Singapore’s DBS Explains How Big Banks Can Implement DeFi, Too

Project Guardian involved Ethereum scaling system Polygon, DeFi lending platform Aave and decentralized exchange Uniswap.

AccessTimeIconNov 2, 2022 at 4:05 a.m. UTC
Updated May 9, 2023 at 4:01 a.m. UTC
10 Years of Decentralizing the Future
May 29-31, 2024 - Austin, TexasThe biggest and most established global hub for everything crypto, blockchain and Web3.Register Now

Singapore has quietly been playing host to some of the most advanced explorations into cryptocurrency and decentralized finance (DeFi) ever done by big banks, institutions and regulators.

In particular, Project Guardian, which sets out to test asset tokenization and DeFi for banks, launched in early summer by the Monetary Authority of Singapore (MAS), saw Singapore’s DBS Bank joined by JPMorgan and Japan’s SBI Digital as well as Marketnode, a digital asset platform built by the Singapore Exchange (SGX) and Temasek.

  • DeFi Market Rebounds to $50B as Speculators Hunt for Yield
    01:11
    DeFi Market Rebounds to $50B as Speculators Hunt for Yield
  • How Spool Is Aiming to Help Institutions Enter DeFi
    11:05
    How Spool Is Aiming to Help Institutions Enter DeFi
  • Ethereum Average Gas Fees Touched Highest Level in Six Months: Kaiko
    01:07
    Ethereum Average Gas Fees Touched Highest Level in Six Months: Kaiko
  • How a New Tax Proposal From the IRS Could Impact DeFi
    00:46
    How a New Tax Proposal From the IRS Could Impact DeFi
  • The first phase of testing involved trades in tokenized Singapore government securities, Singapore dollars (SGD), Japanese government bonds and Japanese yen (JPY), which was done using Ethereum public blockchain overlay system Polygon, DeFi lending platform Aave and Uniswap, a decentralized exchange and automated market maker (AMM).

    “We wanted to show it was possible to tokenize government securities and cash within a DeFi liquidity pool,” said Han Kwee Juan, group head of strategy and planning at DBS in an interview. “Then using an AMM, and solving for that with price oracles and market data streaming services from Bloomberg or Refinitiv, we wanted to create an institutional-grade DeFi venue which regulators would be comfortable with.”

    Banks and traditional financial institutions see opportunities and efficiencies to be gained by copying DeFi’s success in crypto, with the boldest moves involving public blockchains and promising to bring trillions in existing financial instruments to the party.

    Explaining some of the protocol choices in Project Guardian, Kwee Juan of DBS pointed out Polygon made sense because of the need for cheap gas fees. Reimagining a trading venue for an immense market such as government securities, and constantly writing that to a public blockchain would otherwise cancel out the collective benefit of atomic trading, clearing and settlement, he said.

    DBS also discovered there simply isn’t an AMM currently in existence that can mimic the way pricing is done between traders in the over-the-counter (OTC) institutional space.

    “There are many different combinations that can happen when trading OTC, and the AMMs currently out there are not complex enough to provide the kind of dynamic pricing needed if you truly want to achieve trading in a DeFi pool,” Kwee Juan said. “We had to tweak Uniswap to allow the transactions to then take place closest to where the pricing would be based on Bloomberg and Refinitiv.”

    Other lessons included how participants should instruct one another when getting out of and settling net positions. “How do we then instruct each other? Through our correspondent bank and custody banks?” Kwee Juan said.

    A general hurdle to be crossed concerns how to make a bank’s technology department understand how to launch smart contracts for each trader and then link things back to the core banking system, he added.

    “We worked through the flow and the journey to determine what would be required in order to get information back from the DeFi pool,” Kwee Juan said.

    Disclosure

    Please note that our privacy policy, terms of use, cookies, and do not sell my personal information has been updated.

    CoinDesk is an award-winning media outlet that covers the cryptocurrency industry. Its journalists abide by a strict set of editorial policies. In November 2023, CoinDesk was acquired by the Bullish group, owner of Bullish, a regulated, digital assets exchange. The Bullish group is majority-owned by Block.one; both companies have interests in a variety of blockchain and digital asset businesses and significant holdings of digital assets, including bitcoin. CoinDesk operates as an independent subsidiary with an editorial committee to protect journalistic independence. CoinDesk employees, including journalists, may receive options in the Bullish group as part of their compensation.

    Ian Allison

    Ian Allison is an award-winning senior reporter at CoinDesk. He holds ETH.


    Learn more about Consensus 2024, CoinDesk's longest-running and most influential event that brings together all sides of crypto, blockchain and Web3. Head to consensus.coindesk.com to register and buy your pass now.