Despite the recent collapse of stablecoin Terra and heightened worries over the prospect of a “crypto winter,” institutional interest in the crypto space remains robust. DBS Bank, Southeast Asia’s biggest lender by assets, plans to launch cryptocurrency trading services for retail clients within the year, an initiative that’s just one component of its foray into the tokenization of assets and blockchain technology more broadly.
“The tokenization and listing capability we have so far are done for a fixed-income issue. We’re going to do it for a property transaction later this year. And, increasingly, we’re looking to be able to tokenize all kinds of different asset classes,” DBS Chief Executive Officer Piyush Gupta told BitcoinLinux in an exclusive interview. “The selloff in the crypto market, I don’t think will change that.”
“(Tokenizing an asset) lets you fractionalize it. And if you have a tokenized, fractionalized asset, you can create a lot more liquidity than you can with assets in the current form,” he said.
However, DBS’ attempt to integrate crypto assets into its business faces increasing scrutiny from the central bank in Singapore, where it is headquartered.
Although around 170 companies have applied to provide digital payment token services in Singapore since 2020, only 11 have been granted licenses. The city-state also discourages the sale of crypto assets to retail investors, which has led exchanges such as Binance to shutter their retail operations there.
Anti-money laundering (AML), know your customer (KYC) and “suitability” have been among regulators’ major concerns over the crypto space, and Gupta said he understood that those issues had prompted caution among regulators.
Referring specifically to Singapore, he said, “They want to be a hub for blockchain, for sure … They want to be a big center, but they want to do it in a controlled way. This doesn’t suit some people … (But many think) that a regulated environment will create trust and confidence in the industry and the system. And I think from the MAS (Monetary Authority of Singapore) standpoint, they’re quite happy to deal with the kind of people who think that a regulatory environment and putting the safeguards is the right way to go.”
The finance industry and the world beyond are already being reshaped by blockchain technology, but according to Gupta, in terms of money itself, cryptocurrencies appear unlikely to replace fiat in the foreseeable future, and the benefits of retail central bank digital currencies (CBDCs) remain questionable.
Read the reasoning behind Gupta’s views in his full-length interview with BitcoinLinux Editor-in-Chief Angie Lau, and learn more about how blockchain is changing traditional banks, how regulators perceive the crypto space, and whether societies will one day be self-governed via blockchain.
- Revolution in the back office: “I think the technology is quite clearly going to make fundamental changes to the back office of the world. So the hub-and-spoke arrangements will get replaced by participative, distributive arrangements. And, depending on how much of an evangelist you are, you can work your way into 9 billion self-sovereign entities and a completely decentralized finance world … The whole clearing and settlement architecture of the world is based on a hub-and-spoke arrangement. You go through SWIFT networks, you go through correspondent banks, you have T+2 (trade date plus two days) settlement. If you convert that into a blockchain-based arrangement, then you can get to T+0 settlement, and you can go point to point without having spokes.”
- The risk of retail CBDC: “One of the risks of a retail CBDC, which is why central banks are thoughtful about it, is it could disintermediate the existing banking system … I think central banks are still concerned about the concept of credit creation. And if you don’t have an existing banking system, credit creation either gets left to individuals in a P2P (peer-to-peer) domain or it falls on the shoulders of central banks. Most central banks don’t want to take that burden. And, therefore, it seems to me that a completely disintermediated retail CBDC most central banks will not espouse.”
- Will cryptocurrency replace fiat?: “When you think about cryptos, it gets into the realm not of public money, but private money. My own view is that private money is very hard to use as real money … The reason for that is you don’t have stability in values and you don’t have ubiquity and fractionalization of that money … However, I think private money or private cryptos as a store of value, they are here to stay. Six months ago, there were US$3 trillion of cryptos in the world. That’s a US$3 trillion store of value already. It’s about US$1 trillion today. It’s obviously got sold off a lot. But nevertheless, as a quasi-replacement for gold or any other store of value, I do think they will be around.”
