Singapore proposes ban on interest for MAS stablecoins

The Monetary Authority of Singapore released a draft proposal this week to prohibit payment of interest and other yield on stablecoins that fall under its regulatory frameworks. The regulator framed the proposal as an effort to prevent regulated stablecoins from being treated like bank deposits and to reduce incentives for retail investors to hold tokenized cash equivalents as interest-bearing investments.

The restriction would apply to stablecoins covered by MAS’s payments and digital asset rules. That includes tokens pegged to a fiat currency that are issued or marketed by firms licensed or supervised in Singapore. The draft would ban issuers and authorised service providers from designing, marketing or distributing stablecoin products with embedded interest payments, promotional yields or structured returns.

The ban would cover direct interest payments to token holders and arrangements that guarantee a yield through third parties. The proposal targets stablecoins that are regulated in Singapore and does not extend to all digital tokens or unregulated offshore offerings.

If adopted, the rule would require stablecoin issuers and crypto platforms operating in Singapore to redesign products that currently promise yields on regulated tokens. Firms offering lending, staking or automated yield-generation tied to regulated stablecoins would need to change their Singapore business models or separate those products to comply. Retail holders of MAS-regulated stablecoins would no longer earn interest directly on those tokens while the restriction applies.

MAS presented the proposal as part of a wider effort to strengthen consumer protection and limit risks that could spread to the broader financial system. Regulators have flagged that interest-bearing stablecoins can blur the line between bank deposits and crypto products, potentially exposing holders to counterparty and liquidity risks if issuers or connected platforms face stress.

Stablecoins are cryptocurrencies intended to maintain a stable value by being backed by fiat currency, short-term government securities or other assets. Market participants have offered yield on stablecoin holdings by lending tokens to borrowers, deploying them in liquidity pools or using decentralised finance mechanisms. Regulators have expressed concern that those practices can expose non-professional investors to credit, liquidity and operational failures.