How Singapore is redefining Web3’s public-private landscape

Historically anchored as a pivotal node in the global financial network, Singapore is now at the forefront of the Web3 revolution. 

Its legacy as one of the centers of global finance, combined with its proactive embrace of decentralized systems, not only accentuates Singapore’s strategic significance in the evolving digital era but also suggests that the city-state will be the linchpin in the global shift towards Web3 — the next iteration of the internet powered by blockchain.

This isn’t just about digital currencies; it’s a paradigm shift in value transfer and systemic architecture that Singapore is poised to champion. And Singapore’s regulatory strategies play a pivotal role in shaping the nation’s leadership in Web3.

Balancing innovation and stability

Singapore’s approach to supporting the crypto industry is a masterclass in strategic balance. While the nation actively promotes digital asset innovation, it remains eagle-eyed against unchecked crypto speculation. This dual strategy crafts an ecosystem that’s both nurturing for crypto ventures and a bulwark for investor protection.

This balance is evident in how Singapore has become an attractive market for firms eager to expand and grow. Firms are making strides into Singapore, and its reputation as a dynamic digital market has solidified its unique position in global rankings as a top crypto hub. Singapore stands as a sterling example for countries navigating the intricate maze of digital assets. The allure isn’t just theoretical or based on rankings alone; real-world examples abound.

The robust nature of Singapore’s regulatory framework has made it a prime destination for major crypto entities. Case in point: Gemini’s expansion into the region, underscoring the nation’s appeal as a crypto-friendly ecosystem, alongside market maker Wintermute who is relocating 4% of its staff to the nation to focus on Asia.

Gemini has identified the Asia-Pacific (APAC) region as the driving force behind the “next wave of growth for crypto.” In a bid to establish a stronger foothold outside the U.S., especially given the increased American regulatory actions against crypto exchanges, Gemini has chosen Singapore as its hub for APAC operations, with plans to bolster its headcount in Singapore to over 100 in the coming year. This move underscores Singapore’s appeal as a supportive ecosystem for crypto.

Singapore sends a strong message for growth opportunities

Gemini’s move, amongst others heading East, is indicative of a broader trend: firms are increasingly recognizing Singapore as a jurisdiction that offers regulatory clarity and support, abundant partnership opportunities, and a rich talent pool, especially in the Web3, decentralized finance, blockchain and crypto space.

Singapore’s vision of crypto is expansive. Recognizing the transformative potential of stablecoins, the nation is spearheading initiatives to weave them into the mainstream financial fabric, aiming to slash transaction costs and craft a seamless conduit between traditional banking and the digital asset universe.

The F1 Singapore Grand Prix event, with its crypto backers, exemplifies Singapore’s ambition to mainstream digital assets. Such initiatives spotlight the nation’s forward-thinking approach, hinting at a future where digital assets and mainstream events dance in tandem.

Further bolstering this trend is the Monetary Authority of Singapore’s (MAS) funding commitment for fintech innovation. MAS pledged up to S$150 million (about US$110 million) over three years under the renewed Financial Sector Technology and Innovation Scheme (FSTI 3.0), which includes a route to “support innovative fintech solutions arising from emerging technologies such as Web 3.0.” This sends a strong signal of their intent to partner with the industry and nurture “innovative fintech solutions arising from emerging technologies such as Web 3.0.”

MAS also recently partnered with the Bank of International Settlements (BIS) to issue a framework for “tokenization and institutional grade DeFi protocols.” MAS released a report focusing on the viability of DeFi applications and ways to tokenize real-world assets without risking global financial stability and integrity.

Through open calls for innovative technologies and partnerships, as exemplified by BIS, MAS is further harnessing Singapore’s appeal as a magnet for the blockchain and crypto industry.

Redefining the crypto narrative

As the crypto landscape evolves, so do the threats. Safeguarding digital assets and transactions is paramount. The industry must remain vigilant against emerging cyber threats, and Singapore’s adaptability isn’t just about tech prowess but also regulatory dexterity. Firms across Web3, DeFi, blockchain and crypto view Singapore as a growth-harnessing region, a platform to scale their technology and forge partnerships.