- Mixed opinion from regulators: “There’s no one-size-fits-all, even in their own thinking … On the one end is, ‘Just regulate it.’ And most of the banks would say, ‘If you regulate it, you don’t make the industry disappear, you don’t make the participants disappear. You just squeeze it out of the formal system into the informal system.’ But there are regulators who would say, ‘We’re quite happy with that. We just regulate the formal system and make sure the formal system doesn’t get into this’ … (I think) the right answer is not to try and regulate it away, but to regulate it so that you can get into it in a way that you can put OB (out-of-bounds) markers and acceptable boundaries.”
- A future ruled by smart contracts?: “The question is, does the technology overpower the nature of the world today? And you don’t have countries anymore. People don’t have governments anymore, because everybody relies on the technology and the smart contract, and my view is that’s not happening … I think all people who take that view — that there’s an intermediate position which can change the way things happen today, but without getting to the stage where you’re completely self-sovereign, trustless and without institutional arrangements — I think this is going to happen over the next 10, 15 years, and that’s the game that we’re trying to play.”
Angie Lau: Welcome to Word on the Block, the series that takes a deeper dive into blockchain and all the emerging technologies that shape our world at the intersection of business, politics and economy. It’s what we cover right here on BitcoinLinux. I’m Editor-in-Chief, Angie Lau.
Today, we’re in conversation with Piyush Gupta, CEO of DBS Bank, one of the largest ‘legacy’ banks in Southeast Asia. Thank you so much for welcoming us to your beautiful offices here in Singapore. It’s great to be here and to be sitting down with you for Word on the Block. It’s a real pleasure.
Piyush Gupta: Very happy to chat with you about this. It’s a great subject, and it’s topical today.
Lau: It’s topical today. And you’ve also been at the forefront of something that’s been topical for maybe not a lot of institutions, but for certainly a lot of innovators and game changers and disruptors in this space. But watching DBS very closely, this is one of the biggest legacy institutions in Southeast Asia today. And so to see a traditional bank, a behemoth, getting into really the disruptive space of blockchain, of crypto … Why did you do it?
Gupta: So, first, Angie, let me start by correcting. You keep calling us a legacy institution. I think for the last seven years we’ve transformed quite substantively into being a very digital kind of bank. We were rated one of the 10 most transformative organizations of the last decade. And so our roots in the last five, seven years have not really been legacy. We have digitized our operations. We’re actively using artificial intelligence and machine learning. We’re actively using ecosystem strategies. So the nature of the bank has evolved quite considerably.
One of the things, as we look forward, that we’re convinced about is the power of distributed ledger technology and blockchain. I think the technology is quite clearly going to make fundamental changes to the back office of the world. So the hub-and-spoke arrangements will get replaced by participative, distributive arrangements. And, depending on how much of an evangelist you are, you can work your way into 9 billion self-sovereign entities and a completely decentralized finance world. Or you can fall short of that.
But irrespective of where you are on the spectrum, there’s no question that the technology will let you reimagine the way things are done. Now, when you accept that the technology is powerful and is driving change in the way things happen, then it starts linking to really important areas and banking, which can change substantively.
One of those is clearing and settlement systems. The whole clearing and settlement architecture of the world is based on a hub-and-spoke arrangement. You go through SWIFT networks, you go through correspondent banks, you have T+2 settlement. If you convert that into a blockchain-based arrangement, then you can get to T+0 settlement, and you can go point to point without having spokes.
So, I do think you’ll find changes in settlement systems, as an example. You’ll also find changes in cross-asset class settlements. So, FX settlement, currency, was a DvP (delivery versus payment), etc. I think a lot of that will happen.
But one of the things that I think will also happen is a change in the nature of money. And the reason it will happen is because history tells you that the nature of money always follows technology. So, money used to be cowrie shells, and then money went on to become metal and silver and gold. And then it became paper. And then, 70 years ago, it became plastic, and so on and so forth. As a matter of fact, even today, 97%, 98% of money is bits and bytes, it’s digital. That’s what money is. It’s a secondary creation by banking systems, and it travels over wires.
But as technology continues to evolve and the mobile phone gets more ubiquitous, and things like QR codes, etc., become more prevalent, It stands to reason that the nature of money in day-to-day use will also continue to evolve. Then it becomes quite compelling for a bank — certainly with a bank with our DNA today — to start participating and thinking about this future. So how can you actually play a role in shaping the future, or at least being a part of that future? So, the long answer to your question of why we are in this? Because we just think that’s the way the world’s going.
