Blog – NUS FinTech Lab

The Dollar’s Decline

On April 2—“Liberation Day”—the Trump administration announced a series of tariffs aimed at boosting U.S. economic competitiveness. The move, however, simultaneously weakened the U.S. dollar, pushing it to a multi-year low. Nonetheless, the administration supported the decline as a necessary step to enhance the competitiveness of American exports and reduce trade deficits.

For over six decades, the Dollar has served as the world’s primary reserve currency and a safe haven for global investors, playing a central role in international foreign exchange reserves – 59% of all reserve currencies globally are in U.S. Dollars. But with these shifts, are we starting to witness the end for dollar supremacy? If so, what might this mean for the U.S. and global economy, and for the dynamics of the international monetary system?

Economics behind the Dollar’s depreciation

The Dollar depreciated by over 4.5% in April alone, marking one of its largest declines since 2009. Amid growing concerns that large-scale tariffs could slow U.S. economic growth and reduce expected returns on investment, investors’ confidence in the dollar waned, triggering them to sell off dollars in favor of alternative investments with higher returns.

But this is just one piece of the larger puzzle. In the first four months of 2025, the U.S. dollar has already slumped 8% against a basket of major currencies. This is a reflection of investor risk averseness from an uncertain climate in the U.S. upon the presidency of Donald Trump – not just tariffs, but also unpredictability in policies revolving around interest rates, Federal spending, and geopolitics. It directs capital outflow to currencies of economies with more optimistic growth outlook (for instance, Europe, after a sluggish year).

The phenomenon can also be interpreted as a natural market correction from a state of overvaluation. According to a proprietary model by Vanguard, the U.S. Dollar was estimated to be 12% overvalued relative to a basket of five other major currencies in late 2023. The model also indicated a 75% likelihood of the Dollar depreciating over the next decade. Over the past ten years, the Dollar has benefited from strong U.S. economic fundamentals, significant gains in per capita production driven by rising productivity, growing demand backed by expanding global trade, and overall bullish market sentiment. However, with rising recession risks and concerns on the White House’s ability to pay its national debt, the Dollar is expected to gradually realign with its intrinsic worth range evaluated on fundamental economic factors (i.e. fundamental value range) over the long term.

Implications on the U.S. economy and capital flow

A weaker Dollar makes U.S. exports more competitive and imports more expensive due to its reduced purchasing power. While this may support the White House’s aim of narrowing the trade deficit, it also risks importing inflation – especially given the stickiness of U.S. reliance on foreign goods, which cannot be easily or quickly substituted.

This effect extends beyond household goods and services. Commodities such as oil, gold, and industrial metals are priced in Dollars globally. When the Dollar weakens, commodities prices tend to go up as global demand increases – since they appear cheaper to foreign buyers in their own currencies. For instance, crude oil has a historic negative correlation with the U.S.D Index.

A weaker Dollar has not only allowed traditional safe-haven currencies such as the Japanese Yen, Euro, and Swiss Franc to appreciate, but has also made it an attractive funding currency for carry trades. It prompted substantial capital flows from low-yielding Dollar-denominated assets into higher-yielding emerging market currencies like the Brazilian Real, Indonesian Rupiah, Indian Rupee, and Turkish Lira, as well as their local bond markets.

Will the Dollar continue to be a reserve currency?

A reserve currency is one in which the majority of global trade and international transactions are conducted. The U.S. Dollar gained this status in 1944 following the Bretton Woods Agreement, largely due to America’s dominant role in World War II and its economic strength at the time. However, the Dollar ceased to be backed by gold in 1971, when President Nixon officially ended the Gold Standard.

Today, the Dollar faces growing skepticism as the world’s default payment currency. The current economic and geopolitical landscape has made it less attractive than in previous decades. Notably, during the sweeping sanctions imposed on Russia in 2022, many countries began to question the security of holding Dollar reserves—concerned that their assets could be frozen in the event of political disputes. This led to renewed interest in “de-dollarization” efforts, particularly among countries aiming to reduce dependence on the U.S.-centric financial system.

Several alternatives have been proposed as potential successors to the Dollar, but none are viable in the near term:

The Chinese Yuan and Russian Ruble are tightly controlled by state authorities, limiting global trust and market openness.
Cryptocurrencies face significant hurdles, including price volatility, regulatory uncertainty, and high energy consumption.
Gold and other precious metals, while reliable stores of value, are impractical as reserve currencies due to transport, storage, and liquidity constraints.

Even if viable alternatives existed, replacing an entrenched reserve currency is a long and complex process. As Philip Alberstat, Managing Director at DBD Investment Bank, aptly notes: displacing the Dollar would require sustained global coordination over many years, as the institutional infrastructure supporting it – clearing systems, trading networks, and financial relationships – has taken generations to build.

While cracks in the system have begun to show, the structural dominance of the Dollar suggests it will continue to serve as the global reserve currency in the foreseeable future.

Disclaimer: The views and opinions expressed in this article are solely those of the author and do not reflect the official policy or position of the National University of Singapore (NUS) or the NUS FinTech Lab.

Is the Bybit $1.5B Hack Crypto’s Biggest Wake-Up Call?

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Summary

On 21 February 2025, Bybit cryptocurrency exchange suffered a record-breaking $1.5 billion Ethereum theft through sophisticated social engineering and manipulation of multi-signature smart contract logic. The incident highlights critical security vulnerabilities, underscoring the need for advanced authentication solutions, enhanced employee training, regulatory oversight, and cautious investor practices.

On February 21, 2025, Bybit, a prominent cryptocurrency exchange, experienced a significant security breach, resulting in the theft of approximately $1.5 billion in digital assets, primarily Ethereum. This breach stands as the largest cryptocurrency heist to date, surpassing previous high-profile hacks and sending shockwaves throughout the crypto industry. The incident raises several important questions: How did it happen? Who was behind it? What does this mean for the future of crypto security?

How the Attack Unfolded

The breach occurred during a routine transfer from Bybit’s Ethereum cold wallet— a storage method where private keys are kept offline to enhance security—to a warm wallet. This process is used to move funds into more accessible wallets for operational use. Hackers exploited vulnerabilities in the transaction approval process by manipulating the Safe{Wallet} interface, a widely used multi-signature wallet solution that typically requires multiple approvals to authorize transactions and is generally considered highly secure. They injected malicious code into the web interface, deceiving wallet signers into authorizing transactions that secretly altered the smart contract logic, ultimately transferring control of the wallet to the attackers.

Subsequent investigations attributed the attack to the Lazarus Group, a North Korean cybercriminal organisation. The U.S. Federal Bureau of Investigation (FBI) confirmed North Korea’s involvement, referring to the malicious cyber activity as “TraderTraitor”. The Lazarus group was previously linked to the 2022 Ronin Network hack, which resulted in a $620 million loss in Ethereum. In 2024 alone, North Korean-affiliated groups were responsible for stealing approximately $1.34 billion across 47 incidents, a significant increase from the $660.5 million stolen in 20 incidents in 2023.

