The Monetary Authority of Singapore (MAS) announced Tuesday that the first industry pilot under MAS’ Project Guardian that explores potential decentralized finance (DeFi) applications in wholesale funding markets has completed its first live trades.
More industry pilots have been launched to test the application of asset tokenization and DeFi across a broader range of use cases in the financial sector, MAS said in a statement.
Under the first industry pilot, DBS Bank, JP Morgan and SBI Digital Asset Holdings conducted foreign exchange and government bond transactions against liquidity pools comprising of tokenized Singapore Government Securities Bonds, Japanese Government Bonds, Japanese Yen (JPY) and Singapore Dollar (SGD).
A live cross-currency transaction involving tokenized JPY and SGD deposits was successfully conducted.
In addition, a simulated exercise was performed involving the buying and selling of tokenized government bonds.
DeFi enables financial transactions to be performed by entities directly with one another using smart contracts, without financial intermediaries.
The live transactions executed under the first pilot demonstrate that cross currency transactions of tokenized assets can be traded, cleared and settled instantaneously among direct participants.
This frees up costs involved in executing trades through clearing and settlement intermediaries, and the management of bilateral counterparty trading relationships as required in today’s over-the-counter (OTC) markets.
Oliver Wyman Forum, in partnership with DBS Bank, JP Morgan and SBI Digital Asset Holdings, has released a whitepaper that summarises the broad learnings from the first pilot, including the benefits of digital asset interoperability and transaction efficiency that institutional DeFi protocols can introduce to financial markets.
Since the announcement of Project Guardian in May 2022, MAS has engaged the financial industry to identify key areas for collaboration.
These include carrying out industry pilots with financial institutions and FinTechs, in Singapore and other jurisdictions, to develop good asset tokenization use cases for financial services. Such pilots allow the industry to identify opportunities to unlock economic value, and surface potential risk management issues.
Besides, MAS has studied regulatory and risk management implications of tokenized asset transactions, such as the regulatory treatment of tokenized liabilities and appropriate governance for institutional DeFi structures, to promote oversight and accountability.
It has also developed technology standards to support interoperability across the digital asset ecosystems with the potential to facilitate cross-currency transactions of tokenized assets globally.
This involves first establishing a common identity and access framework supported by trust anchors – regulated financial institutions that screen, verify and issue verifiable credentials to entities that wish to participate in the DeFi protocols.
Arising from the industry engagements, MAS is launching two new industry pilots.
Trade Finance: Standard Chartered Bank is leading an initiative to explore the issuance of tokens linked to trade finance assets. The project aims to digitize the trade distribution market, by transforming trade assets into transferable instruments that are more transparent and accessible to investors.
Wealth Management: HSBC and UOB are working with Marketnode to enable native digital issuance of wealth management products, enhancing issuance efficiency and accessibility for investors.
MAS welcomes further proposals from the industry that addresses the key focus areas of Project Guardian – open interoperable networks, trust anchors, asset tokenization, and institutional grade DeFi protocols.
It also invites interested parties to submit proposals to the FinTech Regulatory Sandbox for live experimentation.
“The live pilots led by industry participants demonstrate that with the appropriate guardrails in place, digital assets and decentralized finance have the potential to transform capital markets,” said Sopnendu Mohanty, Chief FinTech Officer, MAS.
“This is a big step towards enabling more efficient and integrated global financial networks. Project Guardian has deepened MAS’ understanding of the digital asset ecosystem and has contributed to the development of Singapore’s digital asset strategy,
“We look forward to working with more institutions to advance global learning on policies, standards, and best practices for digital asset regulation and responsible innovation,” he added.