Lau: Well, to be quite frank, this doesn’t sound like it comes from the CEO of — for a lot of people — still very much a traditional bank that has existed for a very long time. You sound very much in the same kind of kindred spirit of a lot of the innovators and OGs in blockchain and crypto space that really regard money differently. A lot of your peers and colleagues still in the space wouldn’t agree with you, and’ you’d say that, ‘In fact, what is the underlying value of crypto? What is the underlying value of digital assets?’
Gupta: If you think about money in this classic sense, as a medium of exchange — a unit of account, and a store of value —I think that there are some forms of money — principally state bank money, public money — which will serve all three functions. It will be a medium of exchange and a unit of account, in addition to being a store of value. So, basically CBDCs, then potentially stablecoins, but I think mostly CBDCs. Within that realm, while they serve multiple purposes, you then start wondering what incremental efficiency, effectiveness, do the bills bring in the retail space relative to what you have today? And what incremental efficiency, effectiveness can they bring in the wholesale space? I’m of the view that in the retail space, for most developed countries in the really efficient monetary system, the net incremental value is actually marginal, and therefore a lot of central banks are exploring retail CBDCs, but it’s not entirely clear to me if they’re going to go down that path.
Because today, like I said, most people are getting out of paper money anyway. You can use plastic. I have something called PayLah. Most banks have their own QR code-based system. If this already exists in the private sector, then the incremental value of the public sector producing an alternative to that becomes more questionable. One of the risks of a retail CBDC, which is why central banks are thoughtful about it, is it could disintermediate the existing banking system.
And again, a DeFi (decentralized finance) evangelist would argue you don’t need the banking system. I think central banks are still concerned about the concept of credit creation. And if you don’t have an existing banking system, credit creation either gets left to individuals in a P2P domain or it falls on the shoulders of central banks. Most central banks don’t want to take that burden. And, therefore, it seems to me that a completely disintermediated retail CBDC most central banks will not espouse. Then an intermediated CBDC — like the Chinese are doing, so you go through a banking system — could happen. But again, the central bank and monetary authority of Singapore said that the actual incremental marginal value of doing that, relative to what exists today, is not clear. So I think many people will watch.
So, they take the other fork, and the other fork is wholesale CBDCs. I think wholesale CBDCs really have value, potentially, and the value comes from the capacity to be able to change the settlement system around the world.
Separately, when you think about cryptos, it gets into the realm not of public money, but private money. My own view is that private money is very hard to use as real money. The history of mankind has shown that private money generally tends to come a cropper along the way. And therefore, for private money to serve those two purposes — medium of exchange and unit of account — tends to be quite difficult. I don’t see that happening any time soon, even though Elon Musk said he would accept payment for Teslas, he changed his mind a week later.
The reason for that is you don’t have stability in values and you don’t have ubiquity and fractionalization of that money — so it’s not easy to make that happen. However, I think private money or private cryptos as a store of value, they are here to stay. Six months ago, there were US$3 trillion of cryptos in the world. That’s a US$3 trillion store of value already. It’s about US$1 trillion today. It’s obviously got sold off a lot. But nevertheless, as a quasi-replacement for gold or any other store of value, I do think they will be around. I don’t think they are disappearing anytime soon.
Lau: And a lot of people are speculating that potentially this is the next wave of crypto winter. Winter is coming and perhaps winter is already here. In your point of view, does this change the trajectory for your strategy?
Gupta: Well, what we’re doing is being quite thoughtful about how we play in the game. So what we launched last year was a digital asset ecosystem, and it had three components to it. One was the capacity to tokenize and list any asset. The token — I’m convinced that eventually all assets (will be) tokenized. It has to be the technology that lets you do it. It lets you fractionalize it. And if you have a tokenized, fractionalized asset, you can create a lot more liquidity than you can with assets in the current form.
The tokenization and listing capability we have so far are done for a fixed-income issue. We’re going to do it for a property transaction later this year. And, increasingly, we’re looking to be able to tokenize all kinds of different asset classes. The selloff in the crypto market, I don’t think will change that. I think this concept of tokenizing assets, listing them, trading them, finding price … I think that will definitely continue.