Implications for Crypto Regulation and Security Standards

The scale of the Bybit hack is likely to influence global cryptocurrency regulations and security practices:

Stricter Regulatory Oversight: Regulators worldwide may impose more stringent requirements on cryptocurrency exchanges, including mandatory security protocols and regular compliance audits, to protect investors and maintain market integrity.
Political Impact on Deregulation Efforts: The hack raises questions about the feasibility of crypto deregulation, particularly in the U.S., where current President Donald Trump has recently expressed support for digital assets. While deregulation aims to boost innovation and market expansion, large-scale hacks like this may force policymakers to reconsider the risks of lax oversight, potentially contradicting pro-deregulation efforts.
Reevaluation of Multi-Signature Authentication: Given the vulnerabilities exposed in this attack, there may be a push for more advanced authentication mechanisms beyond traditional multi-signature setups, incorporating technologies such as threshold signatures and hardware security modules.

Market Impact: Will Hacks Cause Crypto Devaluation?

Major hacks often contribute to sharp declines in cryptocurrency prices. Following the Bybit incident, Bitcoin’s value fell below $90,000, marking a 20% drop from its January peak, while Ethereum experienced a 24% decline. However, broader market trends, regulatory developments, and macroeconomic factors may also have influenced these price movements. The demand for blockchain technology, institutional investments, and ongoing innovation often mitigate long-term damage, preventing permanent devaluation of assets like Ethereum and Bitcoin.

Balancing Cybersecurity and Innovation

In response to cybersecurity risks, several key initiatives have already been implemented to enhance security without hindering innovation:

Collaborative Security Frameworks: Establishing industry-wide standards and sharing threat intelligence can help preempt and mitigate attacks. By promoting shared standards and real-time threat intelligence, platforms can better identify vulnerabilities and respond to emerging risks. For example, initiatives like the Crypto Information Sharing and Analysis Center (CISAC) allow members to exchange critical cybersecurity insights.
Incentivising Security Research: Encouraging independent security research through bug bounty programmes can lead to the early discovery of vulnerabilities. Platforms such as Immunefi facilitate these efforts by connecting ethical hackers with crypto projects.
Adaptive Regulatory Approaches: Regulations should be flexible enough to adapt to the rapidly evolving crypto landscape, ensuring they protect users without imposing undue constraints on technological progress. For example, the Monetary Authority of Singapore (MAS) has implemented the Technology Risk Management (TRM) Guidelines, which provide a comprehensive framework for financial institutions, to manage technology and cybersecurity risks. These guidelines require Digital Payment Token (DPT) service providers to establish secure technology infrastructure, develop business continuity and disaster recovery plans, and conduct regular vulnerability assessments.

The Bybit hack serves as a pivotal moment for the cryptocurrency industry, exposing critical security gaps that must be addressed to prevent future billion-dollar breaches. Crypto exchanges must adopt stronger authentication methods, enhance employee training against social engineering attacks, and regularly audit and update smart contracts. Additionally, fostering a collaborative industry-wide response through threat intelligence sharing is essential. Proactive measures and informed participation are vital to ensure the crypto industry’s resilience and sustained growth.

For investors, this incident serves as an important reminder of the substantial risks associated with cryptocurrency investments. They should remain vigilant against phishing attempts, use trusted platforms, diversify their holdings, and invest only what they can afford to lose.

Microsoft Outage: Rethinking Cybersecurity in Businesses and Banks

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Summary

The two Microsoft outages in July surprised the world, showing that even reliable software providers can face technical issues. These outages caused significant disruptions, rendering computers and servers inoperable. While such incidents on this scale may be rare, they still provide valuable lessons in cybersecurity resilience, highlighting the importance of ensuring system availability, diversifying IT suppliers, and conducting thorough testing in controlled environments. These insights can also be applied to sectors like banking in Singapore, helping to co-create secure digital finance frameworks for the future.

Introduction

Described by Elon Musk as the “biggest IT fail ever”, Microsoft’s outage on July 19, 2024 shocked the world and caused unimaginable disruptions. Computers and servers were brought to a halt, leading to the cancellation of as many as 4000 flights in the US alone, and affecting around 3700 doctors’ practices in the UK. Major financial institutions, supermarkets, transport services, among other organisations were unable to resume normal operations.

When even one of the largest IT vendors can suffer from system failures, this underscores the critical need for robust cybersecurity systems – no organisation is immune to disruptions in our increasingly digital world. How can companies ensure their systems are truly resilient? What specific lessons can the banking sector draw from these high-profile failures to better safeguard their operations?

What were the outages about?

The culprit of the July 19 outage was cybersecurity firm CrowdStrike. Its Falcon platform is integrated in Microsoft Windows to provide security protection by monitoring potential threats in real-time. There was a logic error in a sensor configuration update for Falcon, yet its Content Validator component responsible for verifying the integrity of rapid response content update was faulty and was therefore unable to detect this logic error. As a result, Falcon malfunctioned, leading to a crash of the Windows systems.

The outage affected 8.5 million Windows devices worldwide, with many of which being crucial to many operations and ultimately disrupting numerous industries. According to estimates from insurer Parametrix, the incident resulted in global financial losses of approximately USD 15 billion, with 123 Fortune 500 companies (excluding Microsoft) accounting for 5.4 billion of the total.

Less than two weeks later, Microsoft was hit by another outage. This time, it was due to a distributed denial of service (DDoS) cyberattack that has yet to be linked to a specific threat actor. A DDoS attack occurs when an unexpected usage spike floods the server with more requests than it can handle. Microsoft already had DDoS protection in place, but it was misconfigured and ended up amplifying the DDoS attack. As a result, users were not able to access various multiple Microsoft services for around 10 hours.

Redesigning cybersecurity systems

The Microsoft outages highlighted the vulnerabilities inherent in cybersecurity systems and the importance of innovating current cybersecurity practices to help organisations better prepare for large-scale systems failures.

Ensuring systems availability

Both incidents demonstrated the importance of systems availability. Organisations need to prioritise high availability in their systems, ensuring that they can maintain operations even in emergencies. This may involve implementing failover systems, redundant infrastructure, and back-up systems.

For instance, there were limited impacts from Microsoft’s outage on July 19 in China. That’s not only because of China’s aim to establish technological independence and reduce reliance on US-based IT services vendors in light of the US-initiated technology war against China. The nation’s early initiative to establish substitution plans for domestic hardware, operating systems and application software, also played a huge role in limiting the ripple impact of the outage.

Diversifying IT suppliers

We also learnt about the risks associated with depending heavily on a single IT vendor. While large vendors offer much more attractive pricing due to their economies of scale, and their industry status can foster significant customer trust, organisations must learn to balance this trust with an understanding of the inherent risks involved, for example, through opting for a diversification in IT suppliers.

