While Dubai has taken the crypto limelight of late, Singapore which also is a major financial hub isn’t far behind. The city-state has made some intriguing explorations into the budding assets class and into decentralized finance (DeFi).
In May, the Monetary Authority of Singapore (MAS) started its pilot project to explore use cases of digital assets in tokenization and defi, under Project Guardian. JPMorgan, SBI Digital, and Marketnode, a platform for digital assets created by the Singapore Exchange (SGX) and Temasek, joined Singapore’s DBS Bank in the move.
Initial testing involved trading in tokenized Singapore government assets, Singapore dollars (SGD), Japanese government bonds, and Japanese yen.
Han Kwee Juan, group head of strategy and planning at DBS, Singapore’s largest bank, said,
“We wanted to show 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.”
Moreover, DBS also found that there just isn’t an AMM available right now that can replicate how pricing is carried out among dealers in the institutional over-the-counter (OTC) market. Juan noted that the need for low gas prices made Polygon logical.
He claimed that in order to maintain the benefits of atomic trading, clearing, and settlement, a trading venue would need to be regularly written to a public blockchain for a market as large as government securities.
Juan added,
“There are many different combinations that can happen when trading OTC, and the AMMs currently out there are not complex enough to provide the kind of dynamic pricing needed if you truly want to achieve trading in a DeFi pool. We had to tweak Uniswap to allow the transactions to then take place closest to where the pricing would be based on Bloomberg and Refinitiv.”
Do Banks want what Defi & Crypto has?
With crypto and digital assets becoming more and more mainstream, it was only a matter of time before financial giants caught on. The boldest plans use public blockchains and promise to bring trillions in existing financial instruments into the fold. Banks and traditional financial institutions see opportunities and efficiencies to be achieved by imitating DeFi’s success in crypto.
Furthermore, a recent report by Fidelity found that institutional interest in crypto continues to grow despite a bear market. According to the report, 58% of institutional investors were invested in crypto and digital assets in H1 of 2022. Moreover, 74% of respondents plan to do so in the future.
Regardless, it can be assumed that crypto and defi will play a much larger role in the future of finance and banking.