While Singapore has set a gold standard in crypto regulation, the dynamic nature of digital assets means that regulatory frameworks must continuously adapt. Striking a balance between fostering innovation and ensuring market stability will always be a tightrope walk.

This vision of a harmonized financial future, where old systems are integrated with new innovations, is what sets Singapore apart and positions it at the vanguard of global digital transformation. As major fintech entities like Gemini recognize Singapore’s crypto-friendly ecosystem and establish their presence, the nation’s forward-thinking stance becomes even more pronounced.

In contrast, the U.S., once a champion of technological advancement, is now grappling with regulatory challenges, particularly with crypto giants like Coinbase and Binance. Its approach to crypto regulation risks alienating a sector brimming with potential — a sector that promises to revolutionize global finance.

As the U.S. treads cautiously, perhaps overly so, Singapore’s proactive and embracing attitude toward the blockchain and crypto industry promises a future that’s not just about riding the Web3 wave. It’s about ensuring every wave is surfed with precision, safety and vision.

How the rise of asset tokenization could redraw global financial power maps: Opinion

Asset tokenization, representing real-world assets on blockchain networks, is the harbinger of a large-scale transformation in the financial landscape. Despite the buzz and uncertainty surrounding this emergent technology, one cannot ignore its potential. Backed by benefits such as fractionalization, greater portability, increased efficiencies and improved security, tokenization stands at a towering projected industry valuation of US$16 trillion.

Consider gold investment — traditionally marred by geographical limitations, risk of physical theft, and minimum purchase amounts. However, the tokenization of gold circumvents these issues. By digitally representing gold as tokens on the blockchain, it becomes divisible, transferable and available to anyone with an internet connection. This simple yet groundbreaking concept unlocks a world of possibilities and extends much further than gold alone.

Legacy firms such as Goldman Sachs, Frank Templeton and Hamilton Lane are already sinking their teeth into asset tokenization projects, citing the traditional model for buying, selling and trading company shares as somewhat archaic. 

Asset tokenization is transforming finance with enhanced liquidity and security, but its success hinges on evolving trends, adoption challenges and shifting global dynamics.

Key trends in the tokenization revolution

Amidst this foundational change, there are several trends that will dictate the future of asset tokenization: a rise in both private and permissioned networks, shifts in power and geography, and new forms of currency.

  1. Embracing privacy 

Blockchains like Ethereum have all transactions visible, with users’ public keys being pseudonymous. Asset tokenization, on the other hand, demands discretion. With regulatory compliance as a key prerequisite, privacy becomes an essential factor. Private and permissioned networks, like the Linux Foundation’s Hyperledger network and JPMorgan’s Quorum network (which has been acquired by ConsenSys), may well be the answer. By curtailing public access and exercising control over transaction functionality, these networks offer a unique blend of confidentiality and accountability.

  1. Redrawing the maps of financial power

Power and geographical dominance in the financial landscape have long been held by a few key players and regions. However, as on-chain assets gain momentum, traditional financial institutions, including behemoths like JPMorgan Chase and BlackRock, will experience a seismic shift in their roles. Countries like the United Arab Emirates and Singapore, which are already making significant strides in embracing blockchain, may rise as the new powerhouses, making the need for robust regulatory frameworks in traditional financial centers even more urgent.

  1. New currencies and investment avenues

As off-chain assets increasingly come on-chain, they will be used as building blocks to create new forms of currency and investment. Real estate, stocks and bonds, once tokenized, can serve as collateral for stablecoins pegged to the U.S. dollar. Such a system can foster an inflation-resistant form of currency, paving the way for custom currencies collateralized by carbon credits or green bonds. This not only expands the horizon for currencies but also unfolds the potential for completely new ways of investing.

Challenges to widespread adoption

Tokenized assets offer immense potential, but before they can become ubiquitous, several challenges must first be overcome.

