Stablecoins have been rising in conversation within the financial ecosystem of Singapore. Be it central bank digital currencies (CBDCs), a tokenised digital Singapore Dollar, or various initiatives backed by governmental regulators, stablecoins are one of the more pivotal developments in the world of cryptocurrencies and blockchain technology.
As the name implies, stablecoins are digital assets designed to maintain a stable value relative to a reference asset, such as the US Dollar or gold.
This stability makes them an attractive option for investors and businesses looking to mitigate the risks associated with crypto volatility, offering the benefits of digital currencies such as fast transactions and low fees without the drawbacks.
Stablecoins can be backed by fiat currencies, commodities, or even other cryptocurrencies, and offer a range of benefits, including faster and cheaper cross-border transactions, increased financial inclusion, and the potential for programmable money.
This means that unlike a lot of digital assets, whose practical applications might not be known for some time (if ever), stablecoins have begun to show demonstrable real-world use cases.
In Singapore, the development of stablecoins has taken a unique turn with the concept of “purpose bound money” — with companies like StraitsX driving its development from gestation to live trials island-wide, and soon even with applications for tourists to make payments in Singapore using their local payment app.
For Liu Tianwei, the Co-founder and CEO of StraitsX whose own interest in the cross-border potential of digital money was driven by his time as a young Amazon engineer who couldn’t figure out how to quickly and securely receive payments for shipping Amazon Kindle Fire units back to Singapore, solving a real-world problem was the main motivation to establish the payments technology startup.
Stablecoins Brings Blockchain Benefits to Singapore Cross-Border Payments
StraitsX, formerly known as Xfers, is a payment infrastructure provider in Singapore and Southeast Asia. Founded in 2015, the company has been at the forefront of stablecoin development in the region, with a focus on real-world applications and pragmatic solutions.
“We are technologists at heart, but fundamentally we are also a pragmatic payment infrastructure. We’re not very super interested in the speculative stuff that is on the personal basis, but we always try to apply, from a tech point of view, how this can be used in real world application,”
Tianwei explains.
StraitsX’s journey into stablecoins began with the recognition of the potential benefits of blockchain technology in cross-border payments.
Tianwei notes that traditional payment systems involve a two-part process: communication and settlement, which can take days or even weeks to complete when moving money across borders.
With stablecoins, however, the process is much more efficient, as Tianwei points out:
“In order to achieve the payment confirmation, I’m literally transferring use of a token that was previously in my wallet, on the common blockchain, into your wallet.
So once the token reaches your wallet, what has also happened is that you don’t have to wait say, three, four days for the money to come. It has already arrived.”
The company has developed its own stablecoins, including XSGD, a Singapore Dollar-backed stablecoin; XIDR, an Indonesian Rupiah-backed stablecoin; and XUSD, a stablecoin pegged 1:1 to the US Dollar.
StraitsX became one of the first two entities to receive in-principle approval from the Monetary Authority of Singapore (MAS) to issue stablecoins that will align with the central bank’s new stablecoin regulatory framework.
Purpose Bound Money: Piloting Real-World Interoperable Payments
While stablecoins offer advantages in terms of speed and efficiency in theory, StraitsX has taken the concept a step closer to reality with the development of purpose bound money (PBM).
In collaboration with MAS, the company has been involved in Project Orchid, an initiative aimed at exploring the concept of PBM for the widespread distribution of money for commercial purposes, and its interoperability with e-wallets, payment systems, and blockchains.
PBM, as Tianwei explains, is essentially a programmable version of stablecoins that can be used for specific purposes, such as government aid or vouchers.
“The idea here is that, you know, we’ve been talking about this whole blockchain, programmability of assets for almost 15 years now. It has been talked about, and it’s very exciting today, but we haven’t seen the real world application.
So we came in at the invite of MAS to think about, ‘Can we actually bring about a real world example of stablecoins working in the hands of a consumer or a retail guy?'”
