DBS Bank, a major Asian financial institution, has used DeFi technology in a project supported by the Singapore Monetary Authority.

DBS Bank, a prominent Asian financial services conglomerate, is using decentralized finance (DeFi) for a project supported by Singapore’s central bank.

DBS said on November 2 that it has begun a trading test of foreign currency (FX) and government securities using permissioned, or private, DeFi liquidity pools.

The work is part of Project Guardian, a cross-industry collaboration project spearheaded by the Monetary Authority of Singapore (MAS). The exchange, which took place on a public blockchain, featured the purchase and selling of tokenized Singapore government securities (SGS), Singapore dollars (SGD), Japanese government bonds, and Japanese yen (JPY).

Trading using a private DeFi protocol enables simultaneous operations of instant trading, settlement, clearing, and custody, as demonstrated by the project. According to DBS, the effort has the potential to change existing trading procedures by improving liquidity across numerous financial assets and marketplaces.

The newest Project Guardian advancements, according to DBS’ head of strategy Han Kwee Juan, establish the groundwork for building global institutional liquidity pools that will enable speedier trading, better transparency, fewer settlement risks, and other benefits. Han stated that smart contracts have a lot of potential for trading execution and verification, saying:

“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.”

Han also stated that a highly liquid market attracts more investors and increases efficiency by eliminating the need for intermediaries. “Currently, FX and government securities are predominantly traded in over-the-counter markets, involving many intermediaries, which causes friction in the settlement process,” he noted.

DBS Bank has made a significant step into the cryptocurrency market in recent years, announcing the establishment of an institutional cryptocurrency exchange in December 2020. The company has also been attempting to make its cryptocurrency trading platform available to regular customers.

The latest Project Guardian milestone is another example of the growing trend of combining DeFi technology with centralized finance solutions. According to Swiss central bank official Thomas Moser, DeFi can complement central bank digital currencies in terms of liquidity and stability.