Summary
This article provides an overview of key regulatory considerations for stablecoins in the EU, Singapore, and Dubai, focusing on how they affect decentralized and yield-bearing models like sGHO.
Comparative Table of Regulations
| Region | Stablecoin Bill | Algorithmic Stablecoins | Yield-Bearing Stablecoins | Decentralized Minting | Public Offering |
|---|---|---|---|---|---|
| EU | Passed (MiCA) | Restricited due to issuer requirements | Explicitly prohibited | Restricted due to issuer requirements | Restricted due to issuer requirements |
| Singapore | Passed (SCS & PSA) | Allowed under DPT | Unclear, possibly allowed | Restricted due to issuer requirements | Restricted due to issuer requirements |
| UAE | Passed (PTSR) | Explicitly prohibited | Explicitly prohibited | Restricted due to issuer requirements | Restricted due to issuer requirements |
In the EU, the MiCA framework classifies stablecoins into asset-referenced and electronic money tokens, each requiring 100% reserve backing. Algorithmic design is non-allowed, interest payments to holders are explicitly banned, and decentralized issuance is not recognized due to strict issuer requirements.
In Singapore, the Monetary Authority of Singapore (MAS) mandates that single-currency stablecoins be fully backed by reserve assets and held in segregated accounts, but it does not categorically prohibit yield-bearing designs. Nonetheless, issuers must have legal personhood and obtain local licenses, which rules out purely decentralized issuance.
In Dubai, the Payment Token Services Regulation (PTSR) bars the issuance or promotion of algorithmic stablecoins and disallows interest-bearing models. Only UAE-incorporated entities or foreign issuers registered with the UAE Central Bank can legally offer stablecoins. Decentralized configurations do not fit this regulatory framework, as they lack a centralized entity accountable to authorities.
Overall, sGHO’s decentralized structure could pose challenges under these regimes. The UAE prohibits algorithmic stablecoins, the EU bans interest-bearing arrangements, and Singapore—despite offering more leeway—still requires a legal entity able to meet licensing obligations. In this context, it is recommended that sGHO presentation abstains from inviting, offering to enter into an agreement for the provision of services, communicating in any form sufficient information on the terms of the offer, or carrying out any similar activities that may be interpreted against sGHO as soliciting users into non-authorized offerings/services.
Intro
Yield-bearing characteristics of sGHO must be evaluated in light of the varying regulatory treatment this asset would encounter across different global jurisdictions. Recent legal developments in the stablecoin space demonstrate significant progress, with some nations enacting legislation while others remain in the process of reviewing proposed bills.
This analysis is confined to jurisdictions where regulations have already taken effect, namely the EU, Singapore, and Dubai. The United States, an especially prominent market, is not covered here because its legal framework is still emerging. Proposed U.S. legislation, such as the Clarity for Payment Stablecoins Act (passed by the House Financial Services Committee), imposes a two-year moratorium on launching new algorithmic stablecoins and requires SEC registration for yield-bearing stablecoins.
The purpose of this comparative overview is to examine how the relevant laws address several critical elements pertinent to sGHO’s design and operation, encompassing the definition of stablecoins, the extent to which algorithmic stablecoins fall under regulatory scrutiny, whether yield-bearing structures are permissible, whether decentralized issuance can be recognized, and the rules governing public offerings.
EU
MiCA distinguishes between two categories of stablecoins. The first, known as asset-referenced tokens, constitutes a type of crypto-asset that is not an electronic money token and claims to maintain stability by referencing another value or right—or a combination thereof—including one or more official currencies. The second category encompasses electronic money tokens, which purport to maintain a stable value by referencing one official currency.
Under these rules, algorithmic mechanisms for maintaining a stablecoin’s value conflict with the requirement that reserves must always equal 100% of the tokens in circulation. These reserves must be legally and operationally segregated from the issuer’s estate, and 30% to 60% of the backing assets must be held at a credit institution. Any investment of these backing assets must be limited to highly liquid instruments with minimal market, credit, and concentration risk that can be liquidated quickly without adversely impacting their market price.
Algorithmic designs also fail to satisfy MiCA’s custody requirements, which mandate that reserve assets be held by a qualified custodian no later than five working days after issuance of an asset-referenced or electronic money token. Such a custodian must be a crypto-asset service provider specializing in the custody and administration of crypto-assets, a credit institution, or an investment firm regulated under MiFID II. MiCA’s refusal to recognize unbacked stability mechanisms further restricts the issuance of algorithmic stablecoins.
Article 40 of MiCA expressly prohibits the granting of any form of interest on asset-referenced or electronic money tokens. Neither issuers nor crypto-asset service providers may pay interest for holding these tokens. The prohibition also extends to any remuneration or benefit tied to the length of time holders retain these tokens, including net compensation or discounts that operate similarly to interest.
MiCA defines an offer to the public as any communication in any form that provides sufficient details concerning the terms of the offer and the crypto assets in question, thereby enabling potential purchasers to decide whether to acquire those assets. Asset-referenced tokens cannot be offered publicly unless the entity making the offer is a duly authorized legal person under MiCA or a licensed credit institution. Electronic money tokens may be offered publicly only by credit institutions and electronic money institutions. Offerings made outside these parameters shall constitute unauthorized activities subject to administrative penalties and other measures. Because of MiCA’s stringent limitation to recognized legal entities cannot reconcile the notion of a decentralized issuer with its framework.
