Singapore’s ‘Crypt Heaven’ Stung by High-profile Collapses

The international manhunt for Do Kwon, co-founder of collapsed crypto operator Terraform Labs, has shone a spotlight on Singapore as the crypto hub’s reputation takes a hit following the failure of multiple funds of cryptography related 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.

Kwon showed Singapore as his location on Twitter on Monday, tweeting that he was making “no effort” to hide. Singapore police said Kwon was not in the city-state.

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Kwon’s case isn’t the only high-profile crypto controversy unfolding in Singapore, a city that until recently touted itself as a crypto-friendly destination competing with global rivals Dubai and Zurich.

Crypto executives and pundits say the long list of scandals and meltdowns has tarnished Singapore’s reputation, after officials touted its stability, sophisticated regulation and tax friendliness as an advantage for crypto firms and investors.

“The reputational damage over the past six months is far more serious than is being suggested,” said Kelvin Low, a law professor at the National University of Singapore. “Whenever one of these companies is mentioned, it is mentioned [as being] based in Singapore.

Some of the biggest crypto meltdowns can be traced back to Singapore, which had attracted digital asset companies from around the world.

“Singapore has the most liberal regulatory environment after Switzerland in terms of investing in crypto,” said Kim Hyoung-joong, director of the Center for Cryptocurrency Research at Korea University.

“Crypto players prefer to operate in Singapore because of transparent regulations and their easy access to investors for funding,” Kim said.

Three Arrows Capital, a crypto hedge fund that collapsed this summer, started out as a Singapore-registered fund management company.

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

The Singapore regulator has reprimanded Three Arrows for providing false information and breaching certain asset management thresholds. He added that he was assessing whether any other regulatory breaches had occurred.

Hodlnaut, a Singaporean crypto lender that received licensing approval in principle from the Monetary Authority of Singapore, halted withdrawals and laid off the majority of its employees earlier this year.

In August, Hodlnaut was placed under judicial interim management. The company said the move would “offer a better chance of recovery.” Singapore police said they were “investigating” Hodlnaut.

Singapore police failed to investigate Terra’s collapse despite filing a complaint, according to local media. Police did not respond to a request for comment regarding Terra and Kwon’s collapse.

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

He said Three Arrows Capital had “stopped managing funds [in Singapore] before the problems that led to its insolvency”. He added that Hodlnaut had withdrawn its license application, so the “suspension of services is not in violation” of Singapore regulations.

“In Singapore, as is the case in all other jurisdictions, not all cryptocurrency-related activities are regulated,” MAS said, adding, “MAS’ evolving regulatory approach makes Singapore one of of the most comprehensive in the risk management of digital assets”.

As crypto winter sets in, regulators in Singapore have begun to take a tougher line, with officials vowing to be “relentlessly tough” on misbehavior in the industry.

But experts said Singapore was not doing enough to punish or investigate possible fraud by crypto companies based on its shores, as a crisis swept through the digital asset industry this year, sparking an avalanche of losses for retail investors.

“I think there is an extent to which [Singapore] is ready to say one thing and do something quite different,” said an executive at a Singapore-based crypto firm.

The same leader said he thought Singapore was in a “tough point” trying to balance being seen as a “serious player in the global economy” against “trying to promote itself as a hub of innovation in a fledgling industry that is clearly showing itself to have more and more bad actors.

In August, MAS chief executive Ravi Menon distanced himself from the scandals and said he would take “further steps to reduce consumer harm”.

Most of the measures have been preventive measures to protect Singaporean retail investors, such as a crackdown on advertising, rather than disciplinary action.

The changing tone of officials like Menon has caused some crypto companies to reevaluate their operations in Singapore.

Binance, the world’s largest crypto exchange, has abandoned plans to make the city a key hub despite the fact that its chief executive Changpeng Zhao lived there for much of 2021. Last year, he also been placed on the MAS Investor Alert List.

“Singapore is not a big priority for us,” said Gleb Kostarev, Asia regional manager for Binance. “A lot depends on the regulations. . . previously, Singapore was something of a crypto haven. . . the times have changed.

Others have come to the defense of Singapore’s status as a crypto hub, suggesting it would be unfair to blame the city-state for the actions of a minority.

“I think it’s a little bit also unfair to try to put all the onus and responsibility on regulators, when often the party to blame in many cases is the players in the crypto markets who, frankly, in many cases, should know better,” said a familiar individual. with matter.

Teresa Goody Guillén, a partner at US law firm BakerHostetler, said Interpol’s red notice against Kwon “is unlikely to impact legitimate businesses’ interest in forming or operating in Singapore.”

The crypto industry “does not appear to react negatively to law enforcement investigating allegations of criminal activity, fraud, etc.,” she added.

ChainUp, a blockchain company that offers technology to crypto exchanges and other customers, said it is expanding into the city.

The startup moved its headquarters from China to Singapore in 2019 as Beijing signaled it was cracking down on the crypto industry.

“I’m confident in the regulators’ approach,” said Sailor Zhong, chief executive of ChainUp.

“No country can do everything and it is difficult for the Singapore government to uphold the rule of law for companies operating overseas.”

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Singapore’s ‘Crypt Heaven’ Stung by High-profile Collapses

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