Singapore to pilot digital asset trading with blockchain and tokenization

Singapore has announced plans to pilot asset tokenization use cases and assess the feasibility of autonomous commerce powered by blockchain technology. Efforts here will include the development of interoperable networks to facilitate trade in digital assets as well as an assessment of the regulations needed to guard against potential risks.

Called Projected Guardian, the initiative would see the Monetary Authority of Singapore (MAS) work with industry players to explore the “economic potential” of asset tokenization, the industry regulator said on Tuesday.

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

He said such decentralized financial transactions (DeFi) could potentially improve the efficiency, accessibility and affordability of financial services, as well as increase liquidity in financial markets and strengthen economic inclusion.

Through Project Guardian, Singapore hopes to pilot and assess the feasibility of asset tokenization and DeFi applications, as well as the management of associated risks. Specifically, MAS said it will develop and pilot use cases in four focus areas, including the use of public blockchains to create open and interoperable networks for exchanging digital assets across multiple platforms. These would also interoperate with existing financial infrastructures and could discourage the creation of walled gardens in digital exchanges, he said.

The regulator would also seek to set up “independent trust anchors” to provide a secure environment for the deployment of DeFi protocols. MAS designated regulated financial institutions as trust anchors that would screen, verify, and issue credentials to entities wishing to participate in DeFi protocols. This would ensure that participants only trade with verified counterparties, issuers and protocol developers.

There were also plans to assess securities representation through bearer digital assets and tokenized deposits issued on public blockchains. This would build on existing token standards and incorporate trusted anchor credentials, and allow asset-backed tokens to be interoperable with other digital assets in DeFi protocols over open networks.

Additionally, MAS would assess the necessary regulations and controls in DeFi protocols to guard against market manipulation and operational risks. This initiative would examine the use of smart contract auditing capabilities to detect vulnerabilities in code.

The first planned pilot under Project Guardian would explore potential applications of DeFi in wholesale funding markets, MAS said, adding that local bank DBS, JP Morgan and Marketnode have been invited to the trial. The pilot would leverage smart contracts, issued on a public blockchain-powered network, to facilitate secure borrowing and lending.

MAS said it would explore other initiatives and encouraged industry players to submit their proposals to the Fintech Regulatory Sandbox for live testing.

MAS Chief Financial Technology Officer Sopnendu Mohanty said, “MAS closely monitors innovations and growth in the digital asset ecosystem and works on the potential opportunities and risks that come with new technologies – for consumers, investors and the financial system as a whole. hands-on experimentation with the financial industry and broader ecosystem, we seek to refine our understanding of this rapidly transforming digital asset ecosystem.Learnings from Project Guardian will be used to inform political markets on the regulatory safeguards needed to harness the benefits of DeFi, while mitigating its risks.”

Singapore’s Deputy Prime Minister and Coordinating Minister for Economic Policy Heng Swee Keat said tokenization – through asset splitting – could enable greater liquidity, better price discovery and access to illiquid assets. .

Distributed ledgers, by removing the need for intermediaries, have also reduced costs, prevented data monopolies and discouraged “rent-seeking behavior”, Heng said.

Noting that Singapore is keen to collaborate with blockchain and digital asset players to drive innovation and build trust in the industry, he said MAS has issued licenses and approvals-in-principle to 11 token service providers. digital payment over the past 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 assess applications and facilitate live experiences through regulatory sandboxes, to enable safe adoption in the financial industry,” the minister said. “We need to approach emerging technology with an open mind, separating hubris from its true underlying potential. Through regulation, we work constructively to realize the gains of these new technologies, and involve responsible players and companies with strong risk management capabilities, to build the foundations of the digital asset ecosystem.”

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