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A controlled, state-sponsored network for decentralized finance (DeFi) is not going to work, according to Sopnendu Mohanty, chief fintech officer, Monetary Authority of Singapore (MAS).
Responding to a question from the audience at the OMFIF Asia Forum held last Thursday, about whether DeFi has the potential to become a global fintech infrastructure, Mohanty explained that DeFi has to “take the shape of what the Internet did to us” as “nobody built the internet”.
“There has to be some magical way, I don’t know who will do it, where all these networks and servers find a way to do this decentralised public blockchain as an alternate, new form of the Internet,” he said
“The world got distracted, to make it commercially attractive. And to not get regulators going after them, the public blockchain networks shifted to permissioned and all kinds of centralised business models, trying to make the status quo happy, and they lost that desire to build an alternate, open and distributed network,” he continued.
Mohanty also opined that it’s impossible for central banks to regulate a protocol.
“Why do you expect banks to do DeFi protocols?” Mohanty said, before quickly explaining that while the MAS is doing it now as an “experiment,” they’re coming to a point of “reflection” on whether it’s the “right model to do”.
In an interview with the Financial Times published in June, Mohanty had said that a state-backed alternative to private cryptos can be expected within three years.
“We have been called out by many cryptocurrencies for not being friendly,” he said on behalf of the MAS. “My response has been: friendly for what? Friendly for a real economy or friendly for some unreal economy?”
MAS still keen on “institutional grade” DeFi
Despite Mohanty’s comments, it appears that the MAS is still taking the safer route when it comes to DeFi. This means that “DeFi” transactions are facilitated by traditional banks, albeit on a blockchain-based network.
Earlier this year, the MAS announced the commencement of Project Guardian – a collaborative initiative with the financial industry that will explore the “economic potential” and “value-adding” use cases of asset tokenisation.
Speaking at Chainalysis’ Links event in June, Alan Lim, MAS head of fintech infrastructure office, said that the blockchain projects of today are “great” because they are open-sourced. However, they are lacking assurance for investors, which leaves room for something termed as “institutional-grade” DeFi protocols.
“There’s isn’t an existence of some form of certification and assurance that these protocols are actually working in the way that they’ve been advertised to work. There aren’t any controls or safeguards against market manipulation”, Lim said.
Lim highlighted the first industry pilot under Project Guardian, which explores potential DeFi applications in wholesale funding markets. It is led by DBS Bank, JP Morgan and Marketnode, and involves the creation of a permissioned liquidity pool comprising tokenised bonds and deposits.
Last month, DBS officially became the first bank in Asia to complete an intraday repurchase transaction on a blockchain-based network. The transaction was completed on J.P. Morgan’s intraday repurchase application as part of its Onyx Digital Assets unit.