‘Crypto paradise’ Singapore was hit by high-profile collapses
The international hunt for Do Kwon, co-founder of collapsed crypto operator Terraform Labs, has put the spotlight on Singapore as the crypto hub’s reputation takes a hit following the failure of several crypto funds with links to the city-state.
Not only was Kwon’s Terraform Labs, the company behind the collapsed Terra stablecoin, registered in Singapore, but Korean prosecutors believe he traveled to the city in April.
On Monday, Kwon listed Singapore as his location on Twitter, tweeting that he makes “zero effort” to hide. Police in Singapore have said Kwon is not in the city-state.
Kwon’s case is not the only high-profile crypto controversy unfolding in Singapore, a city that until recently asserted itself as a crypto-friendly destination in competition with global rivals Dubai and Zurich.
Crypto executives and experts said the long list of scandals and collapses has tarnished Singapore’s reputation, after officials touted its stability, sophisticated regulation and tax friendliness as a boon for crypto companies and investors.
“The reputational damage over the past six months is much more serious than has been known,” said Kelvin Low, a law professor at the National University of Singapore. “Every time one of these companies is brought up, they are mentioned [as being] based in Singapore.”
Some of the biggest crypto collapses can be traced through Singapore, which had attracted digital asset companies from around the world.
“Singapore has the most liberal regulatory environment after Switzerland in terms of crypto investment,” Kim Hyoung-joong, head of the Cryptocurrency Research Center at Korea University.
“Crypto players prefer to operate in Singapore due to transparent regulations and their easy access to investors for funding,” Kim said.
Three Arrows Capital, a crypto hedge fund that collapsed this summer, started as a registered fund management company in Singapore.
Management of the company’s sole fund was later moved to an offshore entity in the British Virgin Islands. Co-founders Su Zhu and Kyle Davies have not disclosed their whereabouts since Three Arrows collapsed.
Singapore’s regulator reprimanded Three Arrows for providing false information and breaching certain asset management thresholds. It added that it was assessing whether further breaches occurred.
Hodlnaut, a Singaporean crypto lender that received in-principle licensing approval from the Monetary Authority of Singapore, halted withdrawals and cut the majority of its staff earlier this year.
In August, Hodlnaut was placed under temporary legal management. The company said this decision would “provide a better chance of recovery”. Singapore police said they were “investigating” Hodlnaut.
Police in Singapore did not investigate the Terra collapse despite a complaint being filed, according to local media. Police did not respond to a request for comment regarding the Terra collapse and Kwon.
MAS said “none of these troubled companies are licensed by the Monetary Authority of Singapore” under the Payment Services Act, which regulates payment systems, so they are not under its jurisdiction.
It said Three Arrows Capital had “ceased managing funds [in Singapore] before the problems led to its insolvency”. It added that Hodlnaut had withdrawn its license application, so “the suspension of services does not contravene” Singapore regulations.
“In Singapore, as is the case in all other jurisdictions, not all activities related to cryptocurrency are regulated,” MAS said, adding: “MAS’ evolving regulatory approach makes Singapore one of the most comprehensive in addressing the risks of digital assets”.
As the crypto winter set in, regulators in Singapore have begun to take a tougher line, with officials vowing to be “relentlessly tough” on misconduct in the sector.
But experts said Singapore is not doing enough to punish or investigate possible fraud by crypto companies based on its shores, as a crisis has swept through the digital asset industry this year and caused a landslide of losses for retail investors.
– I think there is a certain degree [Singapore] is willing to say one thing and do quite another,” said an executive at a crypto company active in Singapore.
The same executive said they believe Singapore is in a “tight spot” trying to balance being seen as a “serious player in the world economy” against “trying to market itself as a hub for innovation in a nascent industry that clearly turns out to have more and more bad actors.”
In August, MAS chief executive Ravi Menon distanced the regulator from the scandals, saying it would take “further action to reduce consumer harm”.
Most steps have been preventive measures to protect Singapore retail investors, such as cracking down on advertising, rather than disciplinary ones.
The changing tone from officials like Menon has prompted some crypto companies to rethink their Singapore operations.
Binance, the world’s largest crypto exchange, has abandoned plans to make the city a central hub despite CEO Changpeng Zhao staying there for much of 2021. Last year, it was also placed on the MAS investor alert list.
“Singapore is not a big focus for us,” said Gleb Kostarev, regional head of Asia for Binance. “A lot depends on regulation . . . in the past, Singapore was a kind of crypto paradise . . . times have changed.”
Others have come to the defense of Singapore’s status as a crypto hub, suggesting that it would be unfair to blame the city-state for the actions of a minority.
“I also think it’s a bit unfair to try to put all the onus and responsibility on the regulators, when often the blame in many cases lies with the crypto market players who frankly, in many cases, should know better,” said one person in the know. with the matter.
Teresa Goody Guillén, partner at US law firm BakerHostetler, said Interpol’s red notice against Kwon is “unlikely to have an impact on legitimate companies’ interest in forming or operating in Singapore”.
The crypto industry “doesn’t seem to react negatively to law enforcement investigating allegations of criminal activity, fraud and the like,” she added.
ChainUp, a blockchain company that provides technology to crypto exchanges and other clients, said it was expanding in the city.
The start-up moved its headquarters from China to Singapore in 2019 as Beijing signaled that it was cracking down on the crypto sector.
“I am confident in the approach of regulators,” said Sailor Zhong, ChainUp’s CEO.
“No one country can do everything, and it is difficult for the Singapore government to enforce the rule of law for companies with operations overseas.”
