Singapore To Trial Tokenized MAS Bills With CBDC Settlement

The Monetary Authority of Singapore (MAS) has announced plans to trial the issuance of tokenized MAS bills to primary dealers that will be settled with a central bank digital currency (CBDC).

During a speech at the Singapore FinTech Festival, MAS Director Chia Der Jiun said that three Singapore banks, DBS, OCBC, and UOB, have successfully conducted interbank overnight lending transactions using the first live trial issuance of a Singapore dollar wholesale CBDC for settlement.

“As the next bound, MAS will trial the issuance of tokenized MAS Bills to Primary Dealers and settled with CBDC,” he said, adding that details of the trial will be released next year. 

Still Some Work To Be Done Before Tokenized Assets Can Achieve “Escape Velocity”

The MAS Director said that tokenized assets, which he referred to as “asset-backed” tokens, are “without a doubt” out of the experimentation phase. 

“Bonds have been issued natively and settled on chain. Money market funds have been tokenized. Major banks have offered tokenized cash management services to corporate treasuries,” he said. 

However, the MAS Director added that these assets have not yet achieved “escape velocity.”  

He then said that analysts predict that markets are headed for a future where “most financial assets” will be tokenized, traded, and settled on chain.” To reach this future, however, the MAS Director says “significant progress on several fronts” is required first. 

Firstly, he believes that market participants must show use cases that demonstrate “value and stability for their clients.” These firms also need to build “participation and liquidity” for the sector to reach its potential, according to the MAS director. 

He also mentioned three “critical developments” that need to happen.

The first of those developments is that asset-backed tokens must be standardized and the networks that house these tokens need to be interoperable. 

Next, he said, there needs to be a “deep pool of safe and reliable settlement assets.” Lastly, institutional-grade networks are needed to facilitate activity around the tokens, he added. 

He then said that the industry needs to avoid a situation where there is fragmentation or too much centralization in the market.

To achieve that, the MAS Director says “co-opetition” is needed, where firms cooperate to build a marketplace for asset-backed tokens while competing to bring new products to the market. 

Singapore MAS Has Finalized Stablecoin Regulatory Regime

The Director also said MAS has made progress with proposed stablecoin regulation. He said that the MAS has finalized its regulatory regime for these tokens and will now work on preparing draft legislation.

“Under our regime, we have given importance to sound reserve backing and redemption reliability,” he said.

The MAS classifies stablecoins as “digital payment tokens” under the Payment Services Act. It introduced a framework back in August 2023 for single-currency stablecoins pegged to the Singapore dollar as well as major currencies such as the US dollar and the euro. 

In his speech, the Director warned that unregulated stablecoins have a “patchy record” of maintaining their pegs to the underlying asset. He also said that if this issue is not addressed, it could trigger systemic runs similar to the 2008 money market fund failures. 

US Stablecoins Currently Dominate The Market

The effort to regulate stablecoins in Singapore comes after the US established a regulatory framework for the tokens in July when President Trump signed the GENIUS Act into law. This move has since kicked off a global stablecoin race, and has also seen an increasing number of traditional finance firms begin to explore stablecoins. 

Currently, the market is dominated by stablecoins that are pegged to the US dollar. The largest of these tokens is Tether’s USDT, which has a market cap of more than $184 billion. Second is Circle’s USDC, with its total capitalization of more than $76 billion.

The rest of the top ten largest stablecoins are all tokens that are pegged to the greenback. 

Largest stablecoins by market cap (Source: CoinMarketCap)

The largest non-USD stablecoin is Circle’s EURC, which has a much smaller capitalization compared to USDT of over $298.7 million. After EURC, the next-biggest non-USD stablecoin is EURS with a market cap of over $139 million.