Under the auspices of MAS’ Project Orchid, the first iteration of PBM was a digital voucher system that mimicked the CDC voucher concept (Community Development Council or CDC Vouchers, given out to be spent at participating local merchants and hawkers, and help Singaporeans cope with daily expenses) whereby users could hold vouchers in “any wallet of their choice” and spend them at participating merchants.
StraitsX, in collaboration with Grab, piloted the use of these digital vouchers at selected F&B outlets at the Singapore Fintech Festival 2022, as well as participating Grab merchant-partners.
At the Singapore Fintech Festival 2023, StraitsX expanded this pilot by working with Grab and UOB to introduce the Singapore Pitstop Pack industry pilot, allowing users to purchase PBM vouchers from Fave.
The latest iteration saw the vouchers able to be used with the Grab Web3 Wallet for payments across 200 merchant outlets island-wide, and not just on the convention floor.
Future of PBM: Programmable and Compliant by Design
The project has since expanded to include cross-border payments, with the involvement of major international payment players like Alipay. Tianwei revealed that by August 2024, China and Hong Kong tourists will be able to use their Alipay app to pay at a wider pool of participating outlets, including merchants accepting Grab and PayNow, as well as hawker centres.
“[Chinese tourists to Singapore] can simply enter in Singapore Dollars how much they’re paying — the usual in-app payment experience that they’re all very used to — then they will get a real-time FX code, so they will know how much in their local currency, in Chinese Yuan, and then press confirm,”
says Tianwei, elaborating that on the receiver’s end, the merchant sees the payment resulting from his payment acquirer, such as GrabPay or PayNow, while to the Chinese traveller, they are making a regular Alipay transaction.
The StraitsX CEO believes that this approach will remove barriers to adoption, delivering a seamless payment experience that is familiar, without requiring any knowledge of the underlying technology and payment processes.
In fact, Tianwei points out that in working closely with MAS to meet the guidelines of the regulator’s new stablecoin framework, the smart contracts governing these transactions on the blockchain will come baked with all the boundaries to ensure the transaction meets all AML (anti-money laundering) and fraud requirements, and that funds are only being issued for the particular goods and services.
This is what StraitsX envisions for the next iteration of PBM, its Co-founder says.
“That you can create a programmable payment ecosystem that’s very similar to the one that we are all used to, but in a cross-border environment.
And yet ensure that all the rules and regulations will be baked in by design, so that any wallet that wants to participate will be able to come onboard immediately, and immediately ensure that they’re compliant by design.”
Security and Privacy in the Age of Stablecoins
As with any new technology, even more so ones with a financial utility, stablecoins and PBM raise concerns about security and privacy. Tianwei acknowledges these concerns, but points out that the open-source nature of public blockchain technology can actually enhance security.
“The real value of this kind of innovation being live in public blockchain, not a private one, is that a public blockchain allows everyone to participate — and, more importantly, everyone to innovate in their own way.”
Moreover, the programmable nature of PBM allows for built-in compliance with regulations and privacy measures, using the aforementioned smart contracts.
“A lot of these rules, regulation, privacy concerns can be built in by default, whereby all players participating in the cross-border payment itself will [have to] abide by design,”
Tianwei says.
Driving Innovation
For Tianwei, the motivation behind StraitsX’s work in stablecoins and PBM is rooted in a desire to solve real-world problems and enable innovation.
“Technology has caught up, and in recent years, we really feel that blockchain is regarded as a game changer again,”
he says, adding that much like how AWS has become synonymous with cloud technology that is now the underlying infrastructure for a lot of product innovation,
“We are building the blockchain infrastructure that will allow the next generation of products to be built, and that continues to keep me motivated.”
As Singapore continues to set the pace in fintech innovation, the development of stablecoins and purpose bound money is poised to change the way Singaporeans think about digital payments and financial inclusion. And with companies like StraitsX at the helm of implementing real-world solutions, using stablecoins to make cross-border transactions might be a reality sooner than later.
