The Monetary Authority of Singapore (MAS) has announced the commencement of Project Guardian, a collaborative initiative with the financial industry that seeks to explore the economic potential and value-adding use cases of asset tokenisation. Project Guardian was launched by Deputy Prime Minister and Coordinating Minister for Economic Policies, Heng Swee Keat at the Asia Tech x Singapore Summit this morning.
Tokenisation is the process of digitally representing assets or items of value through a smart contract on a blockchain. This allows high value financial and real economy assets to be fractionalised and exchanged over the internet on a peer-to-peer basis. When applied in the context of financial services, such smart contracts enable Decentralised Finance (DeFi), where financial transactions such as borrowing, lending, and trading activities can be performed autonomously on a blockchain without the need for intermediaries. It could potentially enhance the efficiency, accessibility, and affordability of financial services, increase liquidity in financial markets, and enhance economic inclusion.
Project Guardian will test the feasibility of applications in asset tokenisation and DeFi while managing risks to financial stability and integrity. MAS aims to develop and pilot use cases in four main areas:
a) Open, interoperable networks – Explore the use of public blockchains to build open, interoperable networks that enable digital assets to be traded across platforms and liquidity pools. This includes interoperability with existing financial infrastructure. Open, interoperable networks can mitigate against the formation of walled gardens in digital exchanges and fragmented private markets.
b) Trust anchors – Establish a trusted environment for the execution of DeFi protocols through a common trust layer of independent trust anchors. Trust anchors are regulated financial institutions that screen, verify and issue verifiable credentials to entities that wish to participate in DeFi protocols. This ensures that participants trade only with verified counterparties, issuers and protocol developers.
c) Asset tokenisation – Examine the representation of securities in the form of digital bearer assets and the use of tokenised deposits issued by deposit-taking institutions on public blockchains. The project aims to build upon existing token standards, incorporate trust anchor credentials and enable asset-backed tokens to be interoperable with other digital assets used in DeFi protocols on the open networks.
d) Institutional grade DeFi protocols – Study the introduction of regulatory safeguards and controls into DeFi protocols to mitigate against market manipulation and operational risk. The project will also examine the use of smart contract auditing capabilities to detect code vulnerabilities.
The first industry pilot under Project Guardian will explore potential DeFi applications in wholesale funding markets. The pilot, led by DBS Bank Ltd., JP Morgan and Marketnode , involves the creation of a permissioned liquidity pool comprising tokenised bonds and deposits. The pilot aims to carry out secured borrowing and lending on a public blockchain-based network through execution of smart contracts.
MAS welcomes further industry initiatives that addresses Project Guardian’s four areas of interest. Aside from Project Guardian, MAS continues to welcome responsible digital asset innovation initiatives from the industry and invites interested parties to submit proposals to the FinTech Regulatory Sandbox for live experimentation.
Chief FinTech Officer, MAS, Sopnendu Mohanty said, “MAS is closely monitoring innovations and growth in the digital asset ecosystem and working through the potential opportunities and risks that come with new technologies – to consumers, investors and the financial system at large. Through practical experimentation with the financial industry and the broader ecosystem, we seek to sharpen our understanding in this rapidly transforming digital assets ecosystem. The learnings from Project Guardian will serve to inform policy markets on the regulatory guardrails that are needed to harness the benefits of DeFi, while mitigating its risks.”
“DBS is pleased to lead the charge to explore potential digital assets and use of DeFi concepts that will enhance efficiency and scalability in trading, clearing and settlement; while managing risks to financial stability and integrity. Developed on public blockchain, this pilot is also pivotal as it furthers efforts to innovate, advance and scale institutional financial applications on blockchain and their interoperability across different blockchain networks with the long-established rails of the existing financial markets. We believe that these early explorations in DeFi solutions will ensure the competitiveness and relevance of Singapore as a cutting edge financial centre.” Said Head, Group Planning and Strategy, DBS, Han Kwee Juan.
“J.P. Morgan continues to develop blockchain-based solutions for financial services and sees deposits accessible on the public blockchain as the next step in the evolution of digitized commercial bank money from prior work done on JPM Coin System (intra-bank offering), Partior (inter-bank offering). J.P Morgan has co-innovated with MAS leading to several industry first products and introduction of tokenised deposits on public blockchain is yet another milestone we look forward to launching” said CEO of Onyx, J.P. Morgan, Umar Farooq .
“Marketnode is pleased to collaborate with MAS and industry partners, DBS and J.P. Morgan, on this innovative and meaningful initiative out of Singapore. Having spearheaded various digital capital market initiatives over the last three years, we are excited to jointly develop a common market infrastructure which leverages the many benefits that institutional-grade DeFi protocols and tokenisation technologies can bring. Through Project Guardian, we aim to address real market issues, such as fragmented liquidity venues, high intermediation costs and transaction inefficiencies, and are looking forward to the journey ahead.” said CEO of Marketnode, Martin Pickrodt.
