How Singapore Became Asia's ICO Hub

By Shiwen Yap

Singapore, an offshore financial center known for its conservative investors and restrictions on chewing gum, has now become a hub for Initial Coin Offerings (ICOs), one of the wildest areas of contemporary finance. How did this happen?

ICOs are a popular crowdfunding mechanism for blockchain-related projects. Startups all over the world have been issuing their own tokens and selling them to investors. The lack of clear regulation surrounding this new phenomenon has led to an explosion of scams, with some countries, like China, prohibiting them. Meanwhile, Singapore has welcomed ICOs with relatively open arms.


Gaurang Torvekar, the Singapore-based CEO and co-founder of Indorse, a decentralized social network for professionals, observes, “Singapore has definitely emerged as an ICO hub, not just in Asia, but also across the world. The number of ICOs being conducted through Singapore is staggering, and the kind of innovation happening here is at a different scale. Some of the biggest ICOs in the world, including Digix, TenX, Status, Kyber are from Singapore.”

The numbers bear this out. According to  blockchain analysis company Elementus, in the first quarter of 2018, Singapore token sales brought in more than US $1.7 billion, making it the world's third largest token sale hub after the United States and Venezuela, and the largest in Asia.

While ICOs reside in a gray area  in many countries, Singapore has taken a relatively clear position. The Monetary Authority of Singapore (MAS), issued guidelines in November 2017 that clarify the structure of token offerings and differentiate between utility tokens and tokenized securities, represented by equity tokens. According to Torvekar, while MAS doesn't allow security token offerings without prior approval and other regulatory considerations, they have taken a pragmatic view toward utility tokens.

Utility tokens, which represent future access to a company’s product or service, are fundamentally digital coupons which permit prepaid access to specific goods and services. An example of this is Filecoin’s ICO, which raised over US $200 million through the sale of tokens that would provide users access to its decentralized cloud storage platform.

Security tokens, by contrast, represent ownership in external, tradable assets, such as tokens that represent shares in a company. The Securities & Exchange Commission (SEC) of the United States has signalled that most crypto-tokens fall under the ambit of securities.

Now Singapore, alongside Hong Kong, is set to see its blockchain ecosystem grow substantially this year,  buoyed by the growth of the cryptocurrency sector in the region and the emergence of ICOs and crypto-tokens.

According to Jarrod Luo, former Secretary General of the Association of Cryptocurrency Enterprises & Startups Singapore (ACCESS),  “Singapore's emergence as an ICO hub is no accident at all.” Luo cites a convergence of key factors, such as “Singapore's pre-existing status as a major financial and trading hub in the ASEAN region”, as well as a “sustained and continuous effort of the Singapore-based blockchain community to constructively engage the regulators, educate the public and self-police for bad actors and questionable practices within the industry."

Luo credits the regulators of the city-state for their adoption of a “light touch and consultative approach” with which they have shaped the regulatory framework governing the financial technology and blockchain industry.

“Instead of putting a blanket ban on ICOs and cryptocurrencies like some other countries, they try to work with the startups through their legal counsel to make sure that there are not bad actors," Torvekar explains. "The Singapore regulator has always led the pack, demonstrated through their initiatives like the regulatory sandbox to name a few.”

But as ICO growth explodes in Singapore, will regulators continue to tolerate them? Luo explains: “Currently, the relevant regulatory contours revolve around MAS guidelines on digital token offerings issued last November [2017]." It's a good start, he says, but we can expect more regulatory clarity to emerge as the space continues to mature in the coming days.”

Singapore is not totally lax about cryptocurrency. The MAS, which regulates the banking and financial ecosystem in the city-state, does not directly regulate cryptocurrency but requires intermediaries (e.g. exchange operators) to comply with existing rules governing money laundering and terrorism funding.

In September 2017, Bloomberg reported on the closure of the accounts of several companies specializing in providing cryptocurrency and payments services. To bypass this issue, a number of cryptocurrency and blockchain firms maintain separate companies as vehicles for managing the finances of their firms. Quoine, a cryptocurrency services group with roots in Tokyo and Singapore, started conducting its banking in Japan following the closure of its account in the city-state.

In an interview with Bloomberg, Mike Kayamori, the founder and CEO of Quoine, says that while banks in Singapore maintain a “zero-tolerance policy towards cryptocurrency and blockchain companies,” due to the legal ambiguity they operate in, he expects new regulations to come into place by the end of 2018.

As of early 2018, according to its managing director Ravi Menon,financial stability, money laundering, investor protection, and market functioning are some of the key areas that MAS currently monitors with regard to cryptocurrency.

In February, Tharman Shanmugaratnam, deputy prime minister and the minister in charge of MAS, has also said that though there is “no strong case to ban cryptocurrency trading,” intermediaries in the cryptocurrency space will be subject to Singapore’s anti-money laundering regulations.

Robin Lee, CEO of HelloGold, which offers gold products and conducted its token sale in Singapore, highlights the fact that the ICO space is a whole new world, and should be regulated accordingly. “If the space is to be regulated, regulation should be built from first principles rather than ported over from the securities market,” Lee says, arguing that light regulation needs to be applied, with clear health, explicit warnings about the risks of investing in this startup space,” with excessive regulation rendering ICOs irrelevant and costly for startups.

Then there is the tax question. Given that tax structures in Singapore could see up to 17% of ICO proceeds being taxed -- the city-state taxes corporate income accrued or derived from Singapore and foreign-sourced income received in the city-state -- ICO proceeds need to be defined properly. But to date, the Inland Revenue Authority of Singapore (IRAS) has not clearly defined the nature of tokens and cryptocurrencies from a Singapore tax perspective.

Stephen Banfield and Vincent Sim, partner and associate at international law firm Withersworldwide, respectively, write: “An issuing entity based in Singapore may argue that the proceeds from an ICO are foreign-sourced income. With this characterisation, the ICO proceeds are not subject to Singapore tax as long as they are not received or deemed to be received in Singapore.”

The next few years are likely to bring increased competition between countries that want to attract blockchain talent. Torvekar notes that Singapore still has "a shortage of skilled developers and professionals who understand the space thoroughly.”

“While Singapore is leading at the moment [...] it will be interesting to see how the moves by Gibraltar and Switzerland change momentum in the coming year,” adds Lee from HelloGold.

Japan is in the mix as well. Japan is in the process of creating rules and issuing guidelines for organizations conducting ICOs.  

When deciding to do an ICO, blockchain startups will consider tax considerations, ease of doing business, clarity of regulations, as well as the availability of banking facilities. Singapore's approach to these issues will decide its status as a global ICO hub.

Shiwen Yap is a Singapore-based writer and entrepreneur.

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