28 June 2022
On 31 May 2022, the Monetary Authority of Singapore (“MAS”) issued a press release announcing the commencement of Project Guardian, a collaborative initiative with the financial industry that seeks to explore the economic potential and value-adding use cases of asset tokenisation. This announcement followed the launching of Project Guardian by Heng Swee Keat, Deputy Prime Minister and Coordinating Minister for Economic Policies, at the Asia Tech x Singapore Summit.
Details of Project Guardian are set out below.
The press release describes tokenisation as a process of digitally representing assets or items of value through a smart contract on a blockchain. This process allows high value financial and real economy assets to be fractionalised and exchanged over the internet on a peer-to-peer basis.
Such smart contracts enable decentralised finance (“DeFi”) in the context of financial services, where financial transactions, i.e. borrowing, lending, and trading activities, can be performed autonomously on a blockchain without the need for intermediaries. This could potentially enhance the efficiency, accessibility and affordability of financial services, increase liquidity in financial markets, and enhance economic inclusion.
MAS to develop and pilot use cases in four main areas
Project Guardian will test the feasibility of applications in asset tokenisation and DeFi while managing risks to financial stability and integrity. MAS aims to develop and pilot use cases in four main areas:
- Open, interoperable networks: Explore the use of public blockchains to build open, interoperable networks that enable digital assets to be traded across platforms and liquidity pools. This includes interoperability with existing financial infrastructure. Open, interoperable networks can mitigate against the formation of walled gardens in digital exchanges and fragmented private markets.
- Trust anchors: Establish a trusted environment for the execution of DeFi protocols through a common trust layer of independent trust anchors. Trust anchors are regulated financial institutions that screen, verify and issue verifiable credentials to entities that wish to participate in DeFi protocols.
This ensures that participants trade only with verified counterparties, issuers and protocol developers.
- Asset tokenisation: Examine 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: Study 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.
First industry pilot to explore potential DeFi applications in wholesale funding markets
The first industry pilot under Project Guardian will explore potential DeFi applications in wholesale funding markets. Participation under this pilot is subject to regulatory approvals. The pilot involves the creation of a permissioned liquidity pool comprising tokenised bonds and deposits and aims to carry out secured borrowing and lending on a public blockchain-based network through execution of smart contracts.
MAS welcomes further industry initiatives
MAS states that it welcomes further industry initiatives that addresse Project Guardian’s four areas of interest. In addition to Project Guardian, MAS continues to welcome responsible digital asset innovation initiatives from the industry and invites interested parties to submit proposals to the FinTech Regulatory Sandbox for live experimentation.