By
Temitope Olatunji
April 26th, 2024
A live cross-currency transaction involving tokenized JPY and SGD deposits was also successfully conducted alongside a simulated exercise that involved buying and selling tokenized government bonds.
The Monetary Authority of Singapore (MAS) has announced that the first industry token pilot that explores the use of decentralized finance (DeFi) applications in wholesale funding markets has completed its first live trades.
The latest development comes after Singapore MAS stated earlier this week that it was starting two new token pilots with Standard Chartered, HSBC, DBS Bank, JPMorgan, and others to explore the use of tokens in trade finance and wealth management.
MAS added that more industry pilots have been launched to evaluate the application of asset tokenization and DeFi across a wider spectrum of use cases in the financial sector.
Kai Fehr, global head of trade and working capital at Standard Chartered, speaking earlier this week stated, “By transforming trade assets into transferable instruments, the firm aims to improve the accessibility to an asset class which has largely been the domain of banks with participation from a broader range of investors.”
“Not only can we potentially narrow the $1.7 trillion global trade finance gap, but this also offers investors the option to balance their portfolio with a digital token that has traceable intrinsic value,” he added.
Tokenized Singapore Government Securities Bonds, Japanese Government Bonds, Japanese Yen (JPY), and Singapore Dollar liquidity pools were used in the first industry pilot, which was carried out by DBS Bank, JP Morgan, and SBI Digital Asset Holdings (SGD).
A live cross-currency transaction involving tokenized JPY and SGD deposits was also successfully conducted alongside a simulated exercise that involved buying and selling tokenized government bonds.
The live transactions carried out under the first pilot show how cross-currency transactions of tokenized assets can be traded, cleared, and settled instantly among direct participants. This frees up costs involved in managing bilateral counterparty trading relationships as well as the costs associated with transaction execution through clearing and settlement intermediaries in today’s over-the-counter (OTC) markets.
DeFi-enabled financial transactions can also be performed by entities directly with one another using smart contracts, without financial intermediaries.
Han Kwee Juan, group head of strategy and planning at DBS, told reporters that the banks wanted to demonstrate that it was possible to tokenize government securities and cash within a DeFi liquidity pool. “Then using an AMM, and solving for that with price oracles and market data streaming services from Bloomberg or Refinitiv, we wanted to create an institutional-grade DeFi venue which regulators would be comfortable with,” he added.
A whitepaper that summarizes the key lessons from the first pilot, including the advantages of digital asset interoperability and transaction efficiency that institutional DeFi protocols can introduce to financial markets, has since been published by Oliver Wyman Forum in collaboration with DBS Bank, JPMorgan, and SBI Digital Asset Holdings.