In this latest instalment of StraitsX Sessions, Tianwei Liu, CEO and Co-Founder of StraitsX, and Group Deputy CEO of Fazz, joins Season 6, Episodes 153 and 154 of the On Call Insignia Ventures Podcast. Topics covered in Part 1 include the impacts of StraitsX’s recent regulatory milestones after receiving the IPAS from MAS to the company, the Singapore and ASEAN region, merchants, and embedded finance platforms. He also went into detail about the importance of compliance in the digital asset industry in Part 2.
On Call Insignia Ventures is a podcast program run by Insignia Ventures, a Southeast Asian early-to-growth stage technology venture capital firm founded in 2017 and invested in 90+ companies across industries and geographies.
Get a recap of the highlights from Tianwei’s conversation with Insignia Ventures here.
Tianwei Liu, StraitsX: We’re very honoured to be among the first to be acknowledged by the MAS to comply with the upcoming stablecoin regulation. It's a huge shout-out and milestone achievement to the team and everyone that has been involved. It has been a great relationship that we have with the regulators, with the MAS, working every step of the way.
…we launched the stablecoin project in 2019 from that, with multiple iterations to get into this stage. There was a launch of the Payment Service Act, there was an MPI license given to us for DPT, .. and just in November, we were granted In-Principal approval for early compliance of the upcoming [stablecoin regulatory] framework, which we have contributed quite a bit with MAS on. It is also an attestation to our track record. Folks might not know this, but it's almost four or five years since we launched XSGD. Close to 8 billion XSGD has been transacted on-chain, right? These are data that you can see publicly. You can't hide it, nor can you mask it up. These are real transactions that people have started using.
…Beyond the Singapore dollars, the licenses [will] also mean that we are not just talking about a Singaporean dollar stablecoin or Indonesian rupiah stablecoin, which is XIDR, which we launched about 2 years ago. We can now issue G10 currency stablecoins out of Singapore with this new license regime and XUSD, which we will be focusing our efforts on in the coming years. We'll be launching more, which is super exciting for us as a company, to be able to do more.
Tianwei Liu, StraitsX: Singapore being a beacon, at least in this part of the world, when it comes to regulation, helps to drive and makes more regulators take a more interesting look at this. It means that the banks and [other] major financial institutions will be able to have their compliance framework approach this in a much more acceptable way. [What is] very clear that [blockchain solutions] are going to be more mainstream. We'll help potentially be the catalyst that will push this thing over to the next tipping point where more adoption can happen. [Regulation] brings about the credibility that using this kind of medium to facilitate innovation in payment is the way that [other] regulators around the world should be looking at this both domestically and especially for cross-border payment. Then it allows service providers like us and other players to be able to confidently say that what we are doing is regulated and we are doing this according to the standards needed both on AML (anti-money laundering) controls, as well as on custody and the way that we safeguard the user's funds.
Tianwei Liu, StraitsX: Centralization has been around for a long time and [seen in] most of the solutions that we are used to. It works very well. It works very efficiently. If you are willing to give up on that and switch to decentralised [systems], there are benefits and trade-offs. The trade-off is that it could be a lot more expensive to run and maintain. Then we need to focus on what we are trying to solve here. What is the benefit that [decentralisation] brings? …Our initial thesis when we first started is that we saw the potential around programmability, the distributed nature of things, and innovation that can happen at a micro level.
We think we have some elements for success… [firstly] because of the payment infrastructure that we have built up from the ground up -- payment infrastructure to accept payments from the banks, solutions for bank transfer capability, etc.
…[The next] is just being compliant. A lot of companies will tell you they are regulated and there's compliance, but that does not immediately translate to banking relationships. It doesn't mean to say, “I can form a company and launch a stablecoin, then expect that I'm going to get all the bank accounts to get all the rails and payment gateway that you have.” That's a huge gap between the two of them.