On-chain assets are often perceived as risky due to their emerging technology status, leading to security and usability concerns. Education, intuitive interfaces and robust security measures are pivotal in building trust and confidence in tokenization.

Existing stakeholders in traditional financial systems can also be resistant to this new technology, as their revenue models could be disrupted by tokenization. Bridging the gap between the off-chain and on-chain worlds is another significant challenge. This necessitates advances in infrastructure, such as improved and faster fund transfer mechanisms, and a seamless user experience akin to the familiar Web2 experience, albeit with Web3 technology on the backend.

A future empowered by tokenization

The future of tokenization holds tremendous potential for transforming the financial landscape. As momentum builds, how assets are managed, traded and invested will see significant shifts thanks to the myriad of benefits tokenization offers — fractionalization, increased liquidity, enhanced security and improved efficiency.

Alongside the rise in private and permissioned networks, a shift in power for both companies and countries, and a rise in new forms of currencies and investments, there’s also a paramount need to address user experience. For mass adoption, it’s crucial that interfaces embody a balance of robust security, like two-factor authentication, with simplicity and familiarity akin to current financial systems.

The current volatility in the global environment makes the present an especially interesting time for blockchain, and any black swan events in the near future may certainly advance such changes. Despite the barriers standing in the way of adoption, the benefits speak for themselves and it’s solely a matter of time.

The future of finance is tokenized. Get on board or get left behind: Opinion

The era of asset tokenization is upon us, and it’s high time traditional finance woke up to this game-changing reality. Tokenization — the process of digitizing assets onto a blockchain — is not just an innovation; it is an imperative. Traditional financial markets are staring disruption in the face, threatened by obsolescence if they don’t embrace this transformative technology. 

The disruption is on our doorstep, powered by blockchain technology. Global equity markets, worth over US$100 trillion, are on the brink of a powerful structural shift spurred by tokenization that promises to reshape the inefficient legacy systems that much of the world relies upon.

Case for tokenization: efficiency, automation, disruption

Many view blockchain as a technology surrounded by undue hype and speculation. Critics often question the necessity of blockchain when standard databases serve the purpose. But such views overlook a key fact — blockchain technology and its application in asset tokenization offer an unparalleled opportunity: transitioning traditional financial infrastructure on-chain.

According to data from DeFiLlama, the top five decentralized protocols dealing with real-world assets (RWAs) account for approximately US$688 million in current total value locked within their smart contracts. Comparatively, the top five projects on Ethereum command a combined total value locked of US$32 billion. With global equity markets towering over US$100 trillion, the value of RWAs on-chain has exponential room for growth.

Tokenization presents traditional financial markets with the chance to automate and streamline back-office operations, which could save institutions billions annually. The opportunity is ripe, and low-hanging fruit lies within tokenizing equities, debt and funds.

Low-hanging fruit: equities, debts and funds

While gold is an asset that is becoming increasingly tokenized along with many others such as real estate and fine arts, the biggest opportunity lies within tokenizing equities, debt and funds.

Equity markets, despite their critical role in the global financial system, have seen minimal innovation over the years apart from the introduction of high-frequency trading, electronic trading platforms, and direct listings. Tokenization, however, can cause a radical disruption, replacing legacy systems with cost-efficient and instant settlements.

The tokenization of funds can drastically cut down existing operational layers — trading, clearing, settlement, custody and reporting — each currently handled by different intermediaries. It also offers an opportunity to transition from the traditional T+3 or T+5 fund settlement terms to instant settlements, replacing redundancies with a lean and efficient model that delivers immediate results. Moreover, the establishment of the world’s first comprehensive framework for crypto regulation in Europe, MiCA, alongside the more accommodating regulatory stance of financial hubs like Luxembourg and Ireland, paves the way for an easier adoption of tokenization within the financial infrastructure.

Now, this leap forward is not without its challenges and obstacles. As we gaze into the years ahead, we need to address and navigate them proactively, to fully realize the transformative potential of tokenization.

