DBS, a Singaporean bank, uses DeFi to trade foreign exchange and government securities

By: Dickson Arinze

DBS, a Singaporean bank, uses DeFi to trade foreign exchange and government securities

November 2, 2022 1:23 PM

DBS Bank, a major Asian financial institution, has utilized DeFi technology for a project supported by the Monetary Authority of Singapore.

 

One of Asia's largest financial institutions, DBS Bank, is using decentralized financing (DeFi) on a project supported by the Monetary Authority of Singapore.

 

On November 2nd, DBS revealed that it has begun testing the use of private, permissioned DeFi liquidity pools in the trading of foreign currency (FX) and government securities.

 

The Monetary Authority of Singapore (MAS) conceived developed the idea for the development as part of Project Guardian, an initiative to foster industry-wide collaboration (MAS). The transaction involved tokenized Singapore government securities (SGS), the Singapore dollar (SGD), Japanese government bonds, and the Japanese yen, and it took place on a public blockchain (JPY).

 

DBS notified Cointelegraph that the Uniswap v2 protocol fork was used in Project Guardian on the Polygon mainnet. The spokesperson also highlighted the need for verifiable credentials and price oracles, two crucial developments that will bring the DeFi protocol one step closer to an institutional grade.

 

Successful instantaneous trading, settlement, clearing, and custody have all been demonstrated by the project to be possible using a private DeFi protocol. DBS predicts that the project would improve liquidity across a wide range of financial assets and markets, which will radically alter the current trading procedures.

 

DBS's head of strategy Han Kwee Juan claims that recent advancements in Project Guardian pave the way for the construction of global institutional liquidity pools that will improve trade speed, transparency, and reduce settlement risks. Han remarked that smart contracts have promising applications in trade verification and execution.

 

"It has been predicted that smart contracts will change how execution can be performed in a highly trusted manner, particularly if executed in a permissioned market where all anonymous wallets are confirmed by trust anchors such as Know Your Customer processes."

 

Han further argued that a well-developed market would be more efficient since it would cut out middlemen and draw in more buyers and sellers. There is friction in the settlement process since "currently, FX and government securities are predominantly transacted in the over-the-counter markets involving many intermediaries," he said.

 

DBS Bank has made significant strides in the cryptocurrency market in recent years, and in December 2020, the bank will open an institutional cryptocurrency exchange. In addition, the business has been making efforts to make its cryptocurrency trading platform available to individual customers.

 

The current development in Project Guardian is just one more illustration of the rising trend of integrating DeFi technology with centralized financial systems. Thomas Moser, an official at the Swiss central bank, has stated that DeFi is compatible with central bank digital currencies and that they complement one another in terms of stability and liquidity.