A case in point is Yahoo. It relied heavily on Symantec for various security solutions before experiencing significant data breaches that impacted billions of user accounts in 2013 and 2014. After being acquired by Verizon in 2017, Yahoo systematically revamped its security practices and diversified its IT vendor portfolio, including Crowdstrike for advanced threat detection and Okta for access management.

That being said, enterprises should also strike a balance between relying on a single vendor and over-diversification, which can lead to highly complex systems that are hard to manage effectively.

Robust testing in controlled environments before launching to production

We also see the importance of testing and updating protocols in controlled environments. A lack of comprehensive testing, as was the case with CrowdStrike, can lead to unintended consequences and system failures. Organisations should prioritise thorough testing and gradual implementation to mitigate risks and ensure the stability of their cybersecurity systems.

For example, Apple has a Beta Software program where developers are recruited to test and provide feedback on its softwares like iOS, iPadOS and macOS. This enables Apple to address loopholes before officially launching any new software updates.

Cybersecurity insights for banking in Singapore

Recent disruptions in banking services, such as those experienced by Singapore’s DBS Bank and POSB, highlight the critical need for robust cybersecurity measures particularly in the financial sector. These incidents underscore the vulnerability of banking and payment services, emphasising the necessity for secure and reliable frameworks as cashless transactions become increasingly prevalent in our digital economy.

Zero trust security model

To safeguard sensitive financial data from both internal and external threats, adopting a zero trust security model could be helpful. This approach operates on the principle that no one is trusted by default, and access to data and systems is granted only after rigorous verification processes. DBS Bank and UOB are taking the lead and already transitioning to the zero trust security architecture. As other financial institutions follow suit, this collective effort will enhance the overall security framework of Singapore’s financial ecosystem.

Data management and compliance

As a central monetary regulatory body, the Monetary Authority of Singapore regularly assesses data governance and management frameworks of selected banks. Moving forward, it emphasised on the importance of establishing detailed data governance frameworks to hedge against the risks of leaking confidential data in case of unexpected threats like cybersecurity attacks and outages.

Advanced Threat Detection

Threat detection is vital for identifying cybersecurity loopholes, so that organisations could take precautionary actions rather than reactive, correctionary ones. Leveraging technologies like artificial intelligence and machine learning can significantly enhance the ability to detect and respond to threats, and subsequently integrate these advanced tools with existing fintech products to further bolster the security of banking systems. For instance, DBS Consumer Banking Group has been actively leveraging AI to send out 45 million personalised nudges to guide 5 million customers towards better investment and financial planning decisions monthly.

Conclusion

In an era where cyber threats are increasingly varied and frequent, a reactive approach is no longer sufficient. It is crucial for organisations to pivot towards a proactive stance that emphasises systems resilience through diversified IT vendor portfolios, rigorous testing protocols, and a commitment to continuous improvement. This imperative extends beyond the finance sector; all industries involving a digital element should embrace innovation and collaboration to safeguard their operations, enhance trust and confidence among stakeholders, and ultimately pave the way for a safer and more reliable digital future.

Is Your Money Safe? Synapse’s Collapse and the Future of Digital Banking

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Summary

Synapse’s 2024 bankruptcy disrupted millions of users due to financial mismanagement and poor reconciliation of FBO accounts. The collapse exposed risks in third-party banking services, including FDIC insurance limitations and regulatory shortcomings, emphasising the urgent need for stricter oversight, operational resilience, and responsible innovation in fintech.

What would you do if you woke up one morning to find your banking app inaccessible, your funds frozen, and your payments halted? This nightmare became a reality for millions in April 2024 when banking-as-a-service startup Synapse unexpectedly filed for bankruptcy.

Synapse played a crucial intermediary role, connecting fintech platforms with banks, enabling non-bank entities to offer banking services without obtaining a banking license. Its abrupt collapse left many end-users stranded without access to their funds, underscoring the risks of relying on third-party service providers in the digital banking sector. The situation was further complicated when a proposed US$9.7 million acquisition by TabaPay fell through, plunging Synapse and its stakeholders into uncertainty.

How Synapse Built Trust with Businesses and Customers
Before its collapse, Synapse tried to build trust with businesses and customers by partnering with FDIC-insured banks like Evolve Bank & Trust. The Federal Deposit Insurance Corporation (FDIC) is a U.S. government agency that insures deposits held in member banks, guaranteeing up to $250,000 per depositor in the event of a bank failure. By associating with FDIC-insured banks, Synapse aimed to provide an additional layer of security for customer deposits and minimise risks for end-users. Similarly, Singapore has a Deposit Insurance (DI) Scheme, administered by the Singapore Deposit Insurance Corporation (SDIC), which protects insured deposits held with a full bank or finance company, up to a maximum of S$100,000.

The company also raised US$33 million in a Series B round, backed by prominent investors like Andreessen Horowitz, which bolstered its credibility. Synapse offered a range of financial services through API integration, including payment processing, automated compliance tools, and card issuance. These services enabled businesses to quickly and efficiently build customised banking and payment solutions for their customers, attracting a wide range of clients. These factors allowed Synapse to establish itself as a reliable fintech player, despite underlying operational flaws that would eventually lead to its downfall.

Root Causes of Synapse’s Failure

Synapse’s downfall was rooted in severe operational mismanagement and financial discrepancies. The company’s model involved managing customer accounts across multiple FDIC-insured banks, resulting in significant challenges with reconciling funds.

A key component of this model was the use of “For Benefit Of” (FBO) accounts, which pooled funds from multiple customers into collective accounts held at partner banks. Although commonly used in the fintech industry, FBO accounts come with operational challenges, particularly the complexity of tracking individual customer balances accurately. Poor record-keeping in these accounts can lead to mismanagement of funds, increasing the risk of discrepancies and customer disputes.

In Synapse’s case, outdated reconciliation processes and the lack of real-time visibility into these pooled funds led to significant discrepancies. An estimated shortfall of up to US$95 million in customer deposits was discovered, largely due to the inability to verify end-user balances within these FBO accounts. This shortfall ultimately resulted in the freezing of millions of accounts. The resulting financial turmoil, which included disrupted operations, a loss of customer trust, and increased regulatory scrutiny, was too severe for the company to overcome. Synapse’s collapse highlighted the inherent risks in managing complex fund flows across multiple institutions without robust technological and operational infrastructure.

Immediate Effects on Customers and Businesses

The bankruptcy had immediate and devastating effects. Nearly 10 million end customers and around 100 fintech partners were affected as Synapse’s operations froze. Businesses reliant on Synapse’s banking services suddenly lost access to their funds, were unable to process payments, or connect their financial systems with partner banks, causing widespread disruption across the fintech ecosystem.

For consumers, this incident is a reminder of the importance of understanding where and how their financial assets are managed. It underscores the necessity for transparency in the fintech sector, urging customers to be more vigilant and informed about the institutions handling their funds.

