Capital markets News

Japan’s SBI joins Singapore institutional DeFi experiment with JP Morgan, DBS

defi project guardian

At the end of May, the Monetary Authority of Singapore (MAS) announced Project Guardian, which aims to explore institutional DeFi on a public blockchain. At the time, the participants were JP Morgan, DBS Bank and Marketnode, the tokenization joint venture from the Singapore Exchange (SGX) and Temasek. Today Japan’s SBI Digital Asset Holdings announced that it has joined the project.

DeFi for institutions

Two major decentralized DeFi innovations are borrowing and lending platforms based on smart contracts such as Aave and Compound and automated market making (AMM) such as Uniswap for trading. However, these examples are all permissionless, whereas project Guardian is permissioned and targeted at the wholesale market.

Automation without intermediaries is the key DeFi feature that enables greater efficiencies. By reducing costs, financial services can potentially be cheaper for all investors. And instead of restricting some investments to high denominations, fractionalization can broaden access. Another benefit is automation enables 24/7 trading and lending.

For both lending and trading, intermediaries are replaced by a combination of algorithms coded in smart contracts and liquidity pools of assets.

MAS has previously been involved in piloting AMM for foreign exchange for cross border CBDC payments. Now it wants to explore liquidity pools for lending where regulated assets are used as collateral instead of cryptocurrencies. Marketnode is known for using distributed ledger (DLT) to tokenize bonds which can be used in Project Guardian as collateral, enabling the bondholders to borrow against the pledged digital bonds.

When MAS announced Project Guardian, it outlined a key goal as creating open, interoperable networks that include interoperability with existing financial infrastructure and preventing walled gardens. It wants to explore the role of trust anchors, such as major institutions that screen the participants in these permissioned DeFi protocols, as well as the ability of the regulator to address market manipulation and operational risks.

SBI’s involvement in Project Guardian

SBI has been at the forefront of blockchain and tokenization in Japan and elsewhere, and its involvement in Project Guardian is an extension of other initiatives in Singapore. SBI Digital Markets is a digital broker-dealer and AsiaNext is a joint venture between SIX group and SBI, which plans to provide both cryptocurrency and digital securities services. SIX has its own Swiss-based SIX Digital Exchange (SDX), which started by targeting digital securities but has since expanded into web3 and crypto.

“Our core mission at SBI DAH is to re-imagine and transform the capital markets and banking value chains through the deployment of digital technology,” said Fernando Vazquez Cao, SBI Digital Asset Holdings’ CEO.

Vazquez Cao and Umar Farooq, the CEO of JP Morgan’s Onyx division, recently discussed how to make DeFi safer. Both believe that where billions of dollars are at stake, taking shortcuts to move fast is unacceptable if it puts investor funds at risk.