Commentary: FTX collapse signals time for better financial innovation – just look at the digital Singdollar

SINGAPORE: The crypto world had barely recovered from the TerraUSD stablecoin crash in May, which dragged other major cryptocurrencies like Bitcoin down, wiping billions from the market. It faced yet another calamitous event on Friday (Nov 11): The collapse of FTX.

FTX was one of the largest and most respected crypto exchanges that counted top-tier institutional investors such as Lightspeed Venture Partners, Sequoia Capital and Singapore’s own Temasek among its backers. Sam Bankman-Fried, its curly-haired 30-year-old MIT graduate CEO was the darling of venture capitalists, with a net worth valued at US$26 billion (S$35.7 billion) at his peak.

All of this collapsed in a span of a month, when financial misappropriations were brought to light between FTX and Alameda Research, a hedge fund that he also ran. A subsequent run on the exchange has left many investors with losses, including many Singapore users.

Temasek has very likely lost a reported US$205 million. Sequoia has already written off its entire US$214 million stake in FTX as a loss.

Making things worse, they were subsequently hacked, possibly by insiders. Money that ought to have been redistributed to creditors have now been lost.

Crypto naysayers are having a field day. Prominent critics such as Warren Buffett have been vocal about crypto’s lack of economic fundamentals and its speculative nature. For the most part, they are right: Crypto is in dire need of more regulation.

But what does this all mean for those who have little interest in cryptocurrencies? What do we make of the technology, the people and the start-ups that operate in this ecosystem?


My view is that the future of decentralised finance (DeFi) and digital assets is still bright. The Monetary Authority of Singapore (MAS) certainly thinks so, with their “yes to digital asset innovation, no to cryptocurrency” approach.

At the recent Singapore FinTech Festival, MAS unveiled two groundbreaking projects: Project Orchid and Project Guardian. It’s worth being precise about some technical details here.

Project Orchid is a generalised architecture for digital bearer instruments – simply put, you could store and use this digital money without needing a bank account or going through other intermediaries. There are three possible types of such digital money, that can be based on blockchain technology: Central bank digital currencies (CBDCs) issued by central banks, tokenised bank deposits issued by commercial banks, and stablecoins issued by private companies.

Project Orchid goes one further than just a digital Singapore dollar by introducing Purpose Bound Money (PBM), which allows conditions to be set on its use.

Most Singaporeans will be familiar with CDC vouchers that can only be spent at heartland merchants. PBM could build this condition into the digital vouchers to be spent at designated merchants, and also for these vouchers to be transferred between individuals. Or consider how donors could specify how charities spend their donations, enabling transparency and increasing accountability.

Project Guardian is another meaningful pilot that utilises DeFi technologies in enabling real-world assets to be traded using what are known as “automated market makers”. The trial involves the trading of tokenised Singapore dollar, Japanese yen and Singaporean or Japanese government bonds. The benefits of DeFi include reductions in risk, increased liquidity and a reduction in middle and back-office overheads.


But FTX shows that a new sector with innovative applications of novel underlying technology could benefit from some regulation and better governance.

None of the major investors in FTX had a seat on the board, which consisted of Bankman-Fried, an FTX employee, and a lawyer. Though investigations are ongoing, it has been reported that FTX was using customer funds for proprietary trades, and that there were inadequate demarcations between Alameda as a hedge fund and FTX, whose duty was to provide customers with best execution of trades and custody of their funds.

In October, MAS announced consultations in upcoming regulation with stablecoins. This is a move that updates the existing Payments Services Act that will specify requirements on stablecoin issuers, and stipulates a class of stablecoins that are MAS-regulated.

MAS-regulated stablecoins must be pegged to the Singapore dollar or G10 currencies, and must be 100 per cent backed by reserve assets in cash, cash equivalents or short-term debt securities in the same currency.

MAS is also further introducing regulations on DPTs (digital payment tokens) that stipulate regulations and requirements on crypto exchanges. These will affect crypto exchanges that are MAS-regulated and offer services to Singapore users.

Nonetheless, as Coinbase CEO Brian Armstrong suggests, many of these exchanges are already offshore. FTX is incorporated in Antigua and Barbuda, with its headquarters in the Bahamas.

The effect of all of this is that while the MAS is clamping down on crypto speculation, it is optimistic on digital assets, and is building a future-ready financial infrastructure that can meet the needs of a rapidly changing fintech landscape.


It is useful to make the distinction that FTX was a CeFi (crypto centralised finance) failure – not a DeFi failure. DeFi has the potential to mitigate the egregious lapses in trusting key executives working in centralised crypto companies.

The right kind of regulation is better than more regulation. Crypto is global, so crypto regulation must be global too – and that requires clarity, consistency and coordination. Regulators have to coordinate to make sure crypto is not pushed offshore where companies have free rein.

Institutional investors in crypto exchanges also have to do more to mitigate these risks. Investing in these companies is an implicit mark of quality that signals down to the consumer, regardless of what the regulator says.

The missing voice is the crypto consumer, for whom it is hard to self-organise. Crypto consumers need to ask for attestations from centralised exchanges that they indeed have customer deposits and that their books are tallied. Binance has led the way with sharing details on their wallet addresses, while working on a more sophisticated “proof-of-reserve” system.

The future of DeFi, stablecoins and digital assets is still bright. The industry needs to pick itself up, learn from traditional finance, and refocus on the path that serves businesses and consumers in the real world.

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