Incumbents’ dilemma

As with any new technology, it’s common that incumbents in positions of power may be reluctant to see progress made.

In the context of funds, certain parties have been reaping significant profits from existing inefficiencies. Consider pension funds, which can charge over 0.5% annually to administer services — services that could be vastly streamlined via blockchain technology. Given the size of these funds and the impact of compound interest, this equates to an enormous amount.

While these incumbents do not outright ban parties from leaving, they subtly hinder the shift by adding friction. For example, fund administrators may impose administrative burdens, such as extensive paperwork, to discourage any transfer.

A pertinent example lies in the asset management industry, where incumbents impose administrative burdens when transferring assets, especially those in tax-protected investment vehicles or “tax wrappers.” Traditional pension schemes often create obstacles for clients looking to transfer their assets to cost-effective solutions. An example of these practices was shared in Pension Bee, CEO’s open letter to Aegon.

This resistance, however, cannot and should not hinder progress. Be it an imminent recession prompting firms to vie on costs or clear regulatory advancements galvanizing the tokenization space, the momentum towards tokenization will increase. Big changes often occur gradually at first and then accelerate quickly.

Embrace disruption

That said, change doesn’t happen overnight and there will be hurdles. Tokenization is an emerging trend that will gradually take shape before eventually triggering seismic shifts in the financial landscape.

The question is not if, but when and how we choose to embark on this exciting journey. The time for observing from the sidelines is over. Traditional financial markets need to embrace tokenization or risk becoming a relic of a bygone era. The public must be aware of this emerging trend and push for advancements that benefit society at large. 

The future of finance is tokenized — it’s time we all get on board.

The SEC has spoken: The future of finance is not in America

In the same week that the U.S. Securities and Exchange Commission decided to sue both Coinbase and Binance, Circle announced that it had received a Major Payment Institution license in Singapore. 

The differences between the treatment received by major crypto companies in the U.S. versus Asia could not be more telling.

While the U.S. regulator is choosing to crack down on crypto, it’s also paving the way for Asia to dominate the future of finance.

Regulation by enforcement

“Instead of publishing a clear rule book, the SEC has taken a regulation-by-enforcement approach that is harming America,” said Brian Armstrong, the founder and CEO of Coinbase.

Last week, the SEC decided to sue both Coinbase and Binance.US, alleging that both firms were operating as unregistered broker-dealers. The latter didn’t come as much of a surprise — Binance had been under the scrutiny of the U.S. regulator for quite some time, but the Coinbase suit has made it abundantly clear that the SEC is going to war against crypto.

Coinbase went public on the NYSE in April 2021 and as part of its listing, the SEC reviewed its business and allowed it to become a public company. At the same time, the SEC and Commodity Futures Trading Commission have made conflicting statements and can’t seem to agree on what is a security and what is a commodity. Furthermore, the U.S. Congress has not yet introduced legislation that would provide regulatory clarity for the crypto industry.

The SEC had previously issued a Wells Notice against Coinbase, which recommended that the SEC take enforcement action against them. But what’s surprising about all of this is that the SEC had historically campaigned for crypto businesses to “come in and register.” And Coinbase, as a leader in the U.S. digital assets space, has been known for its strict regulatory compliance. Yet the SEC’s interactions with Coinbase have been uncooperative at best. Coinbase CEO, Brian Armstrong, has shared that the exchange repeatedly tried to come in and register with the SEC but with no path forward.

Of the alleged securities violations against Coinbase, the list of assets deemed to be securities reveals the broad nature of its classification. The SEC’s claims that its self-custodied wallet is a broker-dealer because it helps “route” a transaction doesn’t hold much merit either. And alleging that Coinbase is behaving like a clearing agency also seems far-fetched.

