Project Guardian Completes First DeFi FX, Bond Trades

The Monetary Authority of Singapore (MAS) says that the first industry pilot under its Project Guardian that explores potential decentralised finance (DeFi) applications in wholesale funding markets has completed its first live trades. It adds that more industry pilots have been launched to test the application of asset tokenisation and DeFi across a broader range of use cases in the financial sector.

Under the first industry pilot, DBS Bank, JP Morgan and SBI Digital Asset Holdings conducted FX and government bond transactions against liquidity pools comprising of tokenised Singapore government securities bonds, Japanese government bonds, Japanese yen and Singapore dollar.

A live cross-currency transaction involving tokenised JPY and SGD deposits was successfully conducted, MAS says, adding that a simulated exercise was performed involving the buying and selling of tokenised government bonds. It also says that the live transactions executed under the first pilot demonstrate that cross currency transactions of tokenised 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 OTC markets,” MAS says.

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 the carrying out of industry pilots with financial institutions and FinTechs, in Singapore and other jurisdictions, to develop good asset tokenisation use cases for financial services. MAS says such pilots allow the industry to identify opportunities to unlock economic value, and surface potential risk management issues.

It has also been studying regulatory and risk management implications of tokenised asset transactions, such as the regulatory treatment of tokenised liabilities and appropriate governance for institutional DeFi structures, to promote oversight and accountability.

The development of technology standards to support interoperability across the digital asset ecosystems with the potential to facilitate cross currency transactions of tokenised assets globally has also been studied. MAS says 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, one in tyrade finance e, the other in wealth management. Standard Chartered Bank is leading an initiative to explore the issuance of tokens linked to trade finance assets. The project aims to digitise the trade distribution market, by transforming trade assets into transferable instruments that are more transparent and accessible to investors.

On 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 says it welcomes further proposals from the industry that addresses the key focus areas of Project Guardian – open interoperable networks, trust anchors, asset tokenisation, 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 decentralised finance have the potential to transform capital markets,” says 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.”