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DBS Completes Industry Pilot With DeFi Liquidity Pools

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DBS today announced that it has become one of the first banks globally to test the trading of FX and government securities using permissioned DeFi liquidity pools on a public blockchain through Project Guardian, a collaborative initiative with the financial industry that seeks to explore the economic potential and value-adding use cases of asset tokenisation.

The trade comprised the outright purchase and sale of tokenized Singapore Government Securities (SGS), Singapore dollar (SGD), Japanese government bonds, and Japanese yen (JPY).

Han Kwee Juan, DBS group head of strategy and planning, said that this is a significant first step towards laying the foundations for building global institutional liquidity pools that allow for increased trading velocity, greater transparency, higher efficiencies, lower settlement risks, and economies of scale from a more liquid secondary trading market.

“The ability to programme smart contracts will reshape how execution can be achieved in a highly trusted manner, especially if it takes place in a permissioned market where all anonymous wallets are verified by trust anchors such as ‘Know Your Customer’ processes and trading is allowed to take place within that pool. This provides a springboard for the industry to further opportunities in the trading world,” Han said.

Related: MAS Taps Industry to Pilot Use Cases in Digital Assets

Han added that Project Guardian showed that trading in a permissioned Defi protocol enables instant (atomic) trading, settlement, clearing, and custody all at the same time. This could transform current trading processes, as trading in a permissioned Defi protocol achieves greater efficiency by reducing friction and minimising risks. The success of this test trade also indicates the potential for creating deeper secondary liquidity across multiple financial assets and markets.

“A highly liquid market attracts more investors and achieves efficiency gains by bypassing intermediaries. Currently, FX and government securities are primarily transacted in the over-the-counter markets involving multiple intermediaries resulting in friction in the settlement process.”

According to the Singapore Foreign Exchange Market Committee, the republic is the third largest FX centre in the world and the FX market for Singapore alone recorded a daily average of US$929 billion in the month of April 2022. The bank’s Treasury and Markets (T&M) business has grown from S$2.2 billion in 2019 to S$3.2 billion in 2021.

DBS’ T&M business previously executed a S$15 million digital bond, paving the way for more Security Token Offerings and facilitating a new avenue for issuers, investors, and dealer banks to interact digitally.