MAS has released a timely and informative paper that examines the potential of DeFi and asset tokenization to disrupt the traditional financial system.
The paper, “Project Guardian: Enabling Open & Interoperable Networks”, takes a deep dive into the potential of DeFi and how it can be used to digitize tangible assets.
The paper suggests that DeFi and asset tokenization can be safely integrated into the existing financial system, but it also argues that there is a need for both open and private networks.
In collaboration with the BIS, MAS is working on a project to develop best practices for DeFi protocols. The project aims to create a universal framework that can be used to effectively trade digital assets across multiple networks and liquidity pools.
The MAS document praises private digital networks for their security and efficiency, but it also warns that public networks can be risky. The report says that public networks lack the same level of control as private networks, which makes them more vulnerable to attack.
Private networks are considered more secure than public networks because they only allow access to authorized participants. This exclusivity creates a safer environment where everyone is known and trusted, which reduces the risk of fraud and other malicious activity.
The report admits that regulating DeFi is a complex undertaking, as the underlying technology is still evolving and there is no universally accepted definition of DeFi.
The paper stresses the importance of recognizing digital fiscal assets as legitimate property, defining settlement finality, and governing DeFi protocols.
The lack of a unified international regulatory framework for DeFi is a major challenge, as it leads to different jurisdictions having different rules and regulations. This can create potential hurdles and inconsistencies for businesses and users of DeFi protocols. The paper concludes by stressing the importance of developing a unified international strategy to address this challenge.
The MAS analysis highlights several pilot projects that show the potential advantages of tokenization, including greater customization, broader distribution, and a significant decrease in the time and cost of trading financial products.
The document points to successful digital finance product trials by major financial institutions, such as HSBC, Marketnode, UOB, and UBS Asset Management. These trials further highlight the potential benefits of asset tokenization and DeFi when used on digital networks to improve market trading and distribution.