MAS explores Permissioned DeFi Use Cases

This month has seen the Monetary Authority of Singapore (MAS) launch ‘Project Guardian’, a collaborative initiative with the financial industry, to explore the possibilities available through Permissioned DeFi and tokenisation.

The first industry pilot under Project Guardian will explore potential DeFi applications in wholesale funding markets, and is led by DBS Bank, JP Morgan and Marketnode; it involves the creation of a permissioned liquidity pool comprising tokenised bonds and deposits to enable secured borrowing and lending on a public blockchain-based network through execution of smart contracts.

According to Chief Fintech Officer at MAS, Sopnendu Mohanty,

"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

Areas of Research

The four identified areas of research for Project Guardian are:

Open, interoperable networks: the use of public blockchains that are interoperable across both the blockchains and existing financial systems

Trust Anchors: the use of regulated financial institutions that screen, verify and issue verifiable credentials to entities that wish to participate in DeFi protocols.

Asset tokenization: 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.

Institutional grade DeFi protocols – 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.

A Measured Approach

Singapore was once the go-to destination for cryptocurrency firms. But its “crypto hub” image came with increased global scrutiny that prompted the MAS to adopt a more conservative approach with increased regulation and directives to firms in the crypto space not to promote services to the general public (which led to firms like Binance relocating to more crypto-friendly jurisdictions).

Project Guardian is a continuation of that policy to explore the opportunities - the automation of financial transactions, the rationalisation of workflow processes, the liquidity on offer through tokenisation – in a measured manner within the guardrails of regulation, consumer protection and financial institution involvement.