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Singapore explores DeFi and tokenization within existing financial structures

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The Monetary Authority of Singapore is investigating DeFi and establishing a liquidity pool of tokenized bonds and deposits.

Important points

  • MAS recently launched Project Guardian, a digital asset test that uses tokenization to execute lending and lending on a blockchain-based network.
  • Key financial industry partners involved in the pilot include JP Morgan, DBS Bank and Marketnode.
  • The project aims to mitigate DeFi’s risks to the country’s financial stability, explore the widespread use of DeFi, and stop the brain drain of crypto talent and blockchain companies to other destinations.

On Tuesday, the Monetary Authority of Singapore announced the launch of a pilot project for financial industry collaboration. Dubbed Project Guardian, the digital asset trial was created to test the potential economic benefit of tokenization and decentralized finance.

“MAS closely monitors innovation and growth in the digital asset ecosystem and works through the potential opportunities and threats that new technologies bring – for consumers, investors and the financial system at large,” said Chief FinTech Officer at MAS, Sopnendu Mohanty.

Announced at this week’s Asia Tech x Singapore Summit, the project is being led by Deputy Prime Minister and Coordinating Economic Policy Minister Heng Swee Keat. MAS is currently one of the few major regulators exploring the future financial world of DeFi protocols. If successful, Singapore could easily position itself as an established global financial center.

Major financial players

Some well-known financial institutions working with the pilot include JP Morgan, DBS Bank, and crypto venture Marketnode. Institutions DBS and JP Morgan are no strangers to the cryptocurrency world. In 2020, DBS established its own institutional-level exchange and introduced a crypto trust solution in May 2021. Last year, the company also launched an $11 million digital bond in a security token offering. JP Morgan’s experience in blockchain technology and digital assets almost speaks for itself. Since its launch in 2020, the institution’s digital asset network has completed over $300 billion worth of transactions.

The focus of Project Guardian

The pilot includes four focus areas: network openness and interoperability, trusted anchors, asset tokenization, and institutional-scale DeFi protocols. By enabling smart contract-based lending and lending on a public blockchain through liquidity pools of tokenized bonds and deposits, MAS hopes to achieve its main goal of exploring the risks and benefits of using DeFi in a wholesale market.

Group Head of Planning and Strategy at DBS, Han Kwee Juan, also spoke to PG’s Focus, saying, “Developed on [the] Public Blockchain, this pilot project is also critical as it advances efforts to innovate, evolve and scale institutional financial applications on blockchain and make them interoperable across diverse blockchain networks with the long-established lanes of existing financial markets.”

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The final result

As Singapore explores how DeFi could affect its financial stability and progress, it has positioned itself for global financial empowerment. Amid the tokenization and DeFi exploration, MAS hopes to sharpen its understanding of the digital asset ecosystem and manage opportunities and risks that come with the advancement of the digital technology financial world.

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