The third piece is the ecosystem. You need an ecosystem to make this work. You have the solution, you have compliance, who is going to use [these solutions]? Our initial thought is on the Web3, blockchain space -- we served that time in the early days as a payment gateway for a lot of these exchanges and fintech companies. …This is a high-growth segment of the economy. Things are moving. I'm very excited about what can happen over there.
At the same time, it's not mainstream enough. The size of the market, just looking at blockchain and Web3 companies, is not big enough...We need to think about how to get this back to the consumer, for my mom and dad to use this, which is something I was talking about [before]. The vision here is that we are focusing on this, making sure that the entire technology disappears behind the scenes. The customers should just take out their phone, click on a button, and it works. Payments should work as payments. You just really want to pay for that bill. You're not going to be asking if I can use crypto [for payments] … that might work for a certain portion of people, but I believe 90% of most people just want to scan and pay… and that's been the primary focus.
We're very excited to talk about some of the things we're doing with Ant Group and Grab. Last year, Grab made a major announcement that they are launching a Web3 wallet… They spent a lot of time thinking about the user experience, building up a Web3 wallet within the Grab app so that a normal retail consumer who has and uses Grab can easily get access to Web3. For the folks who don't know, the Web3 wallet inside Grab is non-custody… and the underlying blockchain technology [almost] disappears. We have worked with them on Purpose Bound Money that allows people to have a digital Singaporean dollar voucher backed by XSGD stablecoin. That's the only asset that you can now hold on the Web3 wallet.
We use it to showcase a voucher-based payment system. Last year's trial covered about 200 merchants. You can buy these vouchers, hold them, send them to a friend, and make purchases at over 200 participating outlets. Of course, it's still not as streamlined as we wanted it to be, but to the merchant, this is just [another mode of payment]. They don't [need to] understand anything about blockchain or any other e-wallet. [To them,] somebody is just trying to use Grab to make a payment. And the teller instantaneously gives the feedback that, “Hey, [payment] received. Just give them the bubble tea that they wanted.” So that itself is a taste of the direction that we're heading in.
We think we can do something that is going to be even more mainstream. And that's what we're discussing with Alipay, Grab and Ant Group. Hopefully, that's the next generation of solutions that we want to support them with, specifically in cross-border payment. We want to enable Grab or Alipay, Alipay Plus users, when they come to Singapore, [they] simply scan an SG QR code, scan a GrabQR, and just make payment. To them, no blockchain [technology] is involved. All they need to know is they scan a QR code, enter the same dollar value that the cashier tells them to enter, and they make payment.
But at the back end of it, this is where the blockchain and the settlement side can come in. We can think about how to make this purpose-bound money, the most purposeful and compliant by design so that it can only be used for goods and services. So the ML risk and the compliance risk can be ring-fenced and properly controlled. The settlement will also be instantaneous. And then the FX ability of the blockchain can happen at a microtransaction level. That's what we're hoping to get done this year.
The main problem is also accessibility. The Alipay user right now can just make payments at Grab merchants. They scan and pay, and they're happy with their goods. To the merchant, they don't have to onboard a new acquirer. They don't have to say, “Oh, I need to sign up with Alipay, or I'm just doing GrabPay.” Somebody's making GrabPay to me, I'm doing it. I think that's the essence of it. Then with all the technology, the assets, and the speedy settlements, all baked into the backend innovation side is what we're trying to achieve. We will be successful and we'll be celebrating if no one knows that it's using blockchain or crypto or XSGD, all they need to know is that I'm scanning, I'm making payment, and I move on with my life. That's the end goal here.
Tianwei Liu, StraitsX: From a commerce perspective, payment is a basic fundamental need. If you are a commerce marketplace or e-commerce online, you want to have something as seamless and as easy for your customers as possible.
Shopping cart abandonment is a big metric that everyone looks at. If the customers can't make the payment when they're about to buy something, they're frustrated. You’ve lost all your so-called CAC… It's always more important than the cost for most of these merchants out there. They just want a seamless experience so that customers are happy, buy the product and just move on.
