Singapore Begins Trials for Digital Asset Tokenization Project

Singapore Begins Trials for Digital Asset Tokenization Project

  • The project seeks to test the possible uses of blockchain technology in the local financial system, and the viability of turning the city-state into a major center for decentralized finance.
  • Since the end of last year, several exchanges have pulled out of Singapore in the face of increasing regulatory pressure, and due to the slow turnaround for operating license approval.

Singapore has kicked off its digital asset tokenization project, which seeks to further investigate the potential uses of blockchain technology. As reported by Bloomberg, the city-state is working towards becoming an attractive global center for decentralized finance.

Singapore Deputy Prime Minister Heng Swee Keat explained in a statement on Tuesday that ‘Project Guardian’ was the result of a collaboration between the Monetary Authority of Singapore (MAS) and a number of foreign and local banks.

The overall goal is to test whether the applications for asset tokenization and decentralized finance (DeFi) are viable in the local market, and to determine the levels of financial risk posed to the stability and integrity of Singapore.

Intense Regulation Has Scared Crypto Players Away

The project is a government initiative that has been developed in response to several key players in the crypto industry opting to move to other, more attractive markets since the end of last year as a direct result of Singapore’s increased regulatory guidelines.

Project Guardian is intended to develop the sector and test various areas of blockchain technology, including open and interoperable networks, as well as trust anchors and institutional-grade DeFi protocols.

As underlined by Keat, the first pilot of the project is being helmed by JP Morgan Chase & Co, DBS Bank Ltd, and Marketnode Pte. The project will start by exploring the potential application areas for DeFi in wholesale financial markets.

In order to achieve this, it was deemed necessary to create an authorized liquidity pool consisting of bonds and tokenized deposits.

“Taking advantage of the benefits of DeFi, while mitigating its risks”

Singapore’s regulator was one of the first in the world to begin investigating the uses and applications of blockchain technology. However, the licensing regime for DeFi companies, as established by the city, exhausted the patience of many influential firms, which gradually decided to leave due to the slow pace of approval.

Further exacerbating this, the government had also banned the advertisement of digital assets earlier this year as a means of protecting retail investors from the risk of scams. Companies in the sector were forced to take cryptocurrency ATMs offline in order to comply with government guidelines.

Due to regulatory pressure, many established players have opted to move their operations to Dubai. Among those to have packed up in Singapore, drawn by the allure of the ease of operations offered by the United Arab Emirates, are Bybit Fintech Ltd, Three Arrows, and Binance Holdings Ltd.

“Through practical experimentation with the financial industry and the broader ecosystem, we seek to sharpen our understanding in this rapidly transforming digital assets ecosystem,” explained MAS Chief Financial Technology Officer Sopnendu Mohanty.
He added: “The learnings from Project Guardian will serve to inform policy markets on the regulatory guardrails that are needed to harness the benefits of DeFi, while mitigating its risks.”

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