These actions are likely to attract fines for Coinbase and possibly the closure of its staking business. But there is a distinct difference between this and the SEC’s legal action against Binance, which faces an outright ban from operating in the U.S. The silver lining to this is that Coinbase now has the opportunity to fight the SEC in court — and fight it will. Armstrong has already said he’ll do what it takes to “get the job done.” The outcome of this case will likely determine the future of crypto in America.

War on innovation

Regardless of whether you believe that some tokens are securities or not, perhaps it’s time to realize that U.S. securities laws are outdated, and we need to update its legal system.

The SEC’s current approach to crypto regulation risks stifling progress and innovation, and this goes against historical precedents of supporting revolutionary technologies in other industries. If the U.S. wants to lose out on financial technology innovation, it’s going the right way about it.

These cases are going to be a defining moment in history. And whatever the outcome, history will not remember the SEC favorably. It’s clear that blockchain technology offers significant advantages to global financial systems.

Attempting to resist this industry is futile, given its inherent resistance to censorship. We’ve seen this in China’s unsuccessful crackdown on cryptocurrencies. Now, they’re using Hong Kong as a testing ground to maintain some semblance of control.

Embrace the industry, and build a framework for compliance

At the end of the day, if regulators want to ban crypto, what are they going to do, turn off the internet? They won’t and can’t do that. So, the only option is to embrace it.

It would have been more effective for the SEC to build a clear regulatory framework within which compliant operators could function. Simplifying the process for rule followers is the only way to safeguard consumers. Bad actors will operate regardless, but if legal operations become untenable, good actors will either be forced to shut down or relocate offshore, out of regulators’ reach. 

Protecting consumers effectively involves creating an environment where control over firms’ actions is possible — a space for experimentation, innovation and trustworthy interaction under a regulated framework.

The events of this week have put the integrity of the SEC under question. Is this really about consumer protection? Or is it about regulatory capture? Many industry participants appear to think it’s likely the latter. 

Rarely, if ever, does regulation lead innovation. Imagine if the Wright brothers had been subject to Federal Aviation Administration oversight — the advent of commercial aviation might have been severely delayed if not entirely derailed.

The future of finance is being built in Asia

Contrasting sharply with the U.S., Asia is rapidly becoming the preferred home base for cryptocurrency companies. Several key players, including Circle and Anchorage, have already set up operations in Singapore.

At the same time, Hong Kong is positioning itself as a significant hub for crypto as it rolls out legislation promoting cryptocurrency investment and blockchain technology adoption in the financial sector. Earlier this year, the Hong Kong Monetary Authority encouraged banks to offer services to cryptocurrency companies. Following this, they legalized crypto trading for retail investors. Now, the Hong Kong Securities and Futures Commission is advocating for conventional financial institutions to delve into tokenizing real-world assets, a concept that U.S. money manager, Franklin Templeton, is keenly exploring.

Boston Consulting Group estimates that the tokenization of traditional financial assets could be worth as much as US$16 trillion by 2030. If the SEC persists in its current stance, this could be a monumental loss for the U.S. economy.

Despite the U.S. being the go-to destination for ambitious start-ups, there’s a reason why start-ups are increasingly choosing locations outside of the U.S. as their base. It’s likely more and more U.S. crypto companies will move offshore with a safe bet that almost all major crypto players are already in the process of establishing hubs in Hong Kong and Singapore.

What the US stands to lose if it keeps heaping scorn on crypto

The United States, a global leader in technology, is facing a crucial moment in the development and regulation of the cryptocurrency industry. The continued lack of regulatory clarity and high-profile meltdowns have been cited as reasons to freeze the industry out of banking services. The current approach to crypto regulation risks stifling progress and innovation and goes against historical precedents of supporting revolutionary technologies.

The industry is questioning why the U.S. has chosen an apprehensive approach rather than providing an open framework to foster and own the innovation that the sector promises. The blockchain industry is young and mobile, and should the U.S. continue down this path, the nation risks losing the talent and potential of this multi-trillion-dollar sector to more favorable jurisdictions.

