Today the Monetary Authority of Singapore (MAS) announced its digital money plans focused on regulated stablecoins, tokenized deposits and central bank digital currencies (CBDCs). It doesn’t expect its stablecoin regulations to come into force for a year. Hence, in the meantime, it is giving the go ahead to subsidiaries of StraitsX and Paxos to issue stablecoins. However, we believe they will look different from stablecoins as we know them today. They might be available on multiple public blockchains, but final settlement is likely to happen on a privately controlled chain.
The clues are in a new MAS paper on Project Orchid setting out its vision. It will apply to regulated stablecoins, tokenized deposits and central bank digital currency (CBDC). Tokenized deposits and regulated stablecoins have to settle on “Orchid compatible ledgers” (OCLs).
An OCL ledger operator must comply with all legal and regulatory requirements relevant to its conduct. In other words digital currency has to settle on a ledger under the control of a defined operator. That makes sense for banks but differs from how stablecoins operate today.
Here’s the major clue: “Permissionless networks whereby anyone may view, edit, and conduct any activities, including deploying smart contracts without controls or oversight are unlikely to meet the requirements of qualification as an OCL (ledger).”
Does this mean that stablecoins won’t circulate on a public blockchain? We think they probably will.
One possibility is there’s simply a private master ledger that logs all transactions across all the blockchains on which the stablecoin is issued. It’s a little like a central securities depository (CSD) for securities. This will be the legal settlement layer. Based on the quote above, the stablecoins might carry restrictions on how they can be used, consistent with Singapore’s concept of Purpose Bound Money. For example, perhaps there might be an approved list of smart contracts. If someone uses a stablecoin with a non approved smart contract, the digital currency might be frozen.
Update: Paxos responded to Ledger Insights saying the Singapore stablecoins will be issued on Ethereum and operate similarly to existing tokens.
Paxos and StraitsX
Paxos’ experience is of note. It’s the issuer of the Paxos USD, PayPal’s stablecoin and was the issuer of the Binance USD. It also happens to operate an institutional commodities settlement platform. Participants include KOCH, Nomura, Bank of America, Societe Generale, ABN Amro and others. Guess which jurisdiction is one of the largest commodities hubs in the world? Singapore.
That said, the Paxos announcement has a retail focus. “Global demand for the US dollar has never been stronger, yet it remains difficult for consumers outside the US to get dollars safely, reliably and under regulatory protections,” said Walter Hessert, Paxos Head of Strategy. “This in-principle approval from the MAS will allow Paxos to bring its regulated platform to more users around the world.”
Paxos already has a MAS license. This new license is for a new ringfenced subsidiary, Paxos Digital Singapore. In the same way that Paxos Trust issues a stablecoin on behalf of PayPal, Paxos said it will be able to partner with enterprise clients to issue Singapore-based USD stablecoins.
The wording related to the other issuer, StraitsX, was also notable. StraitsX is creating two legal entities. StraitsX SGD Issuance “that will house the XSGD pegged stablecoin that is already on the market” and Straits X USD Issuance. In case you wondered, XSGD is issued on multiple public blockchains.
One final point. We’re not sure that the Singapore stablecoin framework published in August had this private ledger requirement.
Update: added response from Paxos