That is where the last mile of this is where I talk about. The merchants don’t want to onboard a new system. Give them something that the customers can just pay with and move on. That's something that we will need to first fundamentally focus our effort towards solving. [Only] after that, will come about the secondary stuff to think about… rewards point systems, voucher point systems, which are some of the stuff that we've been talking about from a Purpose Bound Money perspective and the ability for programmability. What if this voucher is now [also] interoperable? You can use this voucher across multiple different platforms. This voucher will just stay with you as long as you make the purchase. No one has to spend too much time on governance. The blockchain contract will take care of the voucher governance by design. Those are the things that the next order of thinking will be about.
Tianwei Liu, StraitsX: I talked about the last time around that it is impossible for US dollars to be used for payments across the rest of the countries that are in this part of the world.
It's a sovereignty issue and there's a lot of other regulation-related problems. You want to defend your local currency, but the truth of the world is that 90% of the global trade is still settled in US dollars. Some countries have bilateral agreements like Singapore does with Indonesia. We can just do a direct FX swap between Singaporean dollars and Indonesian Rupiah.
But a lot of other currencies are still settled through US dollars. You would use Singaporean dollars to buy US dollars and sell for another currency. That is the situation of how the world works. To continue this part of the expansion and innovation, we realise that a US dollar stablecoin is just needed. It is currently still the largest market cap. As I mentioned, today there are about 130 billion US dollars-backed stablecoin. 95% of that is fiat-backed. That is where the biggest market opportunities are because the world is still using US dollar-limited currency for trading. Having that is the first piece that we need to fix to facilitate faster settlement and allow the FX swap and pricing to be done for currency pairs that are not able to directly do with Singaporean dollars initially.
The plan is also to make sure that the other currencies will all have their stablecoins, which then mirrors normal transactions that are happening today. If you can convert directly from the same dollar to that currency. But if you can't, you might have to go to an intermediary stablecoin… That's why a US dollar stablecoin is extremely important for this ecosystem to complete and that's what we [aim to] do with our licensing.
From our experiences, we're going to be making sure that piece of infrastructure is very strong and set up in the next coming year… Because the US dollar is still the reserve currency of major countries, so if you're talking about cross border, even for companies, sometimes they will hold a reserve in US dollars before they settle a local currency for the actual payment side. That's what our XUSD will be poised to do so as well, for them to quickly jump between currency pairs with a haven of [different] currencies that most of their accounting and trade settlements can be done on.
Tianwei Liu, StraitsX: It helps you stand out for sure for credibility. Once you are properly regulated, it's a ‘stamp of approval’. There's more trust. The whole financial space is built on trust. With decentralisation, we are fundamentally trying to solve the trust problem. We don't live in a pure virtual world. There are going to be humans involved and ultimately the way that this will bridge between Web2 and Web3 is by having trust anchors and having institutions that are trusted.
That will come very strongly from a regulation point of view and compliance. Once you are regulatory compliant and have a track record of doing that, you can help bring the mainstream audience into this field. That's where we have a competitive advantage being around for the longest time… It's not something that can be done overnight, but getting these licenses and compliance helps to give you a stamp of approval. It is not enough, but it's more helpful to at least help education move along...Having regulation compliance on a FinTech side, from a competitive advantage side of this, means that you can then serve a wider customer that traditionally would either be fearful or unable to reach.
Tianwei Liu, StraitsX: I think on the stablecoin side, it's something that I'm just really excited about. Singapore is on the roadmap to be one of the first in this whole region or even the world to regulate stablecoins. It puts Singapore and its global positioning in a perfect space to allow for success... I think there's a huge opportunity in being able to be a regulated stablecoin issuer in Singapore… This means there will be a lot more adoption [for the whole region] given that Singapore has now set the bar down. We have seen this happen before. When Singapore came out with new regulations, the rest of the region could then look into this. We are supposed to be the testing bed for a lot of things. Once they see that this thing works out… you will see a lot of the regulators around the world follow suit and also adopt the same innovations, which on a whole is great for the industry. I'm convinced that this is something that will be financially huge in the next five to 10 years' time. And we're moving in the right direction with Singapore taking the lead on this right now..
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