For the fintech industry, Synapse’s collapse highlights the critical need to balance innovation with caution. As the sector continues to evolve, it must do so with a keen awareness of the regulatory requirements and the need for robust risk mitigation strategies. The future of fintech will depend on its ability to adapt to these challenges, ensuring that innovation is sustained safely and responsibly.

FDIC Coverage Limitations in Fintech Failures

The Synapse collapse exposed critical limitations in FDIC insurance coverage for fintech companies. While Synapse partnered with FDIC-insured banks, the insurance does not extend to non-bank entities like Synapse, which act as intermediaries between consumers and banks. As a result, many customers with funds in Synapse’s FBO accounts were left unprotected. Although some consumers might eventually recover funds through bankruptcy proceedings, the process can be lengthy, highlighting a gap in protection for customers of fintech platforms. This situation underscores the need for clearer regulations and consumer protections in the fintech industry, ensuring that customers do not face similar risks in the future.

Regulatory and Industry Implications

Following the fall of Synapse,the Federal Reserve and FDIC have emphasized the need for enhanced regulatory frameworks and tighter controls over fintech operations. There is a strong emphasis on robust risk management practices, which are central to their strategy to prevent similar financial disruptions in the future. Specifically, the FDIC has been advised against allowing fintechs to misleadingly claim deposit insurance coverage. As noted in the Consumer Federation of America’s report, “The FDIC should not permit any fintech to claim it has deposit insurance if funds are held in ‘for benefit of’ (FBO) accounts where ledgers cannot verify end-user balances at all times.” This push for stricter regulation highlights the urgency of protecting consumer funds and ensuring the stability of the digital financial services ecosystem.

Global Perspectives in Digital Banking: The Success of Standard Chartered’s nexus in Singapore

The failure of Synapse, caused by poor operational management, raises important questions about the need for proper regulation and stability in fintech. In contrast, Standard Chartered’s Nexus in Singapore shows how strong internal controls, coupled with strategic partnerships, can help avoid risks. Nexus allows consumer brands, digital platforms, and e-commerce companies to offer banking services directly to their customers. This BaaS model provides the infrastructure needed for companies to easily integrate financial services like deposits, loans, and payments into their platforms, while relying on Standard Chartered’s banking expertise and regulatory compliance.

Although Synapse also relied on a BaaS model, its downfall underscores the importance of not just partnerships, but also maintaining robust operational practices and stringent regulatory oversight. Nexus’s success highlights how combining strong internal controls with effective partnerships can offer valuable insights for both consumer-facing and infrastructure-focused fintech models.

The collapse of Synapse underscores a critical lesson for the fintech industry: innovation alone is not enough. Operational integrity and strict regulatory compliance are essential to prevent financial disruptions. Moving forward, the industry must focus on building resilient systems that ensure consumer protection and financial stability. The Synapse failure will likely prompt fintech companies and regulators to implement more stringent oversight and risk management practices, shaping a future where trust and stability are paramount. Ultimately, the success of fintech will depend on its ability to innovate responsibly while safeguarding the financial well-being of its users.

AI Frenzy: Are We in a Dot-Com Bubble Again?

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Summary

The recent AI surge has driven markets to new highs, with companies like NVIDIA leading the way. However, after AI stock prices dropped in July and August, many are questioning whether an AI bubble is forming. While this could be a temporary market reaction, the hype surrounding AI may resemble a bubble—though less severe than the Dot Com bubble. AI stocks appear overvalued, and the industry needs more revenue to sustain itself, with investors potentially overestimating the value of rapidly advancing semiconductor chips.

Read on to explore an analysis of the current situation, along with a comparison to the Dot-Com bubble at the turn of the millennium.

Introduction

The presence of Artificial Intelligence (AI) infiltrates numerous aspects of our lives, from code debugging for university students to smart medical diagnosis at hospitals. Riding on the AI wave, tech affiliated companies started witnessing exponential increases in their valuations and stock prices, driving markets to new heights. Notably, the Magnificent 7 (Alphabet, Amazon, Apple, Meta Platforms, Microsoft, NVIDIA and Tesla) recorded gains ranging from 50% to 240% in 2023 and accounted for over 60% of the S&P 500’s growth over 2024.

However, the prices of several AI stocks started falling in July and August, along with the broader stock market. Are these AI stocks steering the market to a bubble that will eventually bust, just like the Dot-Com bubble back in 2000?

A stock market bubble is when stock prices climb so rapidly that they far exceed the companies’ intrinsic value or earnings. Overly optimistic stock valuations, waves of bullish optimism and fear-of-missing-out (FOMO) sentiments among investors, and a disconnect between stock market growth and economic growth are some of the key features of bubbles.

Expansionary monetary policies like quantitative easing and low interest rates, changing economic and societal needs and technological innovations can all contribute to the formation of a bubble. When the bubble bursts, stock prices begin to drop, leading to panic selling and sometimes even a stock market crash.

This chart illustrates the typical progression of asset prices throughout a bubble, largely following the market bubble mechanism mentioned earlier. With NVIDIA and Microsoft stocks serving as proxies for AI stocks, the asset price trends appear to be in the boom-to-euphoria stage as of mid 2023.

AI boom may be a bubble

It has been almost two years since Chat GPT’s release and we have seen a huge deal of potential and benefits reaped from generative AI. Tech stock prices skyrocketed ever since – the poster child, AI chip supplier NVIDIA’s stock price soared from $16 USD per share on Chat GPT’s launch date to a stunning peak of $131 USD, reaching a record valuation of over $3 trillion.

Shortly after reaching its 2024 high, NVIDIA lost 30% of its valuation (a trillion dollars!), and its stock prices plunged by 20%. Similarly, the Magnificent 7’s stock prices started witnessing declines starting July 2024 in response to disappointing second-quarter business results, with Microsoft falling by 14%, Amazon by 17%, and Tesla by 23%. This raises a prominent concern that investments in AI entailed ballooning costs with only modest gains, far different from the fairytale of incredible profits that was promised.

David Cahn, a partner of Sequoia Capital, noted that the AI industry needed to generate $600 billion annual revenue to sustain itself. This figure was only at $200 billion in September 2023. With Open AI taking the lion’s share of revenue at $3.4B, the revenue gap between the firm and other players still looms large. AI companies would definitely need to deliver products with significant value to justify their valuations – not simply softwares with GPT plug-ins.

The rapid pace of technological advancements in the semiconductor industry means that older chips quickly lose their value as chip-makers like NVIDIA keep on producing better next-generation chips such as the B100. As a result, investors may be overestimating the value that current chips hold in the near future. We may have been overly bearish on the AI hardware industry, unless we have reached a ceiling in semiconductor technology, or the surge in demand for AI chips counteracts this depreciation effect.

AI bubble won’t be as bad as the Dot-Com bubble

These all seem to replicate the boom and bust of the Dot-Com era. During the honeymoon phase of the Dot-Com bubble, valuations of Internet-based companies like Pets.com skyrocketed, and the NASDAQ Composite Index grew from under 500 in 1995 to a peak of 5000 in 2000. When the Federal Reserve started raising interest rates to curb inflation in early 2000, it made borrowing more expensive and reduced investment capital. The bubble burst: investors started a panic sell-off of dot-com stocks, nearly all of NASDAQ’s gain was erased, and most of these stocks failed by 2001, with some of them like Pets.com and eToys.com declaring bankruptcy.