Singapore
Singapore’s Monetary Authority of Singapore (MAS) treats stablecoins as a novel type of digital payment token that could become a prevalent means of payment. In August 2023, MAS finalized its stablecoin regulatory framework, covering single-currency stablecoins pegged to the Singapore Dollar or any G10 currencies. One principal requirement in this framework is value stability, which obliges issuers to back their stablecoins with reserve assets in low-risk, highly liquid forms valued at or above 100% of the tokens in circulation. Custodial arrangements must ensure these reserves remain segregated in accounts maintained with suitably qualified custodians.
Other categories of stablecoins are not outright prohibited in Singapore. Such tokens, including stablecoins issued outside Singapore or pegged to other currencies or assets, fall under existing digital payment token regulations. Under the Payment Services Act 2019, stablecoins generally qualify as digital payment tokens. Entities offering these tokens must obtain a digital payment token service license if they buy or sell them, provide exchange platforms, transmit tokens, or offer custodian wallet services. Recent expansions to the regulatory scope now require licensees to safeguard customers’ assets more robustly and to provide detailed risk disclosures.
There is no explicit prohibition on interest-paying stablecoins. The presumption is that such stablecoins are permissible if they satisfy MAS’s overarching objectives of preserving stability, ensuring transparency, and safeguarding consumers. Under the Payment Services Act, entities must obtain the appropriate license—ranging from a Money-Changing License to a Standard Payment Institution License or a Major Payment Institution License—based on the nature and scale of their services. Each license category prescribes specific requirements, including minimum capital, local presence, and residency criteria for the entity’s representatives.
Decentralized issuance does not align with this framework because MAS requires that issuers be identifiable legal entities capable of fulfilling compliance and oversight obligations. Offering and promoting stablecoin-related services in Singapore similarly demands a local license. Entities unable or unwilling to meet these standards would fall outside MAS’s regulated environment. Promoting tokens without the necessary authorization could be construed as the unlicensed provision of a regulated payment service.
Dubai
In the United Arab Emirates, the Central Bank has introduced a Payment Token Services Regulation (PTSR) to govern stablecoin-related services across the UAE, excluding the Dubai International Financial Centre (DIFC) and the Abu Dhabi Global Market (ADGM). Within the PTSR, a “Payment Token” includes asset- and fiat-backed stablecoins whose values reference a fiat currency or other stablecoins denominated in the same fiat currency. Algorithmic stablecoins are defined as virtual assets that maintain a purportedly stable value through automated or manual interventions affecting the supply or demand for the asset.
The regulation prohibits issuing, promoting, or providing services related to algorithmic stablecoins within the UAE or directed toward persons in the UAE. This restriction is absolute and cannot be bypassed by securing licenses from the Virtual Asset Regulatory Authority or the Emirates Securities and Commodities Authority. PTSR also imposes reserve requirements for fiat-backed stablecoins, mandating that reserve assets be held in separate escrow accounts or highly liquid investments in a segregated account (only for wholly-owned bank subsidiaries).
Designs offering yield-bearing features are also disallowed under PTSR, which prohibits issuers from paying or arranging payment of interest or equivalent benefits to customers based on the time they hold a payment token. Only companies incorporated in the UAE may apply for a license to provide payment token services. However, foreign entities may offer payment tokens not denominated in the UAE dirham to UAE investors if they register with the UAE Central Bank as “Registered Foreign Payment Token Issuers.” Decentralized minting does not fit the framework because the regulatory scheme requires a central, legally accountable issuer.
Promoting services within the UAE or targeted at UAE residents is permissible only for duly licensed entities. Any offer to the public that does not comply with these requirements is considered a regulated activity conducted without the requisite authorization.
Conclusion
In summary, sGHO does not appear to meet the full regulatory requirements of any jurisdictions under review, primarily because it operates in a decentralized manner. Each framework stipulates that stablecoin issuers must be centralized legal entities subject to capital, reserve, and reporting obligations. Algorithmic stablecoins are explicitly disallowed in the UAE, and interest-paying models face broad prohibitions there and in the EU. By contrast, Singapore’s regulatory environment seems more accommodating of algorithmic and yield-bearing stablecoins, provided issuers comply with the Monetary Authority of Singapore’s emphasis on stability, transparency, and consumer protection.
Nonetheless, caution is advised in how sGHO is communicated to potential users. The EU, Singapore, and Dubai regulations clearly delineate strict boundaries around unauthorized public offerings. sGHO’s presentation should, therefore, avoid fulfilling the criteria for a public offer in each jurisdiction. It is prudent to refrain from soliciting, inviting, or otherwise encouraging user participation where regulators may classify such actions as unlicensed offerings or services.
Disclaimer
This review was independently prepared by LlamaRisk, a community-led decentralized organization funded in part by the Aave DAO. LlamaRisk is not directly affiliated with the protocol(s) reviewed in this assessment and did not receive any compensation from the protocol(s) or their affiliated entities for this work.
The information provided should not be construed as legal, financial, tax, or professional advice.