For the first time, the Monetary Authority of Singapore (MAS) completed its first live trades, a cross-currency transaction, which involved tokenized Japanese yen and Singapore dollar deposits. The initiative was taken as a part of a pilot to explore the potential of DeFi applications in wholesale finance markets. 

A live cross-currency transaction involving tokenized JPY and SGD deposits was successfully conducted. In addition, a simulated exercise was performed involving the buying and selling of tokenized government bonds. 

The global investment firm first leverages polygon to pick Ethereum for its affordable gas fees, required for the lower operating expenses related to verification. 

Ty Lobban of JPMorgan explained in a tweet, “1st, we used @0xPolygon for the trade because we wanted to do this on #Ethereum and needed cheap gas fees for some expensive operations around Identity verification. Future phases of Guardian will explore other blockchains too given the MAS goal for open/interoperable networks.”

“2nd, we used @Aave so that we could leverage their permissioned pools concept. We deployed a modified version of Aave Arc so that we could set certain parameters such as interest rate and fx rates.”

“3rd, we issued Tokenized Singapore Dollar Deposits! This is a deposit token which is a general liability of JPM. It’s a native token giving stable on-chain value without the scalability issues of stablecoins. This is the 1st issuance of Tokenized Deposits by a Bank!”

MAS said in a statement, DBS Bank, JPMorgan, and SBI Digital Asset Holdings participated in the foreign exchange and government bond transactions against liquidity pools comprised of tokenized yen, Singapore dollars, and Singapore Government Securities Bonds.

CeFi goes DeFi

Various financial institutions are catching up on the benefits of DeFi, the significant one is the removal of third parties and their associated transaction costs.

MAS noted in the release on the pilot, known as Project Guardian, “The live transactions executed under the first pilot demonstrate that cross-currency transactions of tokenized 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.”

MAS has now proposed to initiate two new industry pilots, one for trade finance and another for wealth management. The first one is related to a Standard Chartered Bank-led initiative to explore tokenized trade finance assets. The second one involves HSBC and UOC working with Marketnode to enable the native digital issuance of wealth management products.

MAS chief fintech officer Sopnendu Mohanty said, “The live pilots led by industry participants demonstrate that with the appropriate guardrails in place, digital assets and decentralized finance have the potential to transform capital markets.”