Singapore's Status as a 'Crypto Paradise' Takes a Hit

This article comes fromFT, original author: Scott Chipolina & Mercedes Ruehl & Christian Davies & Song Jung-a

Odaily Translator | Nian Yin Si Tang

Odaily Translator | Nian Yin Si Tang

The international hunt for Do Kwon, co-founder of now-collapsed cryptocurrency operator Terraform Labs, has put the spotlight on Singapore. Singapore's reputation has taken a hit after several digital asset funds linked to the city-state collapsed.

Not only is Do Kwon's company registered in Singapore, South Korean prosecutors believe he traveled to Singapore in April.Do Kwon made Singapore his location on Twitter on Monday, writing that he"No secrets"

. However, Singapore police have said Do Kwon is not in the city-state.

This isn’t the only high-profile crypto controversy case in Singapore. Only recently has Singapore positioned itself as a digital asset friendly destination, competing with Dubai and Zurich.

A growing number of scandals and meltdowns have damaged Singapore's reputation after officials touted its stability, sound regulation and tax-friendliness as advantages for crypto firms and investors, crypto executives and experts said.

“The damage to reputation in the past six months has been much worse than people realize,” said Kelvin Low, a law professor at the National University of Singapore. It was mentioned to be based in Singapore."

Some of the biggest cryptocurrency crashes can be traced back to Singapore, which has attracted digital asset firms from around the world.

“Singapore’s regulatory environment is second only to Switzerland in terms of crypto investment,” said Kim Hyoung-joong, director of the Center for Cryptocurrency Research at Korea University.

“Crypto players prefer to operate in Singapore because of the transparency of regulation and their easy access to investor funds,” Kim said.

Crypto hedge fund Three Arrows Capital, which collapsed in June, was originally a registered fund manager in Singapore.

Management of the firm's sole fund was later transferred to an offshore entity in the British Virgin Islands. Co-founders Su Zhu and Kyle Davies have not revealed their location since Three Arrows collapsed.

The Singapore regulator accused Sanjian of providing false information and violating certain asset management thresholds, adding that it was assessing whether further breaches had occurred.

Hodlnaut, a crypto lender approved in principle for a license-in-principle by the Monetary Authority of Singapore (MAS), halted withdrawals and laid off most of its staff earlier this year.

In August, Hodlnaut was placed under interim judicial administration. The company said the decision would "provide a better chance of recovery". Singapore police said they were "investigating" Hodlnaut.

Singapore police are not investigating the TerraUSD (UST) crash, although investors have filed complaints, according to local media reports. Police did not respond to requests for comment about Terraform Labs and Kwon.

The MAS said that “none of the troubled companies are licensed by MAS” under its Payment Services Act, which regulates payment systems, and therefore fall outside its jurisdiction.

Three Arrows "had ceased to manage funds (in Singapore) before the issues that led to its insolvency arose," the firm said. It added that Hodlnaut had withdrawn its license application, so the "suspension of services was not in breach" of Singapore regulations.

“In Singapore, like all other jurisdictions, not all cryptocurrency-related activities are regulated,” the MAS said, adding that Singapore’s “evolving regulatory approach makes it the most comprehensive regulator for managing digital asset risks.” one of the countries".

Regulators in Singapore have begun to take a tougher stance as the cryptocurrency crisis looms, with officials promising “severe and merciless action” against bad behavior in the industry.

But experts say Singapore is not doing enough to punish or investigate possible fraud as the crisis engulfs the digital asset industry, inflicting huge losses on retail investors.

“I do think that (Singapore) has a bit of a mismatch between words and deeds,” said an executive at a cryptocurrency firm active in Singapore.

The executive also said they saw Singapore as being in a "dilemma" between trying to be seen as a "significant player in the world economy" and "trying to market itself as an innovation hub for a new industry without The industry is clearly showing that there are more and more bad players."

In August, MAS managing director Ravi Menon distanced the regulator from the scandals and said it would take "further steps to reduce harm to consumers".

Most of the measures are precautionary measures to protect retail investors in Singapore, such as cracking down on advertising, rather than regulatory measures.

The shift in attitude from officials, including Menon, has led some cryptocurrency firms to reevaluate their operations in Singapore.

In the case of Binance, the world's largest cryptocurrency exchange, it has ditched plans to make the city its hub, even though its chief executive, Changpeng Zhao, will live there for much of 2021. Last year, Binance was also placed on the HKMA’s investor warning list.

“Singapore is not our focus,” said Gleb Kostarev, Binance’s head of Asia. “A lot of it depends on regulation...Before, Singapore was like a crypto paradise...Times have changed.”

Others have defended Singapore's status as a crypto hub, arguing that it's unfair to blame the city-state.

“I think it’s also somewhat unfair to put all the blame on the regulators because in many cases, usually the party that’s to blame is the crypto market players, frankly,” said a person familiar with the matter. They should often be more informed."

Teresa Goody Guillén, a partner at US law firm BakerHostetler, said the Interpol red notice against Do Kwon was "unlikely to have an impact on the interest of legitimate companies to set up or operate in Singapore".

She added that the crypto industry “doesn’t seem to be reacting negatively to law enforcement investigating allegations of criminal activity, fraud, etc.”

ChainUp, a blockchain company that provides technology to cryptocurrency exchanges and other clients, said it was expanding in Singapore. In 2019, the start-up moved its headquarters from China to Singapore.