The regulatory framework around that continues to evolve. So, if you’re a security token, it’s a heavier burden. If you’re a non-security token, it’s a lighter burden. The second thing that we set up last year as part of the system was a crypto exchange. And, to start with, you’re only trading cryptocurrencies for fiat. But eventually, when all of these assets are tokenized, we expect to trade them on the exchange. And I’ll come back to that, because they were being a little bit thoughtful about what we use it for and how fast we go.
Lau: I want you to hold onto that thought, because we heard about your views on how you see this as not only an asset class but really a technology of the future, and really banking on the future of innovation when it comes to changing the trajectory of this bank.
How do regulators play a part in it? And, specifically, earlier this year, you had shared that you were going to open up a crypto exchange to retail investors. And then Singaporean regulators came down and said that they really discouraged selling assets of a crypto nature, of digital assets, to a retail market. And then the plans changed for DBS. How do you view that change, that discussion and the role of the regulator?
Gupta: Let me deal with it in two parts. First is what are regulators concerned about? And there are really two big agendas. One is the AML, KYC agenda. I think there is a serious concern among regulators that crypto can be used for illegal purposes. You don’t get line of sight. People shift money around. In some of the countries in the region — India is a great case in point — the governance of the RBI (Reserve Bank of India) has been very vocal about the fact that these cryptos are being used to get outside of the ambit and the supervision of the authorities. There are 100 million crypto users in India. It’s the largest number of users anywhere in the world, and they’re seriously concerned that money moves around terrorist financing, etc.
Lau: Do you think that’s a fair concern?
Gupta: I think that’s a fair concern, because when you do coin purity checks, it’s quite clear that there is a large element of tainted coins in the system. So, yes, I think it’s appropriate for regulators to be concerned about it and to want to make sure that they have the kinds of controls they need to make sure they understand provenance, they understand ownership, and they understand where the money is coming from and going to.
In Singapore, there’s something called the travel rule. The practice is a global arrangement. So, you need to be able to say where the money comes from, where the money is going to. And one of the appeals of crypto and blockchain has been the fact that you can make it less transparent. And that’s exactly what regulators worry about. So, I think there is a point of tension there, and it’s legitimate.
The second big question that regulators have is suitability, which is because a large part of the store of value we were talking about before is not based on fundamentals. It’s based on supply and demand. It’s based on a notion of value that comes from common belief and a secondary market, but not fundamentals.
Lau: But it depends on what you’re talking about — Bitcoin or Ethereum or some of these utility protocols. There’s an argument to be made that there is a utility fundamental that backs the value of these coins, or of these cryptos.
Gupta: You could in some cases. But you’ve got to go back and see what is the utility fundamental that links it to value. The vast amount of the cryptos in the world today are really based on — quote-unquote — ‘a belief’ that there is value and a secondary market. By the way, it’s not wrong — it’s like gold. I mean, why is gold valuable?
Lau: We said it was.
Gupta: We said it was. It’s just a yellow-colored metal. And it’s not even the most rare metal in the world. It’s not the most useful metal in the world. We collectively buy into the story. So you could argue that there’s no reason for a Bitcoin not to be valuable in the same context. So, the second concern the regulators have is essentially therefore on this: When the young kids, the novices, start getting into this as an asset class without understanding that the asset class can be very, very volatile — we’ve seen that — then they get hurt. And when they get hurt, then no matter how objective we want to be, governments get involved, politicians get involved and regulators get involved as part of the duty to safeguard the small investors. So that’s the second big concern — KYC, AML and then suitability.
Lau: The irony there is that the technology itself can be self-policing in terms of smart contracts. This could actually be baked into and programmed into a lot of these transactions, and regulators trying to create these guardrails, agnostically and manually, potentially are missing a huge instrument if they understood the technology itself.
Gupta: Well, it can and it cannot. Terra and LUNA have collapsed. The weaknesses in the system, you can short-sell Terra and LUNA … If you had retail investors sitting on this, relying on the technology today, what would you go and say to them? ‘Well, the technology was great, but something went wrong’? And I think as responsible regulators, they’re quite mindful of that, so I understand where regulators are coming from. Now, to my mind, like I said, I think technology is here to stay. I think the train’s left the station. So the right answer is not to try and regulate it away, but to regulate it so that you can get into it in a way that you can put OB (out-of-bounds) markers and acceptable boundaries, given the two concerns that the regulators have.
