Singapore, November 2, 2022 – The feasibility of adopting DeFi protocols in financial markets with appropriate guardrails has been proven through a pilot by the Monetary Authority of Singapore (MAS). According to a joint report by Oliver Wyman Forum, DBS, Onyx by J.P. Morgan, and SBI Digital Asset Holdings, building full-scale financial services with institutional decentralized finance (Institutional DeFi) can bring financial institutions substantial cost savings, if they have a participation strategy ready to capture its value.
The launch of this report coincides with the MAS’s latest update at today’s Singapore FinTech Festival on its first pilot under Project Guardian, which aims to test the feasibility of applications in asset tokenization and DeFi while maintaining financial stability and integrity.
The joint report, titled Institutional DeFi – The Next Generation of Finance?, offer insights into the use cases of Institutional DeFi and collaboration opportunities within the digital asset ecosystem through Project Guardian. The report also draws on the hands-on experience of co-authors DBS, Onyx by J.P. Morgan, and SBI Digital Asset Holdings, which are leading the first pilot under Project Guardian.
Existing DeFi protocols are not designed for financial services, and thus need safeguards such as identity solutions to enable trust and compliance, says the report. A safer alternative, defined as Institutional DeFi, combines the power and efficiency of DeFi protocols to tokenized real-world assets with a level of safeguards to meet regulatory and customer requirements.
Han Kwee Juan, Managing Director and Group Head of Strategy and Planning at DBS said: “Institutional DeFi lays the foundations for global institutional liquidity pools that enable increased trading velocity, greater transparency, higher efficiencies, lower settlement risks, and economies of scale. It is early days yet, but with bold thinking, commitment to innovation, and constructive partnerships, there will be a vast array of possibilities to reshape and reimagine the boundaries of financial market infrastructure.”
The pilot also validated the crucial role of two key factors in Institutional DeFi. Firstly, regulated institutions need to act as “trust anchors”, screening and verifying the credentials of participating entities to ensure transactions are executed in a compliant manner. Secondly, an agreed set of technical standards around business logic and token standards is needed for interoperability.
Broader efforts are needed, however, to unlock the full potential of Institutional DeFi and make it scalable. The report calls for joint actions from regulators, financial intermediaries, clients, and other third parties, including DeFi communities, to address legal and regulatory uncertainties, establish shared standards, and seek to forge a common vision of how the market should operate.
“Our participation in Project Guardian is another step in the right direction to bring digital asset solutions to the institutional market. Industry collaboration is essential to transform the global capital markets value chain and we are delighted to join hands with strong private sector partners,” said Fernando Luis Vazquez Cao, CEO at SBI Digital Asset Holdings.
Given the transformative potential of Institutional DeFi, financial institutions need to develop a playbook for getting the most value out of it. Keeping in mind that Institutional DeFi will likely vary by jurisdiction and market structure, the report suggests three ways that financial institutions should start responding now:
- Develop a house view on the DeFi implications across business portfolios;
- Decide on a participation strategy to adapt existing business and embrace new opportunities enabled by Institutional DeFi;
- Get the organization ready to fulfil its ambitions by developing the required capabilities.
Ugur Koyluoglu, Partner and the Global Head of Digital Assets at Oliver Wyman said: “DeFi has the potential to transform the financial services industry. It is still too early to predict the end-game scenario for Institutional DeFi, however first movers will learn how best to deploy the technology, create a talent environment that fosters innovation and lead the way to shape up the future scope and design of Institutional DeFi including appropriate guardrails, standardization of processes, operational resilience, governance, maintenance, regulatory dialogue as well as economics.”
About the Oliver Wyman Forum
The Oliver Wyman Forum is committed to bringing together leaders in business, public policy, social enterprises, and academia to act on shared global challenges. The Oliver Wyman Forum strives to discover and develop innovative solutions by conducting research, convening leading thinkers, analyzing options, and inspiring action. Together with our growing and diverse community, we think we can make a difference. For more information, visit www.oliverwymanforum.com.
DBS is a leading financial services group in Asia with a presence in 18 markets. Headquartered and listed in Singapore, DBS is in the three key Asian axes of growth: Greater China, Southeast Asia and South Asia. The bank's "AA-" and "Aa1" credit ratings are among the highest in the world.
Recognised for its global leadership, DBS has been named “World’s Best Bank” by Global Finance, “World’s Best Bank” by Euromoney and “Global Bank of the Year” by The Banker. The bank is at the forefront of leveraging digital technology to shape the future of banking, having been named “World’s Best Digital Bank” by Euromoney and the world’s “Most Innovative in Digital Banking” by The Banker. In addition, DBS has been accorded the “Safest Bank in Asia” award by Global Finance for 14 consecutive years from 2009 to 2022.
DBS provides a full range of services in consumer, SME and corporate banking. As a bank born and bred in Asia, DBS understands the intricacies of doing business in the region’s most dynamic markets. For more information, please visit www.dbs.com.
About SBI Digital Asset Holdings (SBI DAH)
SBI DAH endeavors to bring innovation to the financial industry by building an ecosystem for issuance, custody, management, and liquidity for digital assets. SBI DAH has investments in key portfolio companies including Sygnum, Boerse Stuttgart Digital Exchange among others and leverages the SBI group's broader global network of subsidiaries and investments. Through SBI Digital Markets and AsiaNext (a JV with the Swiss SIX group), two key subsidiaries in Singapore, the group is growing its presence in the region to help shape the digital asset ecosystem.
The SBI Group is a leading financial conglomerate based in Japan. The SBI Group’s core businesses include Financial Services Business, Asset Management Business, Private Equity, Crypto-asset Business, and non-financial business.