September 22, 2023

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Monetary Authority of Singapore MD Ravi Menon on the good, the bad, and the ugly of crypto tokens

Monetary Authority of Singapore MD Ravi Menon on the good

crypto token began life as the medium of exchange within the blockchain
ecosystem, it has now assumed a life of its own, outside the blockchain.

Managing Director of Monetary Authority of
(MAS) Ravi Menon spoke
about the development of crypto tokens and its risks.

Menon gave his remarks at Money20/20 Asia

past year has seen explosive growth in the trading and use of these crypto
assets. We have also seen a roller-coaster ride in their prices,” said Mr Menon.

He cited
the example of Bitcoin, the most well-known crypto currencies or assets which hit
a high of nearly US$20,000 in December last year and then lost two-thirds of
its value in just over a month.

to Mr Menon, MAS has been watching the crypto space with great interest. Although
its views are still evolving, he shared some of the current state of thinking
and evolving regulatory approach.

Are crypto tokens money?

common use case for crypto tokens is payment. However, it does not make them an
equivalent to money, which is determined by its ability to fulfil the 3 basic functions
of money: as a medium of exchange, a store of value, and a unit of account.

to Mr Menon, no crypto token currently meets these three functions in
sufficient measure to qualify as money.

said crypto tokens are not widely accepted as a medium of exchange in any
market, let alone across any variety of transactions, with the possible
exception of the dark web.

also pointed out that payment transactions in crypto tokens are often slower
and more expensive than conventional electronic transfers of funds. Also, crypto
tokens cannot be a store of value due to their high volatility.

Mr Menon did not rule out the possibility of crypto tokens becoming money.

He noted
that a second generation of crypto tokens is emerging, to address some of the
current challenges related to network congestion, transaction time, energy
costs, money laundering risks, and importantly, price stability.

litmus test will be public trust and acceptance,” he said.

people put their faith in money that is not backed by a trusted public
institution like a central bank dedicated to protecting its value?”

The good, bad, and ugly of crypto tokens

Mr Menon acknowledged that whether crypto tokens become money or not, they are here and they pose a variety of issues. He continued his remarks on the good,
the bad, and the ugly of crypto tokens.

The Good

The potential
benefits of crypto tokens lie in the distinct characteristics of underlying
blockchain technology.

it is a distributed ledger. It provides a record of who owns a given asset at
any moment in time and an immutable record of all transactions in that asset.

it is a protocol for establishing trust among diverse parties in a
decentralised system: (1) where everyone has access to the same record; (2) the
data are secured by advanced cryptography; and (3) transactions are executed by
smart contracts in accordance with pre-agreed terms.

such, blockchain is suited for applications where it is important to know the
histories of ownership. Such application fields include supply chain management
where blockchain can potentially provide the means for registering, certifying,
and tracking the movement of goods across the supply chain, at low cost and low
risk, or trade finance to make the trade finance process safer and more

Menon also named facilitation of cross-border payments in traditional
currencies one of the potentially strongest use cases of crypto tokens. 

This is
precisely the challenge that Singapore’s Project Ubin has set itself to solve:
to use blockchain technology to enable entities across jurisdictions to make
payments to one another: (1) without intermediaries; (2) with greater speed and
efficiency; and (3) at lower risk and cost.

two successful proofs-of-concept domestically, MAS has entered a collaboration
with the Bank of Canada to test and develop a cross-border solution using
crypto tokens issued by the two central banks”, Mr Menon shared.

The Bad

Menon pointed out the danger behind the hype around blockchains, “the
blockchain is not a panacea to the problems of inefficiency and cost that we
face in many economic transactions and processes. It does not make sense to put
everything on the blockchain. Not all use cases being experimented on will

are many more potential risks to the use of crypto tokens.

instance, the anonymity of crypto tokens has unfortunately made them well
suited for facilitating illicit transactions.

significant portion of Bitcoin transactions globally is suspected to be for
illicit purposes. Questions abound as to how sanctions lists, black lists, KYC
or anti-money laundering controls apply in crypto token transactions,” said Mr

have also facilitated ransomware, one of the fastest growing cyber crimes. Cyber
criminals inject a malware into computers and restrict their access to files,
often threatening permanent data destruction unless a ransom is paid, nearly
always in the form of Bitcoins which do not leave a trace.