Lau: I think that the growth of this industry actually does depend on stability and market confidence, and therefore, regulators actually play a huge part in helping really seed the next phase of growth for the blockchain industry and Web 3.0. The difference is, how are those conversations being had right now? So curious — you’re really leading the charge, putting a lot of capital, putting a lot of strategy into this play. How often do you talk to your cohorts in the governmental agencies and the regulators who are very much a big part of your business?
Gupta: We talk to them quite frequently. But I think it’s fair to say that there’s no common view among regulators. You have regulators who would essentially say, ‘Look, this is too dangerous. Just regulate it out of the formal banking sector entirely and let somebody else deal with it.’ You have other regulators who would say, ‘This technology is here. We should use it, and use it in a pragmatic way and see how we can actually work to put the right safeguards in place while you do that.’ I was on a call with several central bank governors a few weeks ago, and it was quite interesting how that range of opinions manifested itself from different central bank governors, so there’s no one-size-fits-all, even in their own thinking.
Lau: What would you say the spectrum is on the far end?
Gupta: Well, on the one end is, ‘Just regulate it.’ And most of the banks would say, ‘If you regulate it, you don’t make the industry disappear, you don’t make the participants disappear. You just squeeze it out of the formal system into the informal system.’ But there are regulators who would say, ‘We’re quite happy with that. We just regulate the formal system and make sure the formal system doesn’t get into this.’
Lau: I kind of think crypto is like water — it will always find a way. And in the early stages of the development of the space, there was a lot of jurisdiction shopping, as it were — increasingly now that the jurisdictions are also doing their own shopping by creating either sandboxes or regulatory environments that help build and nurture. How do you see Singapore fitting in?
Gupta: I think Singapore is right in the center. If you read the pronouncements of the government, as well as the regulator, they’ve been pragmatic. They want to be a hub for blockchain, for sure. They want to be a hub for central bank digital currency thinking, particularly in the wholesale side. They’ve experimented a lot with other forms of retail — though they’ve said they’re going to watch it, they’re not going to lead with that. But they are leading a lot of the stuff on wholesale CBDC, settlement engines, etc., so they clearly want to be there.
But Singapore at the same time is quite conscious of the other part of the spectrum. The suitability agenda in Singapore — it’s always very careful about putting the man on the street at risk, and about the AML, KYC agenda. And therefore, if you look at the pronouncements, they talk on both sides of the camp. They want to be a big center, but they want to do it in a controlled way.
Now, what that means, therefore, is that they have a licensing regime. So the Payment Services Act in Singapore is what governs any crypto exchange. They’ve given out five licenses. They’ve got five licenses, which they’re pending. So about 10, 12 licenses. They have another 60, 70 pending for review. But they’re quite thoughtful about how they actually give licenses out and how they propose to regulate these players.
This doesn’t suit some people, so some people choose to move from here and say they’re going to go off to the Middle East or go off to, increasingly, France and so on. But a lot of other people are happy with this, because they figure out what you said — that a regulated environment will create trust and confidence in the industry and the system. And I think from the MAS standpoint, they’re quite happy to deal with the kind of people who think that a regulatory environment and putting the safeguards is the right way to go.
Lau: I think we’ve pretty much covered all the bases. And speaking of bases, where do you think the crypto life cycle is? Where are we in terms of the game?
Gupta: We’re in ground-zero in a 10-point game … There’s a long way to go. Like I said, I’m convinced that the world will tokenize. I think digital currencies are here to stay. Digital settlement mechanisms are here to stay. Actually, I think NFTs (non-fungible tokens) are here to stay. But I do think that they will evolve. Like several other technologies, they don’t happen overnight. And therefore market confidence, liquidity, regulatory frameworks — all have to come into place.
I think one of the big tensions you’ll see is what you suggested earlier. Do you go into a completely unregulated world with smart contracts around the world? Or do you still have the framework of institutional arrangements to help run the world? My view is that while the technology might permit smart contracts around the world, society as a whole is not ready for that. I guess the 9 billion individuals are dealing with each other without governments, without nations, without central banks, without institutions, I don’t see that happening.