Not all crypto is bad

The internet fundamentally changed how people share information. It also created an avenue for malicious parties to scam, hack and otherwise exploit others. Despite the immense amount of illegal activity conducted via the internet, the U.S. has supported growth in this space because it’s understood that the benefits of this new technology outweigh the harm.

Blockchain technology has only just begun to revolutionize how we share value with one another but is also not immune to scams and exploits. Recent regulatory actions have indiscriminately positioned legitimate businesses and criminal actors together, overlooking the fact that the crypto industry has attracted some of the brightest minds and has the potential to profoundly change countless sectors for the better. 

In March 2023, the U.S. Securities and Exchange Commission (SEC) issued Coinbase with a Wells notice, recommending enforcement action. The SEC believes that Coinbase is offering securities, and yet is reluctant to provide any feedback or clarity. Coinbase is known for its strict regulatory compliance and is a leader in the U.S. digital assets space, but the SEC’s interactions have been uncooperative at best. Amid escalating tensions between the two, this week Coinbase asked a federal court to force the SEC to respond to a petition it filed last year asking for formal rulemaking within the digital assets sector — an action that is likely to drive even more of a wedge between the SEC and the nation’s largest crypto trading platform. The growing friction between the regulator and one of crypto’s biggest players is in stark contrast to the comparatively nurturing environment the U.S. fostered in the early days of development for firms like Apple and Microsoft.

Pioneers should be supported to help usher in the next era of leading business firms with the U.S. yet again at the forefront. The same has been done for other industries, such as technology and automobile companies, and the reluctance to exhibit the same support across the digital assets space is disappointing.

A look back at history 

The current approach taken by the U.S. toward digital assets differs from historical precedents. By providing supportive regulatory environments and promoting innovation, the U.S. has become a global leader across many industries, including automotive, technology and renewable energies.

  1. Research funding

Numerous federal agencies have been established to support research and development initiatives across different industries. Two notable examples include:

  • The National Science Foundation: Established in 1950, the NSF has contributed to the development of the internet, advanced manufacturing techniques, and renewable energy technologies. In 2021, its budget was about US$8.5 billion.
  • The Defense Advanced Research Projects Agency: Established in 1958, DARPA played a crucial role in the development of GPS technology. Additionally, DARPA’s funding has contributed to the advancement of robotics, artificial intelligence and biotechnology, among other fields. In 2021, its budget was US$3.5 billion.

Countless examples exist, whether referring to renewable energies, space exploration, pharmaceuticals or more. The U.S. has continuously funded top-tier research to help lead the way.

  1. Tax incentives

Tax incentives are another critical tool the U.S. government has utilized to foster innovation across different industries. One such example is the federal R&D Tax Credit, which allows businesses to offset a portion of their research and development expenses against their tax liability. This credit has been particularly beneficial to technology and renewable energy companies, which often require significant investments in R&D to develop new products, services or solutions.

Additionally, the federal government’s provision of the Production Tax Credit and Investment Tax Credit has played a significant role in the growth of the renewable energy industry in the U.S. 

  1. Intellectual property

The U.S. has a well-developed system to protect intellectual property that consists of patents, trademarks and copyrights, which provide inventors and businesses with exclusive rights to profit from their innovations for a specified period. The U.S. automobile industry, for instance, has greatly benefited from the country’s IP system. Patents have played a significant role in the development of new automotive technologies, such as electric cars.

Overall, the U.S. has helped to advance promising industries, leading to global financial dominance and breakthrough innovations. It cannot be ignored that blockchain is the next enabling technology, building investor confidence and bringing risk visibility, and it, too, deserves U.S. support and progressive dialogue.

Other jurisdictions

The European Union, Hong Kong, United Arab Emirates, Australia, Japan and Singapore have all helped to push forward the cryptocurrency industry, while the U.S. continues to stymie progress. Hong Kong is even developing a crypto-licensing regime with Beijing’s support. If the United States does not follow suit, it risks losing a significant frontier of technological innovation to more welcoming economies.

