Singapore launches pilot for tokenization and DeFi trials

With an eye on the integrity and stability of the financial system, as well as the potential evolution that came with blockchain technology, the Monetary Authority of Singapore (MAS) launched the pilot project “Project Guardian” , in partnership with players in the financial system, to explore cases of decentralized finance (DeFi) and asset tokenization.

Announced today by Singapore Deputy Prime Minister and Economic Policy Coordinator Heng Swee Keat, Project Guardian partners with DBS Bank, JP Morgan and Marketnode, a digital marketplace infrastructure operator. The initiative involves the creation of an authorized liquidity pool that includes tokenized bonds and deposits. The pilot aims to carry out secure loans on a public blockchain-based network through the execution of smart contracts.

The idea of ​​MAS, through Project Guardian, is to develop and test use cases in four main areas:

Open and interoperable networks – Explore the use of public blockchains to build open and interoperable networks that allow digital assets to be traded across liquidity platforms and pools. This includes interoperability with existing financial infrastructure.

Trust anchors – Establish a trusted environment for running DeFi protocols through a common trust layer of independent trust anchors. Trust Anchors are regulated financial institutions that examine, verify and issue verifiable credentials to entities wishing to participate in DeFi protocols. This ensures that participants trade only with verified counterparties, issuers and protocol developers.

Asset tokenization – Examine the representation of securities in the form of bearer digital assets and the use of tokenized deposits issued by depository institutions on public blockchains. The project aims to build on existing token standards, incorporate trust anchor credentials, and enable asset-backed tokens to be interoperable with other digital assets used in DeFi protocols on open networks.

Institutional-grade DeFi protocols – Study the introduction of safeguards and regulatory controls in 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.

Potential Opportunities and Risks

With one eye on the opportunities and the other on the risks that come with new technologies, Singapore Monetary Authority fintech director Sopnendu Mohanty explains that Project Guardia’s learnings will serve to inform policymakers about the regulatory protections needed for the use of DeFi.

“MAS is closely monitoring innovations and growth in the digital asset ecosystem and working on the potential opportunities and risks that come with new technologies – for consumers, investors and the financial system at large. Through hands-on experimentation with the financial industry and the broader ecosystem, we seek to enhance our understanding of this rapidly changing ecosystem of digital assets,” notes Mohanty.

For DBS Group’s Head of Planning and Strategy, Han Kwee Juan, partnering with MAS in exploring potential digital assets and using DeFi concepts is key to ensuring Singapore’s relevance as a cutting-edge financial centre. “Developed on public blockchain, this pilot is also critical as it promotes efforts to innovate, advance and scale institutional financial applications on blockchain and their interoperability across different blockchain networks with the established rails of existing financial markets. We believe that these early explorations into DeFi solutions will ensure Singapore’s competitiveness and relevance as a leading financial hub,” said Juan.

Marketnode CEO Martin Pickrodt also celebrates the initiative. “Through Project Guardian, we aim to address real market issues such as fragmented liquidity locations, high intermediation costs and transaction inefficiencies, and we look forward to the journey ahead.”