Lau: But that’s also evolving with technology. You have DAOs (decentralized autonomous organizations), you have consensus mechanisms. Crypto itself is based on the idea that you can democratize with technology and make it immutable. I don’t need to know who you are to trust you, though I do. But I also don’t need to. And that is a trustless transaction that’s actually very valuable.
Gupta: That’s exactly the question. And so the question is, does the technology overpower the nature of the world today? And you don’t have countries anymore. People don’t have governments anymore, because everybody relies on the technology and the smart contract, and my view is that’s not happening. I do think the technology is still very powerful. It does have the potential to change — like I said — back offices, settlement systems, the nature of money.
Lau: And you’re doing that yourself at DBS?
Gupta: I think all people who take that view — that there’s an intermediate position which can change the way things happen today. But without getting to the stage where you’re completely self-sovereign, trustless and without institutional arrangements — I think this is going to happen over the next 10, 15 years, and that’s the game that we’re trying to play.
Lau: I want to know how you’re using the technology right now, even as you change infrastructure and as you view global settlements around the world.
Gupta: I completely agree with you, Angie. I think that’s the power. And I could be wrong. Maybe 15 years from now, the technology overpowers society. I think there’s some way to go.
But if you zoom (in on) them, right, that there’s this intermediate role for the technology to empower the current institutional arrangements. That’s what we’re trying to solve. So, let me give you an example. Between JPMorgan, ourselves and (Singapore state holding company) Temasek, we launched a company called Partior. It’s a blockchain-based company, and our agenda is to see how we can actually try to rationalize the settlement process — the cross-currency global settlement process. We will eventually try to see if we can do a DvP, CvP (collateralization versus payment), etc., for multiple asset classes. This company has now got interest from 40 other financial institutions around the world. We’re trying to set up an arrangement where you have a central — it’s one or two players — who do a fiat-to-digital currency switch. And we’ve got arrangements now for yen, for euro, for sterling, for renminbi, for most of the majors.
And we intend that we’ll use the digital currency approach to settle T+0. We’ve done some pilot transactions. We hope to be able to actually create this network of players and learn something more commercial in the second half of the year. Now, that’s a great example, where we’re not trying to change the nature of money itself, but we’re trying to evolve the nature of the settlement system to leverage the power of the technology.
Lau: Yeah, and that in itself can be more valuable than anything else. It is the actual application of that technology? And we do something here called BitcoinLinux Forecasts for certain guests, and you’re certainly in that ilk, and this is where we ask you to glare into your own personal crystal ball and tell us one of your predictions for crypto and this technology, from your very specific point of view, in the next few years?
Gupta: Well, one of the things that I think will happen is the continued evolution of NFTs. If you take a look at the gaming universe today, the 3 billion gamers — virtual gamers — only 2 billion people who play physical sport. And the amount of money today which is spent on virtual games is massive. Fortnite last year — I read somewhere, there’s US$5 billion spent on buying tokens in Fortnite, both utility tokens and vanity tokens. I think, increasingly, many of these tokens, instead of being in-game and -app, will start evolving to an NFT kind of regime. And then, once you have the NFT, Axie Infinity and XRP is over here, so GameFi, the use of NFTs in these contexts, will start exploring.
But I think also all forms of other things, airline miles, loyalty programs. I think a lot of these will start evolving to an NFT construct. And once you have NFTs, then you can start getting fungibility across NFTs. You’ll have a completely different regime. It’s not even crypto. It needs to convert to crypto, but it’s another form of digital value. I do think you’ll start seeing a lot more of that over the next few years.
Lau: Well, I know that banks are in the business of money, but I think if money is value, then we’re both in the business of value creation. And thank you so much for helping us understand a little bit more about how you value this space and how you see this technology going. Appreciate it.
Gupta: Thank you. I enjoyed the conversation. Like I said, I think we’re just at the start of what is going to be a very exciting future.
Lau: And we can’t wait. Piyush Gupta, thank you so much. And thank you, everyone, for joining us on this latest episode of Word on the Block. I’m BitcoinLinux Editor-in-Chief Angie Lau. Until the next time.