Fintech leaders on the use of blockchain for commerce

In June, the Monetary Authority of Singapore (MAS) announced the launch of Project Guardian, a collaborative initiative with financial industry partners to explore the potential and value of asset tokenization.

After four months of testing, the results were finally unveiled earlier this month at the Singapore Fintech Festival (SFF) 2022.

Following an initial announcement by DBS that Project Guardian had tested trading of government securities and currency using DeFi tools, representatives of the companies involved were on site at SFF 2022 to showcase the fruits of their research.

These include Tyrone Lobban, Head of Blockchain and Onyx Digital Assets at Onyx by JPMorgan, Jason Beale, Head of Product at SBI Digital Asset Holdings, and Keith Desouza, Managing Director of Treasury and Markets and Treasury Liquidity Management at DBS.

What’s wrong with the status quo?

The financial market, according to the panelists, has many problems that need to be fixed. Primarily, there are problems with high friction within the traditional financial market.

According to Keith, executing a trade within traditional financial markets is slow and cumbersome.

Once a trader executes a trade, securities and cash must go through about three or four different steps before reaching their final destination. For the repo market, we are talking about five or six different steps, and we have different back offices involved.

– Keith Desouza, CEO, Treasury and Markets and Treasury Liquidity Management, DBS

There are also operational problems, and different time zones will make the problem worse since securities clearing does not happen simultaneously everywhere.

All these issues must also be negotiated bilaterally, since there is not a single overarching document that everyone signs.

Since there are many parties involved in a single trade, it also opens traders up to greater risk and complexity – different service providers will provide different prices, which can lead to significant price variances within the same day, and traders are exposed to greater risk since their securities and cash passes between several hands.

These issues result in significant friction in the markets, and so far the banking sector has not been able to adequately address them without blockchain technology.

Why DeFi?

However, the problems that traditional finance has failed to solve can be solved using DeFi tools on the blockchain – and this is what Project Guardian set out to test.

The most obvious benefit is the ability to replace the work of traditional financial institutions with smart contracts, which will perform trading and legwork in their place.

At the same time, innovations as trust anchors mean that even spaces like DeFi can be properly regulated.

What we are trying to achieve through Project Guardian is to create a DeFi protocol and merge it with trad-fi principles such as Know-Your-Customer (KYC) obligations and Anti-Money Laundering (AML) measures. When we align that with regulatory expectations and reporting requirements, we have something like an institutional DeFi product.

– Jason Beale, Chief Product Officer, SBI Digital Asset Holdings

In this case, trust anchors will be used to issue trading credentials to traders, who will then need to provide these credentials along with the orders for trades in order for the trade to be executed.

The credentials are then verified on-chain, and clearance can be instant. To test this, the panelists demonstrated scenarios where valid credentials were used, as well as a scenario where a trade order was denied due to invalid credentials.

The future of finance

While Project Guardian has already yielded results, the panelists also promised that this is not the end. There will be more developments as Project Guardian continues to research asset tokenization and DeFi tools.

We want Guardian to be integrative, use existing KYC processes, we want it to be scalable, we want to have the ability to work with every DeFi protocol, and we want traders to easily claim and share credentials.

– Tyrone Lobban, Head of Blockchain and Onyx Digital Assets, Onyx by JP Morgan

The panelists also noted that while currency and government securities trading has been a success, the infrastructure they have developed is far from complete and there are still issues that need to be addressed before Project Guardian can become part of the public. market infrastructure.

Among these issues were issues of market conduct and market manipulation, as well as issues such as front-running, money laundering and terrorist financing.

The way forward is therefore to continue to take existing concepts from DeFi that are adapted to the institutional space, and combine them with the requirements that are already in place for traditional finance.

In the future, this will give traditional financial institutions the opportunity to reconsider processes that have become standard practice, and bring about a restructuring of the capital markets.

Project Guardian has shown quite a remarkable result so far, and in many ways it encapsulates what MAS wants for Singapore as a crypto hub: regulated use of technology, in line with reporting requirements, and built for institutional investors.

Blockchain technology has not been abandoned by MAS, and as Project Guardian shows, Singapore is prepared to change with the times, but it will change on its own terms.

Featured Image Credit: Vulcan Post