MAS Launches First DeFi Pilot Tests with Polygon and Aave

The Monetary Authority of Singapore (MAS) has announced that it has succeeded in conducting wholesale transactions launching with a focus on exploring both digital assets and the Decentralized Finance (DeFi) ecosystem.

The concluded pilot program accounts for one of the apex banking regulators of testing the application of asset tokenization and DeFi across a broader range of use cases in the financial sector. 

As revealed by the MAS, mainstream financial services players including DBS, JPMorgan Chase & Co, and SBI Digital Asset Holdings conducted foreign exchange and government bond transactions against liquidity pools comprising tokenized Singapore Government Securities Bonds, Japanese Government Bonds, Japanese Yen (JPY) and Singapore Dollar (SGD). 

A major highlight of the pilot test as confirmed by JPMorgan’s Ty Lobban is that the MAS built the test environment around two of the industry’s most used blockchain protocols including Polygon, a Layer-2 protocol on the Ethereum network as well as Aave, one of the pioneering DeFi lending protocols.

Riding on the capabilities of DeFi protocols to eliminate middlemen by powering transactions directly between two entities using smart contracts, the MAS said the first pilot tests helped cut off transaction costs and the delay experienced through Clearing and Settlement Intermediaries respectively.

Advancing Project Guardian

The MAS launched the DeFi pilot test under Project Guardian and it has outlined avenues to continually participate in industry pilots, studying regulatory and risk management implications as well as helping to develop technical standards that can help foster a robust crypto ecosystem.

“The live pilots led by industry participants demonstrate that with the appropriate guardrails in place, digital assets and decentralised finance have the potential to transform capital markets,” said Sopnendu Mohanty, Chief FinTech Officer of the MAS. 

“This is a big step towards enabling more efficient and integrated global financial networks. Project Guardian has deepened MAS’ understanding of the digital asset ecosystem and has contributed to the development of Singapore’s digital asset strategy. We look forward to working with more institutions to advance global learning on policies, standards, and best practices for digital asset regulation and responsible innovation.”

The MAS comes off as one of the most proactive central banks whose interest to help develop blockchain and crypto-related solutions are made evident by its targeted activities. Considering the recent collapse of the Terra ecosystem and its impact on the broader market, the MAS is showing more commitment to tightening its grip on the industry, but not so bad as to harm innovations.

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