The demise of Britain’s financial services sector relative to France should be a stark warning to the U.S. of what’s to come should it continue down this path. 

Since Brexit, the U.K. has had ample opportunity to capitalize on the digital asset sector. Instead, it has struggled with unclear regulations, been slow to evolve, and often been overly restrictive. The lack of regulatory guardrails has stifled innovation and triggered further uncertainty as to how firms should operate within the digital currency space.

Circle, a major fintech company and issuer of the USDC stablecoin, recently chose France as its official headquarters over the U.K. France’s stock exchange also recently took the top spot away from the U.K. as Europe’s most valued, a shift that has been compounded further by crypto conferences flocking over the channel to Paris as their preferred location.

British Prime Minister Rishi Sunak has promised to make advancements in the digital assets space, In February 2023, the U.K. government shared a public consultation and call for evidence with the objective of establishing a clear regulatory framework that enables firms to innovate. While it’s still early days, this is a step in the right direction.

The United States must observe the growing blockchain industry in France as well as Europe’s own introduction of a clear legal framework (MiCA), and realize that the U.S. requires its own strategic approach should it wish to remain globally competitive.

Regulatory uncertainty and the path forward

In 2022, U.S. President Joe Biden directed federal agencies to seek a unified approach to digital currency regulation, with a focus on stablecoins. However, little progress has been made and without federal legislation, states often rely on money transmission laws to regulate digital currency activities.

This regulatory uncertainty has led to challenges in areas such as consumer protection and money laundering. The debate concerning the definition of certain assets as securities or commodities has given rise to confusion over whether the Commodity Trading Futures Commission or the SEC has jurisdiction.

In contrast, the European Union now also appears to be a step ahead of the U.S. following its approval this month of MiCA, the world’s first comprehensive framework for crypto regulation. MiCA will impose several requirements on crypto platforms, token issuers and traders around transparency, disclosure, authorization and supervision of transactions. This parliamentary blessing paves the way for MiCA to become law in 2024, a framework that industry participants have welcomed as a pragmatic solution to the challenges faced.

In other parts of the world, Japan has already introduced stablecoin regulations, Singapore is incorporating public feedback into upcoming legislation, Hong Kong regulators have signaled a more “solid footing” for crypto, and the UAE is actively welcoming new projects.

This progressive dialogue will likely accelerate the shifting away from hostile jurisdictions such as the U.S. in search of more supportive jurisdictions. The asset tokenization industry alone is expected to reach US$30 trillion by 2030, meaning that any mishandling by the U.S. government will have trillion-dollar consequences.

Regulatory clarity can save the US blockchain industry

The United States stands at a critical juncture in the development and regulation of the burgeoning cryptocurrency industry. To maintain its position as a global leader in technology and innovation, the U.S. must learn from historical precedents and adopt a balanced, transparent and collaborative regulatory approach that fosters the growth of the blockchain sector. 

Embracing this new era of digital assets and leveraging the immense potential of blockchain technology will ensure that the United States remains at the forefront of global innovation while reaping the socio-economic benefits that accompany such progress.

Can crypto wallets be both accessible and bulletproof against attacks?

The recent spate of hacks, bankruptcies and lost seed phrases has given rise to a range of crypto wallet applications to securely store private keys associated with cryptocurrencies. As users seek to maintain full control and ownership of their digital assets, many are embracing the self-custody mantra — taking security into their own hands with a permissionless wallet security infrastructure. 

But this comes with a new set of challenges, including the complexity of managing private keys and the potential for loss or theft that has made many users hesitant to fully embrace the approach. Unfortunately, these concerns are not unfounded. Additionally, the different storage options available, such as hot and cold cryptocurrency wallets, as well as enhanced security techniques such as those provided by multi-signature wallets, can be overwhelming for users. Compounding these challenges is the alarming surge of attacks and exploits in the past year, which have compromised the security of users’ digital assets. 

