HIGHER RETURNS, HIGHER RISKS
The appeal of platforms like Chocolate Finance is largely driven by their promise of high returns. However, higher returns typically come with higher risks. When financial products offer yields that significantly exceed those of traditional banks, consumers must question the sustainability of such returns.
Chocolate Finance’s model relied on investing user deposits in bond funds, which, while generally safer than equities, still carry interest rate and credit risks. As interest rates fluctuate, bond prices can decline, affecting the platform’s liquidity.
If a surge in withdrawals forces the liquidation of bonds at unfavourable prices, financial stress ensues.
In the worst cases, influencers with undisclosed financial interests may promote platforms aggressively, leaving followers vulnerable to unexpected losses. The rapid rise and subsequent collapse of the $TRUMP memecoin, touted by US President Donald Trump, exemplifies this danger. After peaking above US$70 in January, it has since plummeted to around US$10.
INVEST WISELY
Given the growing role of influencers in financial decision-making, consumers must develop critical thinking skills to navigate the hype. Here are a few key considerations:
First, consumers must understand the distinction between regulated financial institutions and platforms offering discretionary fund management.
While Chocolate Finance is licensed as a fund manager by the Monetary Authority of Singapore (MAS), it is not a bank. Banks are regulated under a banking license, subject to stricter capital requirements, depositor protection schemes, and covered by the Singapore Deposit Insurance Corporation.
Financial platforms operate under a Capital Markets Services License for fund management activities. They have more flexibility in operation but fewer safeguards for consumer funds.
