The first ever security token was launched by a VC firm called Blockchain Capital. The company raised US$10 million through its security token BCAP, which was issued at a rate of US$1 per token.

The composition of Blockchain Capital’s portfolio as of March 2021 / Image Credits: securities.io

These funds were used to invest in the blockchain industry. Currently, Blockchain Capital holds equity in companies such as Coinbase and Opensea. It also holds crypto assets including Bitcoin and Ethereum. 

The BCAP token is now worth over US$16. Dividends are paid out to the holders of BCAP as they would be to shareholders of a traditional public company.

How are these different crypto assets regulated in Singapore?

Since they serve unique purposes, different categories of crypto assets need to be monitored under appropriate regulations. 

Cryptocurrencies and utility tokens get away with being largely unregulated as they aren’t recognised as legal tender. However, the Monetary Authority of Singapore (MAS) often issues notices warning people about the risks of treating these assets as investment products. 

Exchanges facilitating the purchase and sale of these assets need only comply with anti-money-laundering (AML) and counter-terrorist-financing (CTF) regulations. These have been laid out in the Payment Services Act of 2019. They require the collection of customer data and appropriate KYC checks for account holders.

Binance was forced to withdraw from Singapore late in 2021, after failure to comply with AML and CTF regulations / Image Credits: Bitcoin News

Security tokens, on the other hand, are regulated under the Securities and Futures Act (SFA) as well. Since these tokens are created to be investment products, they are held to the same standards as traditional capital market offerings. 

Any company or exchange which plans to offer security tokens in Singapore must obtain a licence for it as per the SFA. They must also issue a prospectus along with their security token offering, to inform potential investors about benefits and risks. 

Will Singapore introduce more crypto regulations?

With the crypto space constantly developing, the need for more regulations might be inevitable. As alluded to earlier, it’s possible for companies to issue securities under the guise of utility tokens today.

This would allow them to bypass the standards laid down in the SFA. Such loopholes arise because the nature of crypto assets is still fluid and evolving. As such, more clear-cut boundaries are bound to emerge in due time.

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Featured Image Credit: Coinbase

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