However over-valued the Magnificent Seven seem, their valuations are actually much lower than the valuations of Internet stocks during the Dot-com bubble’s peak. The forward price-to-earnings ratio (current share price divided by forecasted earnings per share) of the NASDAQ 100 was 60.1x in March 2000 but only 26.4x in November 2023. This is not to say that all AI firms have viable business plans – some startups, like Character.ai and Humane Inc., have raised substantial funds despite lacking a product. During the Dot-Com era, many companies that venture capitalists funded had shaky fundamentals, but they were less fortunate in that there weren’t well-established firms with a history of profit-making leading the charge in the market. With the Magnificent Seven acting as strong pillars of the AI market, the industry is at least underpinned by more solid fundamentals, suggesting that the current AI enthusiasm may not be as sentiment-driven as the Dot-Com hype.

Investors nowadays are also more cautious and well-informed about the downsides of our current technology, like hallucination (generating misleading results), security risks, and job losses, just to list a few. With more transparency and information flow, the investor base probably won’t be as sentiment-driven as those back in the Dot-Com era.

Conclusion

Even the AI hype may appear to be a bubble, though not as extreme as the Dot-Com bubble, black-swan events like economic and political risks may bring surprises. Following a disappointing US jobs report in August, many economists are warning of an increased likelihood of recession soon, with Goldman Sachs estimating a 12-month recession risk between 15% and 25%. This means tampered business sentiments, which could potentially slow investments in the AI sector. Also, heightened geopolitical tensions may resort to an AI-arms race or bans on certain AI products, adding much more uncertainty to the AI market as well.

As individual investors, the best strategy to navigate the ever-changing market is to stay cautious, be in touch with new tech trends and economic happenings, and avoid making overly risky investments driven by FOMO.

Note

The launch of DeepSeek, a Generative AI model developed at a fraction of the cost of Chat GPT and other Large Language Models, has sent stock prices of the Magnificent 7 plummeting at the end of January. It wiped off a record one-day loss of USD 593 billion of NVIDIA’s market value on January 27.

However, this was not an indication of the AI bubble bursting, but rather an immediate market reaction. In fact, the stock prices of NVIDIA have largely recovered in the following weeks, buoyed by better-than-expected earnings. Nonetheless, this DeepSeek event echoes the narrative from last August, that we may have been overly bullish on AI. This could potentially change the market’s perception of AI development being a costly endeavor — a belief that has driven massive inflows of investments into the sector.

The reality is that much of this investment may be based on inflated expectations. If AI can be developed at a fraction of the cost, the high valuations of stocks in this sector may not be sustainable. The market’s optimism leads to over valuations that, in the long run, may not hold up.

How to use AI responsibly

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Summary

Generative AI (GenAI) promises revolutionary impacts on finance, from automating loan approvals to personalized investment advice. However, ensuring its benefits extend to all users necessitates diverse data training. This blogpost explores GenAI’s potential and challenges like data diversity, illustrating initiatives like Singapore’s Project MindForge aimed at fostering responsible GenAI use.

The Promise of Generative AI in Finance

Imagine a future where robots manage your finances instead of people. This is the potential of Generative AI (GenAI) in the financial sector. GenAI refers to AI systems that can generate new content and solutions after learning from vast amounts of data, from making investment suggestions to evaluating loan applications.

However, there’s a significant hurdle: what if GenAI systems fail to serve a segment of society, simply because they haven’t been trained on diverse enough data? Consider a scenario where an AI system denies loan applications for small business owners in rural areas more frequently than those in urban centers, simply because it has been predominantly trained on data in the urban areas.

This challenge underscores the importance of data diversity in AI’s development and application. By “data diversity,” we mean using a broad range of data sources that represent different demographics, geographic locations, and economic backgrounds. Ensuring that GenAI systems are trained on diverse datasets is crucial to developing solutions that are fair and effective for all users, reflecting the diverse clientele they serve.

By addressing these concerns, we can unlock the full potential of GenAI to revolutionize financial services, making them more inclusive and accessible to everyone.

The Challenge of Data Diversity

The potential of GenAI in finance is immense. According to the McKinsey Global Institute, the banking industry stands to benefit significantly from GenAI, with projections suggesting an annual increase in value ranging from $200 billion to $340 billion. The use of GenAI spans various areas, from enhancing customer service to complex tasks like credit scoring and fraud detection. However, its application must be carefully considered, particularly in sensitive areas like loan approvals, to avoid biases and maintain fairness. This introduces the challenge of data diversity, a crucial factor in responsibly deploying GenAI technologies. Recognizing these challenges, forward-thinking initiatives have begun to emerge, aiming to address these very concerns.

Singapore’s Project MindForge: A Proactive Approach

Singapore has taken a proactive stance in managing the risks of GenAI. Led by Minister for Communications and Information, Josephine Teo, and introduced at the World Economic Forum, this initiative is a testament to the nation’s commitment to responsible GenAI use in finance. Project MindForge seeks to develop a comprehensive risk framework that addresses critical areas like accountability, governance, transparency, fairness, legality, ethics, and cybersecurity. Companies involved in Phase 1 include DBS Bank, OCBC Bank and United Overseas Bank Limited.

Real-world Applications in Finance

OCBC’s adoption of GenAI to enhance customer experience is a prime example of the technology’s vast potential. This goes beyond customer interactions, extending to areas such as automated loan approvals and tailored investment advice. An IMF paper warns of inherent risks in GenAl technology, including embedded bias, privacy concerns, outcome opaqueness, and lack of performance robustness. To gain public trust, financial institutions must emphasize user privacy, allowing customers to control their data sharing preferences. Moreover, the decision-making process in AI should involve significant human oversight to ensure ethical and responsible use of technology.

Another significant application within Singapore’s fintech sector is PolicyPal’s innovative use of AI in insurance. This startup is allowing personalise insurance coverage by helping individuals manage and optimize their insurance coverage. By employing AI, PolicyPal offers a more intuitive and personalized insurance experience, showcasing how technology can make complex financial services more accessible and user-friendly. This approach not only makes insurance more accessible and relevant to a diverse range of clients but also represents a significant leap from traditional, one-size-fits-all insurance models. PolicyPal’s success in utilizing GenAI showcases how such technology can transform a sector as intricate as insurance, making it more efficient, customer-centric, and inclusive.

Beyond its current applications, the potential of GenAI to revolutionize the financial sector extends to areas yet to be fully explored. One such area is the development of AI-driven financial advisors that cater specifically to the needs of senior citizens, offering simplified interfaces and tailored advice. This innovation could bridge the gap in financial literacy among older generations, making complex financial information more accessible and understandable.

