DBS adopts DeFi protocols to carry out foreign exchange and government securities transactions

The trade comprised of the outright purchase and sale of tokenised Singapore Government Securities (SGS), Singapore Dollar (SGD), Japanese Government Bonds and Japanese Yen (JPY).

Han Kwee Juan, Group Head of Strategy and Planning, DBS, said that this is a significant first step towards laying the foundations for building global institutional liquidity pools that allow for increased trading velocity, greater transparency, higher efficiencies, lower settlement risks and economies of scale.

“This test trade has demonstrated that by harnessing the power of blockchain, the standards by which Financial Institutions currently deal with each other can be transformed and reimagined for greater efficiency and transparency. The ability to programme smart contracts will reshape how execution can be achieved in a highly trusted manner, especially if it takes place in a permissioned market where all anonymous wallets are verified by trust anchors performing ‘Know Your Customer’ processes and trading is allowed to take place within that pool. This provides a springboard for the industry to further opportunities in the trading world.”

Han added that Project Guardian showed that trading in a permissioned Defi protocol enables instant (atomic) trading, settlement, clearing and custody – all at the same time. This could transform current trading processes, as trading in a permissioned Defi protocol achieves greater efficiency by reducing friction and minimising risks. The success of this test trade also indicates the potential for creating deeper secondary liquidity across multiple financial assets and markets. “A highly liquid market attracts more investors and achieves efficiency gains by bypassing intermediaries. Currently, FX and government securities are primarily transacted in the Over-the-Counter markets involving multiple intermediaries resulting in friction in the settlement process.”

Singapore is the third largest foreign exchange centre in the world. Singapore’s FX average daily trading volumes rose to USD929 billion in April 2022 increasing 45% from April 2019. DBS, one of the largest regional market participants in Asia, continues to grow its Treasury and Markets (T&M) business. The T&M business recorded stellar income growth in recent years, from SGD2.2 billion in 2019 to SGD3.2 billion in 2021, an increase of more than 46 per cent. The business’ five-year revenue CAGR (2017-2021) of 13 per cent is also almost double the industry average of 6 per cent.

DBS’ T&M business has also executed some industry firsts including a SGD 15 million digital bond paving the way for more Security Token Offerings and facilitating a new avenue for issuers, investors and dealer banks to interact digitally on a seamless platform.