Singapore: Can Cryptographic Tokens Be Used To Secure Your Next Loan?


The secured loan market in Singapore was worth roughly US$420 billion in 2017 – with loans primarily backed by traditional assets such as property, inventory, or gold. In 2018, however, the global cryptographic token market peaked at a total market capitalization of US$832 billion on 7 January 2018, and is presently hovering at around US$236 billion. Meanwhile, JP Morgan published a 70-page "Bitcoin bible" asserting that "cryptocurrencies are here to stay" on 8 February 2018. Even the Monetary Authority of Singapore (the MAS) is exploring the implications of "tokenizing" the SGD using distributed ledger technology.

As a result, both lenders and cryptographic token holders may want to explore ways to make better use of such coins or tokens (generally referred to as "tokens" in this article) to achieve their business objectives. Given that security can be taken over almost anything that is deemed sufficiently valuable – where then, does Bitcoin (or any one of the 1597 other tokens presently available) stand?

Are these tokens a form of up-and-coming asset class, ripe to be used as security? What are the possible challenges? Should secured parties consider accepting tokens as security for loans?

The idea of using tokens as an asset for security is still in its infancy, and there is a dearth of precedent or legislation surrounding such use. This article primarily examines the nature of tokens and explores the issues to be addressed when evaluating cryptographic tokens as an asset for security.

The applicable law depends on where the asset is situated

Available forms of security interests vary by jurisdiction. Thus, the first hurdle to determining whether security can be taken over coins is to understand where the asset is "located" - given that the location of the asset will determine the applicable law and the type of security interest which can be taken over the asset.

While this may be a non-issue when dealing with immovable assets such as land, the answer is not as clear when it comes to tokens, which are electronic in nature and would be considered intangibles. Even though the tokens may be seemingly "stored" in a physical location, such as a hardware wallet (a storage device for certain types of tokens), they are actually encoded (stored) in the blockchain. This means that every transaction is recorded in a public ledger that is held and independently validated (corroborated) by each participating node (a connected computer) in the blockchain network. This makes it difficult to site the asset since it is both "here" and "everywhere".

Where a token can be easily traced to a particular tangible object, it may be easier to argue that the location of that object is where the currency is located. For example, in the case where tokens are stored in a literal token, such as a Casascius Coin (a physical coin that can be used to store bitcoin), or a hardware wallet like the Nano Ledger S or Trezor wallet, it is easier to argue that the asset should be deemed as being located with that physical object in which it is stored. In India, for example, it has been suggested that for taxation purposes the location of an intangible asset can be linked with such tangible property with which it is most closely connected, such as an operating server.

In the absence of a literal token or a physical hardware wallet, one could argue that the location of the asset should be the physical location of the server where the wallet data file is stored.

The above being said, in the absence of case law, legal precedent or legislation, a definitive pronouncement cannot be made.

Form of security

Security is commonly given under financing or other transactions to protect the secured party's interests in the event of a default or other specified trigger. Generally, the nature of the asset and the law of the jurisdiction where the asset is situated would determine the type of security which can be taken over an asset. In a case where Singapore law may apply, traditional common law forms of security interests such as the assignment, mortgage, charge, and pledge may be considered. Each of these security interests functions differently, involves different legal formalities and creates different legal rights and obligations. A brief overview of the types of security is as follows:



An assignment involves a transfer of a one's rights and obligations to another party through a written agreement. Assignments can be granted of over choses in action, and consequently, the right of enforce payment of a debt.

A mortgage is a transfer of one's ownership interest in an asset by way of security upon the express or implied condition that ownership will be re-transferred to the debtor on discharge of his obligation. Since it does not require delivery of possession, both tangible and intangible assets may be mortgaged.



A charge is an encumbrance on an asset that gives the chargee a right of appropriation. A charge may be fixed or floating, depending on the degree of control the debtor has over the asset and charges can typically be created over any form of asset.

A pledge is the actual or constructive delivery of possession of the asset to the creditor by way of security. Since pledges depend on possession, only assets reducible to possession may be pledged, such as goods.

Below we discuss a few ways to look at tokens as an asset class, in order to decide the form of security which should be applicable to it.

a. Tokens as securities

In July 2017, the US Securities and Exchange Commission (the US SEC) released a report which highlighted that tokens can be subject to the full scope of US securities regulation. It has also been suggested that pure investment tokens be considered securities under EU securities regulation. On 11 December 2017, the chairman of the US SEC released a statement stating that whether a token is considered securities depends on the facts. In particular, he highlighted that where the promoters of a token offering (i) emphasize the secondary market trading potential of these tokens or the potential for increase in value or otherwise (ii) profit from the tokens based on the efforts of others, these would be considered hallmarks of securities, and presumably, that token would be considered securities.

While it is possible that pure equity tokens qualify as securities under Section 2 of the Securities and Futures Act of Singapore (Chapter 289, 2006 Rev Ed) (the SFA), where securities is defined as, among others:

debentures, stocks or shares issued or proposed to be issued by a corporation or body unincorporate; [or]

any right, option or derivative in respect of any such debentures, stocks or shares",

as it currently stands, such tokens would not be considered "book-entry securities" to which the regime for taking security over book-entry securities under the SFA would apply.

b. Tokens as Currency 

The biggest cryptocurrency, Bitcoin, broadly regarded as the gold standard of the cryptocurrency market, was initially sought to be used as an alternative to fiat currency so as to decentralise currency from within the control of traditional banks. In fact, Singapore's first cashless café recently opened up its doors several months ago, accepting among other forms of cashless payment, Bitcoin or its own cryptocurrency token, the Ducatus coin. However, unlike traditional fiat currency, cryptocurrency tokens may only be stored in hardware wallets or online coin wallets.

c.  Tokens as goods 

In the case where tokens are embodied in physical form, such as a Casascius Coin, that physical embodiment can be seen as a valuable object capable of being delivered as security to the creditor. However, unlike traditional valuables, the value of such a physical embodiment is rarely intrinsic. Its value as an asset only exists insofar as it functions as a store of value. Value (in the form of Bitcoins) stored in these physical coins can be accessed using private keys, but once the Bitcoins are redeemed, the physical coin loses its digital worth. 

