DBS announces successful testing of FX trading using DeFi

DBS announced today (November 2) that it has successfully tested foreign exchange and government bond trading using licensed DeFi liquidity pools on a public blockchain.

This test was part of Project Guardian, a collaborative initiative between MAS and private sector companies including DBS, JP Morgan and Marketnode.

The test, which DBS described as a groundbreaking milestone, involved buying and selling tokenized versions of Singapore government bonds, Singapore dollars, Japanese government bonds, and Japanese yen. Test trades were performed using an Automated Market Marker (AMM), which enables automatic execution of buy and sell transactions using smart contracts. The AMM uses a transparent and predefined formula to account for supply and demand to determine buy and sell prices.

According to Han Kwee Juan, DBS Group Head of Strategy and Planning, this test marks a significant first step in laying the foundation for the creation of global institutional liquidity pools.

Han Kwee Juan, Head of Planning and Strategy Group, DBS
Han Kwee Juan, Head of Planning and Strategy Group, DBS / Image credit: McKinsey

The benefits of such pools would include faster trading speed, greater transparency, greater efficiencies, lower settlement risks and economies of scale.

“The ability to schedule smart contracts will reshape how execution can be achieved in a highly reliable way, especially if it happens in an authorized marketplace where all anonymous wallets are verified by trusted anchors running processes” Know your customer “and the trading is authorized to take place within that pool. This provides a springboard for the industry to further opportunities in the trading world.”

Han Kwee Juan, Head of Planning and Strategy Group, DBS

According to Han, the current protocol for trading foreign currencies and government bonds largely involves transactions in over-the-counter markets and involves multiple intermediaries before the exchange is made. As such, there is significant friction when these exchanges are made.

Using the blockchain for currency exchange and securities trading would mean that trades can be executed without having to go through the same intermediaries and that trades are executed instantly.

As Singapore is one of the largest currency exchange centers in the world, using blockchain technology to carry out such operations would greatly improve trading for many investors.

“We believe DLT has the potential to redefine the financial markets as we know them by fundamentally changing the trading, payment and settlement processes that are currently very sequential.”

Han Kwee Juan, Head of Planning and Strategy Group, DBS

This isn’t DBS’s only foray into the Web3 world

Aside from this successful test as part of the Project Guardian, DBS has also strengthened its involvement in the metaverse and the Web3 space.

Earlier this month, the bank announced it had partnered with The Sandbox, a decentralized virtual gaming world and subsidiary of Animoca Brands, to create DBS BetterWorld. This deal was the first partnership between The Sandbox and a Singapore company.

DBS partnership with The Sandbox
Image credit: DBS bank

DBS also launched a digital asset exchange called Ddex in December 2020, which reached $ 1 billion in exchange value in February of this year. According to DBS, DEx’s corporate and institutional clients include established banking and financial institutions, a central bank, and even other digital asset exchanges.

In September last year, DBS Vickers, the brokerage arm of DBS Bank and part of DDex, announced that it has received In-Principle approval from MAS to provide digital payment token services as a leading payment institution. The company received full approval in October 2021.

So far only a handful of companies have obtained principle approvals and even fewer have obtained full licenses.

Despite these investments in blockchain technology and the Web3 world, DBS CEO Piyush Gupta said the bank will not extend its cryptocurrency trading services to retail clients in the foreseeable future.

Gupta himself said cryptocurrencies have the potential to act as a store of value, but acknowledged that regulators are “rightfully concerned” with allowing cryptocurrencies to enter the retail market.

Featured image credit: Forcast