Before you start trading Digital Payment Tokens (DPTs), it’s important to understand the risks involved. The Monetary Authority of Singapore (MAS) requires Digital Payment Token Service Providers (DPTSPs) to assess whether retail customers like yourself understand these risks.To help you get ready for the assessment, we’ve outlined the main risk areas below. For more details, you can also review:
- Coinhako’s Safeguarding and Risk Disclosure Statement;
- MAS’ Consumer Protection Guidelines; and
- Risks of Digital Tokens by MoneySense.
Price Volatility Risk
The prices of digital payment tokens are highly volatile and can fluctuate sharply within short periods. These price movements are influenced by various factors, including market sentiment, news events, supply and demand dynamics, and even large individual trades or cyber incidents. It is therefore hard to predict the price movements and market liquidity for digital payment tokens.
While this volatility can present opportunities for profit, it also means there is a high risk of substantial and rapid losses — including the possibility of losing your entire investment. As such, you should only invest amounts you are willing and able to lose and consider possibly spreading your investments to help manage risk.
Liquidity Risk
Liquidity refers to how easily and quickly you can buy or sell a digital payment token at a fair market price. In the digital payment token market, liquidity can be highly variable and may drop suddenly, especially during times of market stress or volatility. When liquidity is low, it may be difficult to execute trades promptly or at expected prices, particularly for less well-known digital payment tokens with lower trading volumes.
Liquid markets can result in wider price spreads, slower transaction times and unexpected price movements. Additionally, platform outages, cyberattacks, or disruptions to the underlying blockchain can further limit your ability to trade. In extreme cases, trading may be suspended, leaving you unable to access or sell your digital payment tokens.
Before trading, it’s important to consider the liquidity of the digital payment tokens and the overall market conditions. Be aware that during periods of high volatility, there may be delays, higher costs, or less favourable execution of your trades.
Technological Risk
Digital payment tokens are valuable assets and a frequent target for hackers and scams. Threats such as phishing attacks, malware, fake websites and fraudulent platforms can lead to the theft of your login credentials, private keys, or wallet access—often resulting in irreversible loss of funds.
To reduce these risks, always use strong, unique passwords, enable two-factor authentication (2FA) and avoid clicking on unfamiliar links or approving suspicious transactions. You should never share your private login information as this may result in a loss of control of your digital payment tokens to attackers.
Despite protection measures implemented by digital payment token service providers, users must remain vigilant against individual threats. Always verify website URLs, be cautious when connecting wallets and stay informed about potential vulnerabilities in smart contracts or blockchain protocols. Maintaining strong personal cybersecurity habits is crucial to keeping your assets safe.
Custody & Security Risk
When you store digital payment tokens on a platform, the platform holds your assets on your behalf. While regulated digital payment token service providers in Singapore are required to implement safeguards, they are still vulnerable to risks such as cyberattacks, technical failures, and financial mismanagement. In the event of such an incident, your ability to access your funds may be affected and there is no assurance that losses will be recovered.
While self-custody options (such as hardware wallets) offer greater control over your digital payment tokens, they also come with their own risks—if you lose access to your private keys, your funds may be permanently unrecoverable. Additionally, when using digital payment token service providers, your digital payment tokens may be pooled with assets from other users. In cases of losses, such as a platform breach or shortfall, you may have to share in the losses proportionally. While regulated digital payment token service providers may offer some level of protection, users should take note that they are not legally obligated to guarantee your assets.
Business Conduct Risk
Users should be cautious that not all digital payment token service providers operate with transparency or in the best interests of their users. Some may mismanage customer funds, fail to fulfil their obligations, or even shut down unexpectedly.
Conflicts of interest may arise when digital payment token service providers accept incentives (e.g., listing fees) for providing services related to specific digital payment tokens. This could incentivise the digital payment token service provider to prioritise certain digital payment tokens over others, potentially undermining the impartiality of their platform.
Practices like wash trading (artificially inflating trading volumes), pump-and-dump schemes, and front-running (where insiders profit from early knowledge of large trades) can also mislead or harm users.
Users should therefore choose regulated platforms that implement strong governance, maintain transparent trading practices and safeguard its users’ assets. Always do your own research and be cautious of platforms that lack transparency, make unrealistic claims, or display suspicious trading behaviour.
Risk of Dealing with Unregulated Entities
Regulations relating to digital payment tokens differ across countries and are constantly evolving. Each jurisdiction may offer varying levels of consumer protection and legal safeguards. Relying on unregulated platforms carries significant risks as these digital payment token service providers often lack oversight and accountability. In the event of a dispute or a platform failure, it may be difficult or impossible to recover your funds or seek legal recourse. Compliance with local regulations ensures regulated digital payment token service providers are held to certain standards relating to security, transparency, and fair business practices.
While unregulated platforms may promise high returns, they also expose users to higher risks such as fraud, weak cybersecurity and lack of protection in case of losses. To protect your assets, always research the digital payment token service provider and avoid making decisions based on hype or unverified recommendations.