MAS presented a report, in which it summarised the work with BIS on Project Guardian. The initiative is aimed at examining the alignment of tokenisation and DeFi with international standards.
As part of the project, participants examined the possibility of integrating protocols into institutional market infrastructure.
Experts assessed the viability of DeFi applications, and options for transforming real assets into digital tokens without risk to global financial stability and integrity.
The document lays out arguments in favour of open and interoperable private blockchains, which enable exchange of tokenised assets via decentralised finance protocols.
The report aims to implement leading practices for DeFi applications that could regulate trading of asset classes such as equities, fixed-income instruments, foreign currency and investment funds.
The document introduces a framework for design options that enable trading of such instruments.
MAS experts concluded that public blockchains, compared with private ones, may be more risky — validators do not require approval or authorisation from official regulators. Also, in the absence of centralised oversight over who can act in such capacity, networks become susceptible to malicious activity.
Private blockchains, experts noted, are “more selective” as they allow joining only pre-authorised organisations. This creates a controlled environment in which all participants are known and trusted organisations, reducing the likelihood of fraudulent or malicious actions.
Analysts cited a DeFi risk report. In particular, they mentioned the threat of concentration of votes in protocols, where decisions are often taken and executed by only a few controlling entities.
The report also mentions the susceptibility of public networks to risk of unplanned outages.
“Most existing protocols may not meet enterprise-grade requirements and may not provide sufficient reliability and fault tolerance,” — added by experts.
The study notes that the path to regulating DeFi is fraught with a number of problems, since the regulatory framework for tokenised financial assets and DeFi is still under development.
The document mentions key aspects such as recognising digital financial assets as property, defining settlement finalisation and governance of DeFi protocols.
The situation is compounded by the fact that DeFi deals may be regulated by different regulatory acts across jurisdictions. Solving the problem requires a coordinated international approach, the experts said.
The study lists several pilot projects that demonstrated the potential of tokenisation to enhance customisation, broaden adoption, and reduce costs and time involved in trading financial products.
As BIS experts called tokenisation based on CBDC the future of the global financial system, and cryptocurrencies — a misguided branch of this process.