In 2016, the Monetary Authority of Singapore (MAS) led Project Ubin for the clearing and settlement of payments and securities on a distributed ledger or blockchain. Partior, founded by DBS, JP Morgan and Temasek Holdings, was viewed as the potential commercialisation of the findings from Project Ubin. Standard Chartered Bank is also a partner. Neither United Overseas Bank U11 (UOB) nor Oversea-Chinese Banking Corp (OCBC) joined the Partior consortium.

Partior was meant to achieve end-to-end settlements in Singapore and US dollars in less than 120 secs. Its model was to provide an alternative for wholesale settlements by banks. However, in July, Partior was reported to have laid off a large portion of its workforce following the appointment of a new CEO in May.

Press reports mentioned “unforeseen technical hurdles” . Partior is reported to have faced several challenges that may have hindered its effectiveness. These include cross-border regulations, legacy systems and banking platforms, and scalability on the blockchain.

The success of any new technology depends on widespread adoption by banks and financial institutions. If key players are hesitant to switch from traditional methods, it can limit the system’s effectiveness. Cross-border foreign exchange (FX) settlements require significant liquidity. If the platform cannot ensure sufficient liquidity for transactions, it may struggle to gain traction.  

“The proliferation of disparate infrastructures and the limited interoperability between systems has resulted in market fragmentation, increased funding and opportunity costs. As we explore ways to reap the benefits of asset tokenisation, it is crucial we mitigate against risks of fragmentation across primary and secondary markets. MAS’s aim is to help scale asset tokenisation to foster commercial deployments across different asset classes, and develop foundational digital asset infrastructure to support global, cross-border tokenised asset transactions,” says Leong Sing Chiong, deputy managing director, markets and development, MAS.

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“Existing public blockchains, without additional safeguards, are not fit for purpose for regulated financial activities. To address these gaps, MAS is collaborating with fellow central banks, regulators, as well as financial institutions and international industry associations,” he adds.

Collaborating on projects

Project Guardian explores the use of digital assets and blockchain technology in the financial sector. MAS has been collaborating with central banks, regulators, financial institutions and industry associations in Singapore, Japan, France, Switzerland, Germany and the UK to explore promising asset tokenisation use cases, specifically for capital markets.

“We want to create pathways to scale, not just continue to facilitate pilots. We have conducted 17 industry pilots to date under Project Guardian, involving six currencies, specifically with a focus on capital markets products in fixed income, FX, and asset & wealth management,” Leong points out.

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Project Guardian aims to enhance the liquidity and efficiency of financial markets through asset tokenisation. In the next phase, MAS will examine creating the regulatory and business environment to scale these asset classes.

“We are also working with international industry associations to foster the development of standards and frameworks across key asset classes [e.g. the International Capital Market Association (ICMA), International Swaps and Derivatives Association (ISDA), and Global Financial Markets Association (GFMA)] to develop industry standards and risk management frameworks,” Leong explains.

At the horizontal foundational digital infrastructure level, MAS is collaborating with financial institutions and fellow policymakers on the Global Layer One (GL1) initiative, to create a unified, interoperable blockchain infrastructure that enhances global financial systems

Leong cites four factors required for distributed ledger technologies to be feasible.

First, a robust governance structure must be established, with a clear system of rules, roles and responsibilities for entities involved in the ledger. It should support sound decision-making, risk management, incident and emergency response, and provide robust management oversight.

Second, a fundamental requirement for any record-keeping system is traceability, which means to have records structured and maintained such that any legitimate entity can verify the relevant history of the record.

Third, a framework around the accountability of settlement must be established. Considerations around the key components of settlement— namely the settlement asset, settlement operation and legal settlement finality — must be accounted for.

Fourth, technology and cyber risk management measures must be employed to ensure the safe conduct of financial transactions on the ledger and the data residing on it.

DBS commercialises blockchain tech

On Aug 13, DBS launched DBS Treasury Tokens, a next-generation treasury and liquidity management solution. “DBS Treasury Tokens stems from the learnings and systems developed from the bank’s multi-year participation in MAS-led Project Orchid and Project Guardian to test the benefits of tokenisation,” DBS says.

On Oct 18, DBS announced it had successfully harnessed the experiments in Project Ubin, Project Orchid and Project Guardian to launch DBS Token Services with its treasury tokens, conditional payments and programmable rewards.

DBS Token Services enables 24/7 real-time settlement of payments by integrating the bank’s blockchain, its core payment engine and multiple industry payment infrastructures. Using a permissioned blockchain gives DBS full control over these services, enabling the bank to harness the benefits of blockchain technology while adhering to compliance standards.

“By leveraging tokenisation and smart contract capabilities, DBS Token Services enables companies and public sector entities to optimise liquidity management, streamline operational workflows, strengthen business resilience, and unlock new opportunities for end-customer or end-user engagement. It marks a significant step forward in transaction banking and demonstrates how established financial institutions can leverage blockchain technology to deliver new ground-breaking features and experiences,” says Lim Soon Chong, group head of global transaction services, DBS.

To recap, Project Orchid, which was implemented in 2022, examined the use of a digital Singapore dollar (which is a central bank digital currency or CBDC). During SFF2023, MAS announced plans to pilot the use of live wholesale CBDC to settle retail payments between commercial banks. Future pilots could include the use of live wholesale CBDC for the settlement of cross-border securities trade.

To ensure the settlement of tokenised assets in financial markets, regulated and credible forms of tokenised money are needed. This spans across both tokenised money issued by the public, like CBDC, and by private sector entities such as tokenised deposits and regulated stablecoins.

“Wholesale CBDCs can play a useful role where a market prefers to use a credit risk-free instrument to facilitate settlement of tokenised transactions. We have conducted trials in wholesale CBDC together with other policymakers and the financial industry,” says Leong.

“We have been building capabilities to support plans to issue wholesale CBDC and have kicked off discussions with key industry players on developing wholesale CBDC and tokenised deposit pilots. The introduction of wholesale CBDCs will complement ongoing digital money trials under Project Orchid,” he adds.

The design of CBDC and digital money generally must also comply with prevailing data privacy and protection requirements.

To prevent the fragmentation of liquidity, MAS has completed various wholesale CBDC industry trials that validated different models of interoperability, ensuring the flow of liquidity across different financial networks, which may have different policy objectives, governance arrangements and compliance measures,” Leong elaborates.