Recent incidents, such as the 2022 attack on Revolut, where the hackers had access to the details of about 32,000 customers for a short duration, underscores the critical need for GenAI in enhancing cybersecurity measures. GenAI enables financial institutions to anticipate and mitigate vulnerabilities, thus ensuring a safer banking environment. By analyzing patterns and predicting threats, GenAI strengthens defenses against exploits, safeguarding financial transactions and enhancing consumer well-being.

Singapore Budget 2024: Fueling Innovation in Fintech and Startups

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Summary

Singapore’s Budget 2024, unveiled by Deputy Prime Minister Lawrence Wong, commits substantial investments to fintech growth, including S$2 billion for the Financial Sector Development Fund and S$3 billion for RIE2025. Key initiatives focus on talent development, startup support, and innovative grants, aiming to solidify Singapore’s position as a global fintech leader.

As Singapore strengthens its position as a global fintech hub, Budget 2024, unveiled by Deputy Prime Minister Lawrence Wong, lays out a visionary roadmap under the theme ‘Building Our Shared Future Together.’ This budget promises bold measures to boost innovation and support startups while implementing the strategic plans outlined in the Forward Singapore roadmap.

A Vision for Fintech Growth

At the core of the budget is a robust S$2 billion investment in the Financial Sector Development Fund, aimed at catalyzing growth and ensuring Singapore’s fintech ecosystem remains at the forefront of global financial innovation. This substantial allocation is poised to accelerate technological adoption, supporting fintech startups and established firms in navigating the complexities of digital transformation. With the global fintech market projected to reach $332.5 billion by 2028, this investment is timely and strategic.

Moreover, the commitment of S$3 billion to the Research, Innovation, and Enterprise 2025 (RIE2025) plan underscores the importance placed on research and development within the fintech space. This initiative is expected to fuel advancements across national priorities, including sustainability and the digital economy, providing a solid foundation for fintech innovation to flourish.

Empowering Talent and Innovation

A significant highlight of Budget 2024 is the focus on talent development, notably through the expansion of the SkillsFuture initiative. This move is instrumental in upskilling the workforce to meet the fintech industry’s evolving demands. By facilitating career advancements and transitions, the initiative ensures that professionals are equipped with the requisite digital competencies, thereby fostering a dynamic and resilient fintech ecosystem.

Startup Support: Enhanced Financing and the PACT Programme

For fintech startups looking to leverage government support for growth, the budget introduces several grants and financial incentives, including the enhanced Enterprise Financing Scheme (EFS). The EFS has been updated to better support operational cash flow needs, with the maximum loan quantum raised to S$500,000. This adjustment is particularly beneficial for fintech companies aiming to expand their market reach or enhance product development. However, it is important for startups to ensure they meet the criteria for SMEs to qualify for this support.

Additionally, the enhancement of the PACT Programme for SMEs and Startups is a strategic move designed to directly confront and mitigate the hurdles small and medium enterprises (SMEs) and startups face in today’s competitive marketplace. This segment of the economy often struggles to access the same opportunities and resources as larger corporations, which can stifle innovation and growth. By fostering partnerships between large corporations and smaller firms, the PACT Programme creates a collaborative environment where innovation can thrive, ensuring that growth is not just a possibility but a tangible outcome.

Challenges and Opportunities Ahead

While the budget lays a promising groundwork for the fintech sector, the true test lies in its execution. The effectiveness of these initiatives in driving innovation and growth within the fintech ecosystem will depend on their accessibility and the agility of startups and established firms in adapting to the evolving landscape.

Singapore Budget 2024 represents a strategic pivot towards a more robust and innovative fintech ecosystem. The emphasis on skills development, coupled with financial support for startups, creates a conducive environment for fintech innovations to flourish. However, navigating the competitive and regulatory terrain will require foresight and adaptability from fintech firms.

As someone closely watching the fintech space, I believe Budget 2024 presents a unique opportunity for startups to redefine the financial landscape of Singapore. The government’s commitment to fostering a robust digital economy is commendable. However, the success of these initiatives will hinge on their execution and the sector’s ability to adapt to new technologies and regulations. The future for fintech startups in Singapore looks bright with the unveiling of Budget 2024. The government’s strategic support sets the stage for these businesses to drive innovation and contribute significantly to Singapore’s economy.

Navigating the IPO landscape: Insights into Southeast Asia trends and Singapore’s tech appeal

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Summary

Singapore, renowned for its business-friendly environment, faces an enigma: its IPO market trails behind global and regional rivals despite its status as a premier business hub. This article delves into the reasons for leading local startups like Grab and Sea Limited to choose foreign exchanges over the SGX, contrasts SGX with other Southeast Asian stock markets, and evaluates solutions to reinvigorate Singapore’s IPO landscape.

Ever since Singtel’s listing in 1993, the Singapore Exchange (SGX) had enjoyed the best market vibrancy and the highest trading volumes in Southeast Asia for 2 decades. Things went downhill after the infamous Penny Stock Crash in 2013 whereby the three penny stocks Blumont, Asiasons and LionGold suffered a colonial capitalisation loss in just a few days. Liquidity dried up, and the SGX became an “incredibly shrinking” market, as described by Bloomberg.

Despite Singapore’s stable political environment and favourable business atmosphere, SGX hasn’t attracted as many companies for listing as might be expected. In 2024 thus far, only one company has been listed on SGX: Singapore Institute of Advanced Medicine Holdings, a cancer-treatment provider. In 2023, SGX only saw six IPO deals, a decline from 11 deals in 2019. Surprisingly, even prominent domestic tech unicorns like Sea Limited, Grab and Razer have chosen to list on NYSE, NASDAQ and HKEX instead of SGX.

Here comes the million dollar question for Singapore: Is it attractive enough to attract tech companies for listing, compared to its Southeast Asian neighbours? How can Singapore create a more dynamic and hospitable market for these innovators?

What is an IPO?

IPO, or an Initial Public Offering (IPO), is a process whereby a privately-owned company sells shares of its stock for the first time to the public by listing them on a stock exchange. Through an IPO, the company can tap into a larger pool of capital to fund ambitious growth and expansion plans.

Is SGX still attractive for tech firms?

Many of these companies opted to list on exchanges outside Singapore to gain greater exposure to critical target markets as part of their expansion strategies, tap into a more extensive and varied investor base, or enhance liquidity and status.

US capital markets, in particular, are known to be more sophisticated and liquid with higher transaction volumes, therefore more supportive of tech start-ups’ listings than the low liquidity and low valuation stock market in Singapore. Additionally, SGX investors tend to be more risk averse, due to the typical Singaporean culture of seeking stability and the lack of proper investment education. Coupled with the fact that tech investments are inherently riskier, tech firms may find a narrower investor base in Singapore compared to other nations.

