Singapore Proposes Major Overhaul of Crypto Rules

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  • Singapore’s monetary authority is planning to bring in sweeping crypto reforms
  • The new rules would see retail investors banned from leverage trading and needing to pass a test in order to trade
  • Stablecoins would also require backing, essentially banning algorithmic stablecoins like Terra USD

The Monetary Authority of Singapore (MAS) has proposed a raft of new measures aimed at curtailing the risks of cryptocurrency trading for retail investors. The biggest changes of all come in the stablecoin realm, which isn’t surprising considering that Singapore is the home of Terraform Labs, whose Terra USD stablecoin crashed and lost around $40 billion of investors’ money earlier this year. The country also proposes that retail users take a test to ensure their understanding of the crypto space before they are allowed to invest, and investing on credit (i.e. leverage trading) will be outlawed.

MAS Wants to Protect Retail Investors

MAS made the proposals yesterday, predicted on the belief that many retail customers do “not have sufficient knowledge of the risks of trading” cryptocurrencies, which might lead them “to take on higher risks than they would otherwise have been willing, or are able, to bear.”

The new rules include setting capital and reserve requirements for issuers of stablecoins, meaning an end to algorithmic stablecoins like Terra USD, and banning issuers from engaging in “other activities that introduce additional risks” like lending or staking.

The central bank also proposed that crypto firms licensed under the nation’s Payments Services Act should not be allowed to lend to retail investors in a move that could topple many firms’ businesses.

Singapore Wants to Ban Leverage Trading

Under the news laws, retail users would have to pass a test to prove that they fully understand the risks of investing in cryptocurrencies, and investing in general, to be allows to do so, with the agency saying that it was “of the view that the heightened risk of consumer harm in this unregulated space may necessitate stricter measures for retail customers.”

Singapore may also go the way of the UK and ban derivatives trading, which typically uses borrowed capital and is a feature of crypto markets that has caused more damage to retail traders than perhaps any other.