Singapore-based DBS Bank has successfully tested the trade of foreign exchange (FX) and government securities transactions using decentralised finance (DeFi) liquidity pools on a public blockchain.
As part of a collaborative, cross-industry effort developed by the Monetary Authority of Singapore (MAS), the move becomes a significant milestone for ‘Project Guardian‘, in which members of the financial industry pilot use cases for digital assets. The simulated trades were completed in partnership with JP Morgan and SBI Digital Asset Holdings.
The pilot itself simulated the buying and selling of tokenised government bonds (Singapore Government Securities). Moreover, it simulated trades of the Singapore dollar, Japanese government bonds, and Japanese Yen.
Han Kwee Juan, group head of strategy and planning at DBS explained that the trade is a significant first step. He said: “This test trade has demonstrated that by harnessing the power of blockchain, the standards by which financial institutions currently deal with each other can be transformed and reimagined for greater efficiency and transparency.
“The ability to programme smart contracts will reshape how execution can be achieved in a highly trusted manner, especially if it takes place in a permissioned market where all anonymous wallets are verified by trust anchors performing ‘Know Your Customer’ processes and trading is allowed to take place within that pool. This provides a springboard for the industry to further opportunities in the trading world.”
The aims and plans of Project Guardian
The initiative created by MAS explores “the economic potential and value-adding use cases of asset tokenisation”. MAS outlined four main areas to develop and pilot use cases for:
- “Open and interoperable networks.” This area tests if public blockchains can build networks that can trade digital assets across platforms and liquidity pools.
- “Trust anchors.” Attempting to enable the execution of DeFi protocols through a common trust layer of independent trust anchors. These regulated financial institutions screen, verify and issue verifiable credentials.
- “Asset tokenisation.” Aiming to build upon existing token standards. It also incorporates trust anchor credentials and enables asset-backed tokens to be interoperable with other digital assets used in DeFi protocols.
- “Institutional grade DeFi protocols.” Finally, the project looks to study the introduction of regulatory safeguards and controls into DeFi protocols. The aim is to mitigate market manipulation and operational risk.
Overall, DBS Bank‘s successful pilot shows that it is possible to complete trades on a public blockchain, without the involvement of any financial intermediaries.
Han Kwee Juan explained that ‘Project Guardian’ showed that trading using DeFi protocols enables instant trading, settlement, clearing, and custody at the same time. He said: “A highly liquid market attracts more investors and achieves efficiency gains by bypassing intermediaries. Currently, FX and government securities are primarily transacted in the over-the-counter markets involving multiple intermediaries resulting in friction in the settlement process.”
Following the success of the first pilot, MAS also announced that it is launching two new industry pilots. One of the new pilots will see Standard Chartered Bank attempt to digitise the trade distribution market. Meanwhile HSBC, UOB and Marketnode will work on a second pilot. This will try to enable native digital issuance of wealth management products.
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