The diversity of industries among the companies listed on SGX is quite limited too, primarily consisting of asset-heavy companies. Notably, there is only 1 small video game art studio, Winking Studio, listed. The absence of listed companies in the Internet, software and communications sector may render SGX less attractive to tech and AI companies, given “companies prefer to list on a market with investors that know the firms and industry well to better support their growth strategies.” (Tay Hwee Ling, disruptive events advisory leader for Deloitte South-east Asia and Singapore)

An IPO at a historically well-established exchange is also often perceived as an accomplishment and success milestone. For instance, regarding Grab’s listing on the NYSE, chief executive of Vertex Holdings (Grab’s first institutional investor) Mr Chua Kee Lock noted that the move sends an important signal to investors and confirms Southeast Asia’s potential as a viable and attractive market capable of supporting global-scale winners.

IPO Scene in Southeast Asia

A 2024 Deloitte report suggests that nearby countries like Indonesia, Malaysia and Thailand experienced a more robust IPO landscape compared to Singapore. This phenomenon is particularly interesting, as it once again challenges the intuitive correlation between IPO deal volume and conduciveness of the business and political environment.

It is worth noting that these countries are developing countries currently experiencing transformative stages of economic growth and development. Coupled with the fact that they are also larger than Singapore, both in terms of population and land area, it is natural for larger scale business activities to take place over there. With a staggering majority of listed companies in Southeast Asia being local, these factors offer an explanation to the recent high listing figures in neighbouring bourses.

Also, the majority of the investors for the Southeast Asian stock market are locals. For developing countries, there has been a consistent increase in financial literacy as well as prominent technological advancements that make investments more accessible, thereby contributing to an expanding local investor base. In contrast, these metrics have remained relatively stable for Singapore.

The energy and consumer industries are highlights of the region’s listing activities. For example, the IPOs in Indonesia were led by listings from the renewable energy and metals and minerals sector, with five out of ten largest IPO deals in 2023 from this area. With growth in its energy and resources industry and the government’s determination to position Indonesia as a global hub in the electric vehicles supply chain, we can anticipate more green energy technology related IPO deals to come soon. Thailand and Malaysia similarly have strong IPO deals in the consumer sector, thanks to their growing affluent middle class.

How can SGX do better?

Efforts have been made so far to improve SGX’s appeal. This includes investments by Government-backed Anchor Fund @ 65 and Growth IPO Fund in multiple companies since 2022 and their close collaboration with portfolio firms to prepare these partner companies for IPO. It complements the Monetary Authority of Singapore’s (MAS) Grant for Equity Market Singapore (GEMS) scheme, which aims to help defray listing costs and increase research coverage of SGX-listed stocks. To broaden market access, there has also been ongoing collaboration with Thailand’s stock exchange on depository receipt listings.

Moving forward, additional incentives can be considered. For instance, Mr Masu Menon, OCBC Bank’s managing director of investment strategy, proposed allowing sovereign money and pension, like funds from the Central Provident Fund (CPF), to invest in the stock market. This move could boost investors’ confidence and enhance SGX’s liquidity. However, Mr Robson Lee, a partner for Kennedys Legal Solutions, cautioned that while the solution might provide a short-term boost, it might not be a sustainable solution for revitalising the local stock market. He pointed out that the CPF primarily serves as a savings plan for crucial medical and retirement needs, and corporate failures could adversely affect numerous CPF investors.

Conclusion

The journey to reviving Singapore’s previous IPO glory back in the 1990s is definitely an arduous yet crucial task to be tackled together by the government, financial institutions, venture capitals and promising entrepreneurs. As Singapore embarks on this voyage, continuous dialogue, adaptive policies, and a shared vision will be essential in overcoming challenges and seizing new opportunities in the evolving financial ecosystem. Together, we can not only reclaim past successes but also propel Singapore to new heights on the global IPO stage!

Data Privacy in 2024: Balancing Innovation and Personal Security

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Summary

Discover how Singapore is combating the rise of deepfakes and enhancing digital trust through rigorous verification processes and innovative AI technologies. This article explores the balance between privacy and innovation, highlighting key initiatives and global perspectives on safeguarding our digital future.

Imagine you’re seeking online financial advice and you’re greeted by what appears to be your bank’s virtual assistant, offering personalized investment opportunities. With the rise of deepfakes, you would likely be concerned about the authenticity of such interactions. Recognizing these challenges, Singapore has taken proactive steps to strengthen the trustworthiness of its digital landscape.

Amidst these concerns, digital platforms in Singapore, including the widely used Singpass, use rigorous verification processes. These efforts, bolstered by the strategic guidance of the National AI Strategy (NAIS) 2.0, aim to meticulously authenticate digital entities and effectively shield users from the potential deceits of advanced scams. While these measures underscore a commitment to safeguarding personal security in the digital domain, it also poses a question: Are these stringent verification processes a net benefit, enhancing user trust and security, or do they risk complicating user experiences, potentially breeding frustration over their complexity?

The emergence of deepfakes, highlighted by the recent incident involving a video of Prime Minister Lee ‘promoting’ Crypto investment, poses a new set of challenges. These AI-generated forgeries are not just a threat to individual privacy, but also undermine our trust in digital content. The potential for misuse of deepfakes in spreading misinformation and violating personal privacy makes it imperative for us to develop countermeasures. Professor Jungpil Hahn, director of NUS Fintech Lab, says that “a two-pronged approach must be taken by combining technical and regulatory measures” in regards to deepfake videos.

In Singapore, companies are solving data privacy issues while balancing AI tech innovation. A notable example is Silent Eight, a Singapore-based startup specializing in AI-driven solutions for anti-money laundering (AML). Silent Eight’s technology demonstrates a harmonious balance between advanced AI capabilities and adherence to global data protection regulations. By utilizing sophisticated algorithms, Silent Eight scrutinizes and identifies potential threats in financial transactions, significantly enhancing AML efforts. Their success story shows Singapore’s fintech industry’s commitment to maintaining the highest standards of data privacy while embracing the transformative power of AI. Additionally, Singapore is proactively addressing these challenges by establishing the Centre for Advanced Technologies in Online Safety (CATOS). This initiative aims to enhance Singapore’s capabilities in detecting deepfakes and combating online misinformation.

Navigating legislative challenges across the globe is a journey filled with complexities. The U.S.’s California Consumer Privacy Act (CCPA) empowers individuals by allowing greater control over their personal data. This law enables people to understand what personal data is collected, request data deletion, and opt-out of its sale. Such measures are crucial steps in addressing the concerns of privacy in the age of AI-driven decision-making. A comprehensive global AI governance strategy requires a deep understanding of these diverse perspectives and an adaptable approach that can cater to the specific needs and values of different societies.

Amidst these challenges, the growth of privacy-enhancing technologies (PETs) offers a glimmer of hope. Techniques like federated learning and differential privacy represent a promising path to harnessing AI’s benefits while protecting privacy. The rise of PETs signals a shift towards more privacy-conscious AI development. I believe that PETs are crucial for building a future where technology and privacy can coexist.