What’s come to be known as the Ronin hack is particularly notable. In March 2022, the North Korean-linked Lazarus Group successfully hacked the Ronin Network, a key platform powering the popular Web3 mobile game Axie Infinity, stealing over US$600 million worth of ETH and USDC. This exploit was significant — it was one of the largest across the decentralized finance sector but went undetected for over a week. In the previous month, a hacker stole US$320 million from the Wormhole bridge between Solana and Ethereum. In both instances, the attackers were able to compromise the multi-sig wallet by stealing enough keys. 

In the wake of these exploits, secure multi-party computation (MPC) is emerging as a promising way to balance accessibility and security in the storage of private keys. 

What is MPC, and how does it compare to other crypto storage options? 

In simple terms, MPC is a cryptographic protocol that enables computation across multiple parties, where no individual party can see the other parties’ data. Private keys are split into shards and distributed among trusted parties, allowing them to sign transactions without anyone having the entire key. This means that the private key is never available on a single device during its life cycle, even when it’s used. This approach prevents a single point of failure and ensures that even if some parties are compromised, the key remains secure. Furthermore, MPC allows for key shard rotation; if a hacker steals a key shard, it can be rendered useless by simply rotating the shards. 

This makes MPC a more secure alternative to hot wallets, where the private key is stored on a user’s device and can be compromised if the device is hacked. Likewise, cold storage wallets can be more cumbersome for users, where the private key is stored offline and the device must be retrieved each time for transaction signing. Similarly, with multi-sig, each party holds their own private key, and, evidently, a hacker can gain control if enough of the keys are stolen. 

Hackers are continuously looking for new ways to manipulate vulnerabilities in security wallet software. What is concerning is that hackers can “track and trace” quorum members from the multi-sig wallet, giving them visibility of which users are signing for the multi-sig (usually using their own hot wallets). Furthermore, they can identify the user based on the hot wallet involved and perform a phishing attack. And even if they can’t identify the user they can still identify the wallet and find other ways to compromise it. These advances in sophisticated security breaches have propelled the rise and development of MPC wallet security in preventing such attacks. 

Operationally flexible and resilient, MPC enables ongoing modification and maintenance of the signature scheme and can be used without the blockchain knowing. There is no need for multiple signatures on-chain, offering privacy when it comes to transactions and key management, and crucially, maintaining structural anonymity by keeping the quorum structure a secret. However, while MPC removes signature accountability, it still allows the organization to identify which parties participated in signing a transaction without compromising its security. 

Resolving the hot vs. cold trade-off 

In a decentralized system, MPC offers both usability and security — but not all MPC wallets are built the same way. There is no shortage of mechanisms for keeping digital assets under lock and key, and more solutions, including new MPC-based offerings, are made available every day, especially after the historic implosion of FTX and wider industry ramifications. Some of these custodial offerings are more established than others with more robust and thoroughly tested MPC implementations to inhibit security vulnerabilities. 

Industry players and users must exercise caution when considering newly marketed storage products. One key factor to consider is the technical details of the MPC implementation. Different protocols may have varying levels of security, efficiency and ease of use, and it is important to understand the trade-offs involved in choosing one over another. Additionally, parameters need to be properly selected and configured for the specific use case to ensure optimal security. 

Regaining trust amid security breaches

Secure key management has been an issue that has stalled the widespread adoption of cryptocurrency and blockchain technology. The news that DeFi lending platform Oasis manipulated its multi-signature wallet software to reclaim assets stolen in the Wormhole hack has exposed a chink in the multi-sig’s armor. These failures and scandals across the industry have driven the debate about crypto custody, and which wallet storage option offers the best mix of usability and security in a decentralized system. 

To regain trust in the industry, it is necessary to implement robust security measures and bring more on-chain transparency to safeguard digital assets and prevent fraudulent activities. There has been no discrimination in the losses felt by these scandals — the effects have rippled across financial institutions large and small, and from start-ups to retail investors. As cryptography is advancing, secure multiparty computation may emerge as a way to bring universal access to institutional grade custody for all.