In the case of a hardware wallet such as the Nano Ledger S, the physical possession of the wallet is required in order to realize the value in it. The value in the wallet can be accessed by using private keys and various other mechanisms which are in-built into a particular type of wallet, but again however, the physical hardware wallet is only as valuable as the value of the tokens stored in it. 

Possible forms of security over tokens

To the extent that Singapore law applies, from a conceptual point of view (and this may be oversimplifying the issue), it would appear that an assignment, mortgage or charge could all be applicable to tokens categorised as securities or currency (when stored in online wallets). To the extent that physical cryptographic token wallets can be considered goods or personal chattels, it would be possible for these to be pledged as security. 

In reality, however, the answer may be more complicated.

Namely – what are the steps needed to create the security and the appropriate level of control to be given to the secured party? Very much of this depends on how each token works and how its value can be accessed. 

How can we retain some protection for the asset owner against misappropriation by the secured party since, in certain instances where the token is stored online, anyone with the requisite password(s) or private key(s) can access and deal with the tokens, and essentially "own" the tokens?  Furthermore, unlike bank accounts or securities accounts where transfer restrictions may be set in place, most, if not all of the storage mediums for tokens do not contemplate such controls by third party intermediaries. This is perhaps where parties can consider having more than 1 private key (perhaps 2 or 3 which are required to be used together), held by escrow agents, to potentially reduce the risk posed by rogue intermediaries with private keys.

Also, how can one prevent a security provider from restoring the contents of a pledged hardware wallet to a new device, thereby siphoning off assets which are supposed to be secured?

Given their plethora of functions, it would be necessary to delve into the exact features of any particular token before one is able to determine what kind of asset it is, whether the traditional forms of security are suitable or applicable to it, and whether other mechanisms (such as escrows, which do not ring-fence the asset in insolvency) would be more appropriate for a beneficiary to access the value of a token when a trigger event occurs.

Other challenges & Risks

One of the central risk factors for tokens is price volatility, which would be a key concern to the extent that security is given to a beneficiary primarily for the latter to realize the value of the secured asset upon occurrence of a trigger event. 

Since cryptocurrencies are not backed by any country's central bank, the value of tokens which purport to be currency tokens are derived purely from the market forces of demand and supply, and with that, cryptocurrency values are susceptible to large fluctuations (many have likened cryptocurrencies to Dutch Tulips). This is readily apparent from looking at the fluctuations in market capitalization. In March 2017, the entire market capitalization of cryptographic tokens worldwide was just shy of US$24 billion. By January 2018, it had peaked at US$832 billion, before presently hovering at US$236 billion, just 6 months removed from its peak.  The value of other forms of tokens such as utility tokens would be even more difficult to ascertain unless traded on a cryptographic token exchange or unless they have otherwise evolved into widespread acceptance. The same argument for the value of such tokens being derived purely from market forces of demand and supply would apply even more so.

Furthermore, wallet security and the potential for market manipulation and scams also pose concerns. In June 2017, the price of Ethereum crashed from US$319 to 10 cents within seconds following a multi-million sell order on the GDAX cryptographic token exchange. While prices eventually recovered, the vulnerability of cryptographic tokens to such market manipulation is definitely a factor for consideration.

Moreover, market manipulation is not the only external factor that potential token-based security holders need to watch out for. Given how "young" (and volatile) cryptographic tokens are, any news regarding its regulation has the tendency to alarm pundits, which often results in significant drops in prices, especially when stop-loss mechanisms result in a cascading effect. In early January 2018, the South Korean Justice Minister's announcement regarding the government's plans to ban cryptocurrency trading resulted in a steep sell off, causing both Bitcoin and Ethereum to fall by 14%. Likewise, news of potential cryptocurrency bans in India and China have elicited similarly large fluctuations.

Other potential issues include:

  1. hacking incidents, such as the hacking attack on the DAO (Decentralized Autonomous Organization; an investor-directed venture capital fund based on the Ethereum blockchain), where US$50 million was stolen; and
  2. liquidity concerns (at its peak in December 2017, the average time to make a bitcoin transaction was 1,188 minutes, which is an eternity given the price volatility).

The above being said, cryptographic tokens do possess a tremendous potential for growth; the 154,300% surge in the value of Ethereum between Dec 2015 and Jan 2018 (US$ 0.90 to US$ 1389) is testament to that.


With cryptographic tokens and blockchain surging in popularity and with an increasing number of new products and tokens being created for different uses, it is likely to only get harder to dismiss cryptographic tokens as pure speculation. 

However, even as cryptographic tokens become less and less foreign to the business community, and token holders look to further unlock the potential of the cryptographic tokens they hold, there are still challenges which need to be overcome to use tokens as security assets. The individual nature of each token and the underlying technology behind it could be key to its suitability and the measures required to utilise it as security assets, and lawyers would have to work hand in hand with technology experts in order to realise their potential.

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The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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