Singapore launches first industry pilot for digital assets and decentralized finance

The Monetary Authority of Singapore (MAS) has announced the launch of two pilots to explore using tokens in wholesale funding markets. The pilots went live on November 2, and the official announcement notes that the first trades involving tokenized versions of the Singapore dollar and the yen have been completed.

The pilot involved the trio of DBS Bank, JP Morgan, and SBI Digital Asset Holdings, multinational financial institutions with a strong presence in Singapore. Titled Project Guardian, MAS is hoping to leverage decentralized finance (DeFi) to improve the securities sector as it increasingly leans toward distributed ledger technology (DLT).

“The live transactions executed under the first pilot demonstrate that cross currency transactions of tokenised assets can be traded, cleared and settled instantaneously among direct participants. This frees up costs involved in executing trades through clearing and settlement intermediaries, and the management of bilateral counterparty trading relationships as required in today’s over-the-counter (OTC) markets,” the announcement read.

HSBC and UOB, in collaboration with Marketnode, are teaming up to create a native digital issuance for wealth management products which MAS says will improve issuance and accessibility for investors.

MAS began Project Guardian in May, and six months down the line Sopnendu Mohanty, MAS’ Chief FinTech Officer, notes that the project has “deepened MAS’ understanding of the digital asset ecosystem and has contributed to the development of Singapore’s digital asset strategy.”

Virtual assets are finding their way into capital markets

The European Securities and Markets Authority (ESMA) has launched its study to test the use of DLT in capital markets. In June, the European Union approved eligible firms to experiment with the uses of DLT for financial instruments with the regime designed to operate as a regulatory sandbox.

The U.K. is also targeting a “Financial Market Infrastructure Sandbox’ which is expected to go live in the coming months. While the U.K. stated that the sandbox will be open to all technologies, analysts believe that DLT will be relied on in the end to maintain neutrality.

“Above all, we want to position the U.K. as a pro-innovation jurisdiction which is attractive to inward investment, and to firms who do not yet have a settled base,” said John Glen, Economic Secretary to the Treasury.

Generally, jurisdictions looking to explore DLT in the securities market have laid down certain guiding principles to regulate their pilot programs. There is the usual requirement for exchanges to use a third-party central security depository which is often a flaw with DLT and the imposition of size limits by the market capitalization of the firms.

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