Regulations for Decentralised Finance (DeFi)

What are the key regulatory hurdles in Singapore for decentralised financing (DeFi) lending involving digital tokens?

In DeFi lending, it is common that the DeFi platform is programmed to have a “representative” digital token issued to represent a DeFi lender’s claim to the digital tokens lent, along with any claims to a promised return on the lent digital tokens.

One of the key regulations for such DeFi lending are found under the Securities and Futures Act 2001. A primary assessment would be whether such “representative” digital tokens fall within the definition of “capital markets products”. If they are, not only would the facilitators of the DeFi platform be regulated and have to be duly licensed or exempted, but there may also be prospectus and disclosure obligations applicable to any issuer of such “representative” digital tokens.