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Singapore to pilot digital asset trading with blockchain, tokenisation

Project Guardian will explore the tokenisation of financial assets, including potential decentralised finance applications in wholesale funding markets.
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Written by Eileen Yu, Contributor on

Singapore has announced plans to pilot use cases of asset tokenisation and assess the feasibility of autonomous trading powered by blockchain technology. Efforts here will include the development of interoperable networks to facilitate digital asset trading as well as an evaluation of regulations needed to safeguard against potential risks. 

Called Projected Guardian, the initiative would see the Monetary Authority of Singapore (MAS) collaborate with industry players to explore the "economic potential" of asset tokenisation, the industry regulator said Tuesday.

By digitally representing assets or items of value through blockchain-powered smart contracts, tokenisation enabled high-value financial and real economy assets to be fractionalised and exchanged online, on a peer-to-peer basis. MAS noted that applying this to financial services such as borrowing, lending, and trading would allow these transactions to be performed autonomously, bypassing the need for intermediaries. 

It said such decentralised finance (DeFi) transactions potentially could enhance the efficiency, accessibility, and affordability of financial services as well as increase liquidity in financial markets and enhance economic inclusion. 

Through Project Guardian, Singapore hopes to pilot and assess the feasibility of applications in asset tokenisation and DeFi, along with managing the associated risks. Specifically, MAS said it would develop and pilot use cases across four focus areas including the use of public blockchains to build open, interoperable networks that enabled digital assets to be traded across platforms. These also would interoperate with existing financial infrastructure and could discourage the establishment of walled gardens in digital exchanges, it said. 

The regulator also would look to set up "independent trust anchors" to provide a secured environment for deploying DeFi protocols. MAS pointed to regulated financial institutions as trust anchors that would screen, verify, and issue credentials to entities looking to participate inn DeFi protocols. This would ensure participants trade only with verified counter-parties, issuers, and protocol developers.

There also were plans to evaluate the representation of securities via digital bearer assets and tokenised deposits issued on public blockchains. This would build on existing token standards and incorporate trust anchor credentials, and enable asset-backed tokens to be interoperable with other digital assets in DeFi protocols on open networks. 

In addition, MAS would assess regulations and controls needed in DeFi protocols to safeguard against market manipulation and operational risks. This initiative would look at the use of smart contract auditing capabilities to detect code vulnerabilities. 

The first pilot planned under Project Guardian would explore potential DeFi applications in wholesale funding markets, MAS said, adding that local bank DBS, JP Morgan, and Marketnode had been brought in for this trial. The pilot would tap smart contracts, issued on a public blockchain-powered network, to facilitate secured borrowing and lending. 

MAS said it would explore further initiatives and encouraged industry players to submit their pitches to the Fintech Regulatory Sandbox for live tests.

MAS' chief fintech officer 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."

Singapore's Deputy Prime Minister and Coordinating Minister for Economic Policies Heng Swee Keat said tokenisation--through the fractionalisation of assets--could allow for greater liquidity, better price discovery, and access to illiquid assets. 

Distributed ledgers, by removing the need for intermediaries, also reduced cost, prevented data monopolies, and discouraged "rent-seeking behaviour", Heng said.

Noting that Singapore was keen to collaborate with blockchain and digital asset players to drive innovation and build trust in the sector, he said MAS had issue licences and in-principle approvals to 11 digital payment token service providers in the last two years. These, he said, included stablecoin players such as Paxos, crypto exchanges such as Coinhako, and traditional financial institutions such as DBS Vickers.

"We will continue to evaluate applications and facilitate live experiments through regulatory sandboxes, to enable safe adoption in the financial sector," the minister said. "We must approach emerging tech with an open mind, separating the hubris from its true underlying potential. Through regulation, we work constructively to realise the gains of these new technologies, and partner responsible and innovative players with strong risk management capabilities, to build the foundations of the digital asset ecosystem."

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