DeFi Meets TradFi in Singapore
Watch as DeFi loses its "Wild West" reputation and goes mainstream.
DeFi is going mainstream and will lose its “wild west” reputation thanks to Singapore’s MAS and “Project Guardian.” (MAS announcement: here)
I am a strong proponent of DeFi and believe that despite the shortcomings in its implementation in the crypto world it will have an important role in our financial future. I wrote about this in last week’s newsletter in an article entitled “OECD on how DeFi and Tradfi will work together” which included a download of an OECD publication: Here
DeFi will have a role in all of our futures! Many roles in traditional finance or TradFi such as banks and brokers have been replicated in DeFi.
The focus of incumbent banks will be to coopt the tech from the DeFi world and make it work with trusted partners while conforming with local regulations.
Source: coin98.net
Does MAS read my newsletter?
Apparently, the Monetary Authority of Singapore (MAS) must have read my newsletter and agreed! No sooner did I publish it than the MAS announced a major push into DeFi!
MAS is partnering with DBS, JP Morgan, and Marketnode to bring DeFi out of the realm of crypto and into securities trading. The marriage between DeFi and TradFi may seem odd to some but I think it makes perfect sense.
Note that Singapore is no fan of crypto given that it chased out a number of crypto exchanges in late 2021. In addition, it repeatedly warned citizens against buying crypto!
Still, MAS is brilliant in understanding that DeFi technology has great promise despite crashes due to poor implementation in the crypto world.
This is DeFi in name only, in reality crypto fans will not be amused. While this may run on Ethereum everything about this is centralized and run by big banks.
Laying down the Law
MAS makes it clear that “crypto bros” version of DeFi is not welcome:
🔵 “Establish a trusted environment for the execution of DeFi protocols through…. regulated financial institutions that screen, verify and issue verifiable credentials to entities that wish to participate in DeFi protocols.”
🔵 “Study the introduction of regulatory safeguards and controls into DeFi protocols to mitigate against market manipulation and operational risk.”
🔵 “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.”
🔵 MAS continues to welcome responsible digital asset innovation initiatives from the industry.
"Regulation" appears in every statement except the last where it uses “responsible.” Clear enough?
Tokenization
The first project will be tokenizing bonds which will follow closely on work already done by the Hong Kong Exchange last year.
The objective is clear, reduce the burden of transferring securities, access new sources of liquidity, and make markets more efficient. It’s not a new concept for blockchain fans, but I think that this time they just might pull it off.
Tokenization of assets removes common problems that plague securities markets. It improves overall efficiency by making payment and ownership immediate. Source: bitcoinik.com
Coopting Crypto Tech? Yes!
TradFi coopting DeFi tech will undoubtedly make crypto fans cringe. They’ll hate it just as they hate CBDCs coopting "their" technology.
So is this DeFi? No, not really, it's a hybrid system with centralized access running on decentralized Ethereum. Until we can come up with a better name for it DeFi will have to do. The key is that banks are setting up a machine with controlled access that uses DeFi technology to transact 24/7 without human intervention. Sound disruptive? It most certainly is!
This is serious business for Singapore, which sees the adoption of the latest financial technology as critical to its long-term survival as a financial center. Not also that Singapore hosts one of the world's first CBDC exchanges with “Project Dunbar.” Hong Kong has the other with “mBridge” putting both of the world’s only CBDC exchanges in Asia.
Singapore will also be a CBDC leader with one of the first CBDC exchanges through Project Dunbar! Kudos to Singapore who is doing more to modernize finance than many other nations.
That this fintech innovation is all happening in Asia shouldn’t surprise regular readers. Asia's fintech has simply overtaken the West.
Congratulations to Singapore MAS and the entire team!
Rich Turrin is the international best-selling author of "Cashless - China's Digital Currency Revolution" and "Innovation Lab Excellence." He is an Onalytica Top 100 Fintech Influencer and an award-winning executive previously heading fintech teams at IBM following a twenty-year career in investment banking. Living in Shanghai for the last decade, Rich experienced China going cashless first-hand. Rich is an independent consultant whose views on China's astounding fintech developments are widely sought by international media and private clients.