Menon noted that crypto tokens have sparked a speculative fever across the
world, with a vicious cycle of astronomical prices drawing a growing number of
investors sparking further exponential price increases.

speculative views that the current lower price is a buying opportunity, Mr
Menon cautioned that the recent crash in prices ought to be a warning signal,
as history tells us that speculative bubbles eventually end very badly.

warned of the heightened risk of fraud that investors face as “these schemes
are often conducted online by operators whose authenticity and credibility are
difficult to verify”.

Managing crypto risks: the MAS approach

face of the emerging crypto tokens, a common challenge for central banks and
regulators is: how can we harness the potentially transformative benefits of
blockchain technology and crypto tokens while containing some of their risks?

has to-date chosen not to regulate crypto tokens directly. Instead, it is focusing
on: (1) the activities associated with crypto tokens, (2) evaluating the
different kinds of risks these activities pose, and (3) considering the
appropriate regulatory responses, all the while, seeking to ensure that we do
not stifle innovation.

key risks MAS is monitoring in the crypto world are in the areas of financial
stability, money laundering, investor protection, and market functioning.


and other regulators are studying the nexus between the crypto world and the
financial system to assess how risks to financial stability may be transmitted,
whether it is market risk from the direct exposure of financial institutions to
crypto tokens; credit risk through unsecured lending to crypto token
businesses; or leverage when borrowers pledge crypto tokens as collateral to
borrow and buy more crypto tokens.

assesses that the nature and scale of crypto token activities in Singapore do
not currently pose a significant risk to financial stability.

the gaps in traditional information sources, MAS is exploring some
unconventional ways in which to gather data about the scale and scope of crypto
token related activities.

one hand, the crypto token blockchains themselves can provide a wealth of
information – including time stamps, recipient and sender addresses.

the other hand, the Application Programming Interfaces (APIs) provided by
crypto-exchanges present real-time insights on current flows in the crypto
market, including information on the fiat currencies that are being exchanged
for crypto tokens.


To combat
the potential danger of crypto token activities being used in money laundering
and terrorism financing, intermediaries are already required to report any
suspicious transactions to the Commercial Affairs Department.

addition, the proposed Payment Services Bill will require intermediaries that
buy, sell or exchange virtual currencies to specifically address money
laundering and terrorism financing risks. Intermediaries will be required to
carry out customer due diligence and put in place controls and processes that
are commensurate with their risks.


protect investors from what Mr Menon called “the crypto mania”, MAS has
implemented the following measures:

the crypto tokens represent ownership or a security interest over an issuer’s
assets or any property, or a debt owed by the issuer, they may be regarded as
securities under the Securities and Futures Act.

means that unless exempted, issuers must comply with prospectus requirements
prior to the offer of such tokens; intermediaries dealing in such tokens must
meet licensing requirements; and platforms facilitating secondary trading of
tokens must be approved or recognised by MAS.

the risks in crypto tokens is also a priority of MAS in investor protection, it
has advised the public to act with extreme caution should they wish to invest
in crypto tokens.


ensure market integrity and functioning, MAS is keeping itself abreast of
international developments. It has noted that several cryptocurrency exchanges
abroad have suffered cyber attacks and theft of their crypto tokens, and that
there are rumours and reports of rampant market manipulation and other
fraudulent activities on crypto-exchanges.

to Mr Menon, MAS is watching with interest developments in the US, where
futures contracts based on crypto tokens have been introduced on regulated
exchanges. Such developments might offer some value on how to improve market
integrity by establishing clear rules governing trade and post-trade

products could also potentially have a stabilising influence on crypto token
prices as they provide two-way hedging opportunities for investors,” Mr Menon

he also highlighted that regulation cannot address all the concerns around
crypto tokens. The industry too has a part to play in strengthening the
ecosystem, for instance, by adopting best practices around transparency,
cybersecurity, and record-keeping.

conclusion, Mr Menon said crypto token itself is not the problem, “it is the
enchantment with these tokens as a way to make a quick buck and their abuse for
illicit activities that are at the root of our concerns”.

He called for all parties – regulators and the
crypto industry – to work together to ensure that the society as a while harnesses
the potential of blockchain technology for social good while mitigating the
risks today’s tokens pose.


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