As we navigate through 2024, the balance between AI innovation and data privacy is a critical issue that requires a multi-faceted approach. As Simon Chesterman, NUS Law Vice Provost (Educational Innovation), mentioned, ‘If synthetic content ends up flooding the Internet, the consequence may not be that people believe the lies, but that they cease to believe anything at all.’ This highlights the risks synthetic content poses, from spreading misinformation to eroding public trust. Singapore’s approach, guided by forward-thinking regulations and collaboration between policy makers, regulators, fintech firms, and academia, serves as a model for fostering an environment where innovation and privacy thrive together.

In our digital era, prioritizing privacy-friendly services and adopting practices like multi-factor authentication are essential in safeguarding our digital identity without compromising privacy. Additionally, choosing privacy-friendly services sends a clear message about the importance of privacy standards, encouraging more platforms to adopt these practices. Ultimately, our actions today determine the privacy landscape of tomorrow. Embracing privacy-enhancing technologies and advocating for services that respect user privacy are essential in creating a digital future that upholds individual rights and fosters trust.

Harmonising with NFTs: Music’s Web3 Future?

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Summary

Ever wonder how our newest Web3 technologies could value-add to, or even transform, the music industry? Read on to discover how non-fungible tokens (NFTs) and blockchain technology could help reinforce music copyrights, enhance fan reward schemes, and improve identification techniques to reduce concert ticket scalping.

Have you ever pondered about the difference between Taylor Swift’s 2013 release of the 1989 album, and 1989 (Taylor’s version) that was out ten years later? Her project to re-record her older albums dated back in 2021, when she switched labels after her 13-year contract with Big Machine Records expired in 2018. However, the Big Machine contract, like numerous other artiste arrangements, proclaimed the label’s ownership over the recordings of her first six albums. This meant Swift had limited agency over the rights and revenue streams from her own music, and re-recording her older albums after leaving could help her claim full ownership over these copyrights.

Unfortunately, some passionate musicians enter the scene without being fully aware of the legal and financial complications in the industry. Or even if they are, the power dynamics between labels and artists meant that most contracts are in favour of record companies and music agents. This makes them vulnerable to exploitations by unfavourable contract terms, especially when it comes to copyrights.

Apart from copyright issues, concert ticket scalping has also stirred worry from fans for years – just look at the headlines on Carousell scams for Taylor’s Eras Tour tickets recently! Can our newest Web3 technologies, blockchain and NFTs, help improve these luring problems in the music industry?

NFTs in Music Copyrights

Non-fungible tokens, or NFTs, are unique, non-replicable digital assets that represent proofs of ownership over items that are mostly scarce, rare, and transferable, like digital art, music, video-game and metaverse collectibles, and even memes. These tokens are typically built on blockchain platforms – decentralised digital ledger systems for recording transactions across computer networks – like Ethereum and Flow.

Music copyrights generate royalties based on how often a song was played on various platforms or used for other productions. Under a 70/30 revenue split, 70% of this revenue is distributed to rights holders like publishers, songwriters, artists and record labels, and 30% to Spotify.

Under a traditional recording contract, the label gives artists cash advances to record their albums, but in return claims part of their music’s copyrights to take a share of royalty revenues. How much of that 70% of Spotify streaming revenue artists could get depends on how big of the pie their labels take – on average, artists could only earn $0.004 per Spotify stream, limiting their autonomy over their own music.

With NFT innovations, the artist previously receiving $4000 with a million Spotify streams ($0.004 x 1 million) could earn the same amount if there were 100 purchases for his music NFT priced at $40! Musicians retain ownership of the music copyright, which means they could fully decide where their music is and how their music is listened to. All they have to give up is a share of royalties, which is fractionalized as NFT for holders to receive regular payouts proportional to their share of rights to their crypto wallets whenever the song is streamed or used. This way, artists could tap into fan funding through sales of NFT copyrights without the need to compromise on their music ownership and withstand unfavaourable royalty revenue splits with record labels. It is also much less resource-intensive and time-consuming than re-recording music works, yet achieving the same goal of safeguarding artists’ copyrights.

Moreover, these music copyright NFTs are easily transferable, enabling collectors to trade them on company websites or NFT marketplaces like Opensea. This adds liquidity to the music NFT market to create a more dynamic ecosystem for music distribution and ownership.

Companies like Royal and Anotherblock have emerged, tokenizing royalties derived from the streaming by songs’ master recordings. Collaborating with artists like The Weeknd, R3hab, The Chainsmokers and Rihanna, these platforms not only facilitate closer connections between musicians and fans, but also help democratise music by shifting music ownership from large companies to individual artists.

NFT Fan Rewards & Concert Tickets

What’s even better about NFTs is their malleability to fit other products launched by artists, like exclusive merchandise and virtual experiences, for fans to own, use and trade. This application could come in handy for artist teams to craft innovative fan rewards and engagement campaigns to help attract new fans and enhance die hard fans’ loyalty. With NFT token gating, which grants access to specific content for owners of particular NFTs, these rewards can also be made exclusive to those who are active in NFT royalty campaigns, creating a circular ecosystem between both NFT applications.

NFT concert tickets offer something more extraordinary than being a creative gimmick – they could even help greatly reduce scalping and fraud in ticket sales! Even if scalpers make “copycat” tickets with the same names and images, it’s impossible for them to fabricate the unique token verified backend on blockchain. With the transparency of blockchain records, one can just check the provenance of the attached NFT token to verify the legitimacy of the concert tickets before making a purchase in secondary markets. Even Coachella has levelled up its game to launch NFT-backed lifetime passes!

No Perfect Solution

We have witnessed the global hype surrounding NFTs, but scepticism also looms large. Copyright laws specific to NFTs and the metaverse space are not well-defined, making legal loopholes prominent – particularly threats of misuse and copyright infringement of NFT owners’ intellectual property. This requires collaborative efforts from regulatory bodies to devise a coherent set of legal guidelines in the coming years.

Scams are prominent in the NFT world too, but security measures for NFTs are still under development. Doing thorough research and verifying the authenticity of projects before investing may help, but it will inevitably jeopardise support for NFTs and undermine fan campaigns. With the prominent development of machine learning and artificial intelligence, we could foresee AI-powered security detecting and monitoring tools being helpful in filling these security gaps.

While it may not be the most opportune time for artists to implement NFT-powered schemes right now, its underlying blockchain technology has the potential to create impact at a larger scale. There is surely much potential, albeit challenges, in Web3 technologies to add value to the music industry in the near future.

References Links:

https://theridge.sg/2023/12/19/swiftonomics-the-economics-behind-the-eras-tour/

https://www.straitstimes.com/singapore/at-least-960-in-singapore-lost-over-538k-in-10-weeks-to-taylor-swift-concert-ticket-scams

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4640796

https://michigan.law.umich.edu/news/5qs-perzanowski-explores-issues-digital-ownership-and-failed-potential-blockchain

https://cointelegraph.com/learn/a-beginners-guide-on-the-legal-risks-and-issues-around-nfts