MAS launches asset tokenisation and DeFi project

The Monetary Authority of Singapore has launched a new project to explore asset tokenisation and decentralised finance.

Heng Swee Keat, Singapore’s deputy prime minister and co-ordinating minister for economic policies, announced “Project Guardian” on May 31. In the first industry pilot it has partnered with JP Morgan and two Singaporean government-owned financial firms.

Asset tokenisation is the process by which issuers represent digital or physical assets, in this case securities and deposits. DeFi is when activities such as borrowing, lending and trading can be performed on the internet, without the need for intermediaries.

As well as asset tokenisation, Project Guardian will have three other key focus areas, the MAS says. It will look at open and interoperable networks, and investigate “trust anchors”, which are regulated financial institutions that verify DeFi participants and issue credentials. The project will also examine regulatory safeguards to mitigate against market manipulation and operational risks.

US bank JP Morgan will be working with DBS Bank and Marketnode on the project’s first industry pilot, dealing with wholesale funding markets. The bank will be using Onyx, its blockchain platform.

Marketnode is a digital markets infrastructure operator. It is a joint venture by the Singapore Exchange Group and Temasek, a firm owned by the Singaporean government.

DBS was set up by the government, and its controlling shareholder is Temasek, which also owns over 20% of the Singapore Exchange via a special purpose company.

The pilot aims to improve institutional financial applications on the blockchain, Han Kwee Juan, head of group planning and strategy at DBS, said. It will also try to increase their interoperability across different networks.

The first industry pilot will test secured borrowing and lending on a public blockchain-based network. The pilot will create tokenised bonds and deposits in a permissioned liquidity pool, meaning access to it will be controlled. Deposits accessible on the public blockchain are the “next step” in the evolution of digitised commercial bank money, Umar Farooq, CEO of Onyx at JP Morgan, said.

The MAS has invited fintech firms to submit proposals to its regulatory sandbox that address Project Guardian’s four areas. Sopnendu Mohanty, chief fintech officer at the MAS, said the central bank seeks to “sharpen” its understanding of the rapidly transforming digital assets ecosystem.

The technology Project Guardian explores has the potential to “enhance the efficiency, accessibility, and affordability of financial services”, the MAS says. It can also “increase liquidity in financial markets, and enhance economic inclusion”.

In November, the MAS and the Banque de France, again working with JP Morgan, published the results of a simulation testing transactions between multiple central bank digital currencies. This tested an automated liquidity pool and market-making service.

They used smart contracts without a central order book to manage the currency exchange rate between the euro and the Singapore dollar during market trades.