Singapore is moving toward stricter stablecoin oversight, with the Monetary Authority of Singapore (MAS) proposing rules that would require issuers to fully back their tokens with reserves and prevent them from offering interest or yield.

Under proposed changes to the Payment Services Act, stablecoin issuers would have to maintain reserve assets worth at least 100% of all tokens in circulation at all times.

The reserve assets would have to remain separate from the issuer’s own funds and be held with licensed financial institutions. MAS said the requirements are intended to strengthen protection for stablecoin holders and ensure issuers can meet redemption requests.

The regulator also wants to establish a clear distinction between stablecoins used for payments and products designed for investment. Issuers would therefore be prohibited from paying interest or offering other benefits based on customers’ stablecoin holdings.

MAS said the no-yield requirement is consistent with approaches taken in other major jurisdictions. Both the US GENIUS Act and the European Union’s Markets in Crypto-Assets (MiCA) framework prohibit stablecoin issuers from paying interest or offering yield.

The proposed legislation reiterates MAS’s view that stablecoins can serve as payment tools but should not be treated as investment products or alternatives to interest-bearing bank deposits.

Ho Hern Shin, MAS deputy managing director for financial supervision, said well-regulated stablecoins could become dependable settlement assets for tokenized financial markets while helping reduce risks for users and the broader financial system.

Possible Recognition for Foreign Stablecoins

MAS is also proposing limited recognition for certain foreign stablecoins that are governed by overseas regulations considered comparable to Singapore’s framework.

However, the regulator has yet to determine how the recognition process would work, how responsibilities would be allocated when tokens are issued jointly and whether existing local issuers would receive transitional arrangements.

MAS first consulted on its stablecoin framework in October 2022 and published its response to industry feedback in August 2023. The latest consultation will close on Oct. 16.

The regulator plans to seek additional feedback on subsidiary legislation at a later stage. No implementation date has been announced.

Stablecoin Trials Continue

The proposed regulations come as Singapore continues to explore practical applications for regulated stablecoins.

Ripple is testing whether its RLUSD stablecoin can streamline cross-border payments by replacing manual processes that have historically caused delays. The project is being conducted within the MAS regulatory sandbox, which allows financial companies to test new technologies under controlled conditions.

The trial is part of BLOOM, an MAS initiative focused on expanding settlement capabilities for tokenized bank liabilities and regulated stablecoins.