DeFi or Decentralized Finance has affected the financial and money markets with the meteoric rise of cryptocurrency and digital exchanges. A lot has been talked about and explained about DeFi and one might be curious to know how it affects the Singaporean market. For anyone who is an investor or interested in the money markets, DeFi came about with a lot of promise and potential.

What are the immediate effects of DeFi?

The most prominent influence DeFi would have is that it could disintermediate the traditional financial structure. With DeFi, projects use digital currencies and blockchain platforms so that financial products and services can be distributed on a peer-to-peer model. In simple terms, it could potentially cause the redundancy of conventional financial institutions. Centralisation has been the way the financial markets functioned for centuries like the share market, futures trading and foreign exchange.

What will DeFi bring to the Singaporean financial market?

If the distribution structure is shifted, regulation of financial products and services will need to be changed as well and this would most likely be done wholesale. If this is done, it would have a prominent effect on everyone involved especially shareholders, investors and traders alike.

What is the main feature of DeFi?

DeFi projects run on blockchains which are mostly built on Ethereum as they provide the platform to create and run smart contracts. This means that the contracts are self-executing to be run on the blockchain and hence transactions can be automatically executed. Ether is the underlying crypto and consumers can then have access to services like investments, derivatives and such.

Is DeFi a capital markets product?

In Singapore, the SFA or Securities and Futures Act regulate products in the capital markets. Payment services like e-wallets and cryptocurrency are regulated under the PSA or Payment Services Act. A DeFi token is regarded as an e-money or digital payment token. The discussion still goes on but it is possible to treat a decentralised exchange under the SFA which comes under the purview of the MAS (Monetary Authority of Singapore).  Another aspect that needs to be heavily considered is for merchants and service providers to take into account the compliance with anti-money laundering and counter-terrorism (AML/CFT) financing rules in Singapore.