Mamoru Yanase, Deputy Director-General of the Strategy Development and Management Bureau at the FSA, said: "We are delighted to join the Project Guardian as an observer. Decentralized financial ecosystem continues to develop in complexity, and it is important to address emerging risks. Blockchain technology including web3 has a potential to become a strong driver of innovation. We look forward to working with MAS, traditional financial institutions and FinTech firms to further enhance our knowledge in this area."

The report also considers how the CPMI-IOSCO principles for financial market infrastructures can be applied to evolving models of digital asset networks, taking reference from industry pilots launched under Project Guardian, which is MAS’ collaborative initiative with the financial industry to test the feasibility of applications in asset tokenisation and Decentralised Finance.  The report is part of MAS’ effort to ensure that "emerging digital asset networks are underpinned by international standards which promote safe and efficient financial market infrastructure." 

MAS also announced an expansion of Project Guardian to test the potential of asset tokenisation across more financial asset classes. To support this, MAS has established the Project Guardian Industry Group, comprising 11 financial institutions which will lead industry pilots in asset and wealth management; fixed income; and foreign exchange.

At its sixth annual meeting held on 25 and 26 October 2022, the panel addressed a range of challenges facing the financial sector, including:

• mitigating cybersecurity risks related to the increasing use of distributed ledger technology (DLT);
• maintaining agility of responses to cyber threats amid a worsening geopolitical climate;
• adopting a holistic approach in dealing with digital banking scams;
• preparing for emerging risks associated with quantum computing; and  
• managing concentration risks associated with critical third-party service providers. 

Menon talked about a number of key areas including Singapore's strategy to develop a digital asset ecosystem. He said MAS is taking a four-pronged approach to building the digital asset ecosystem:

• first, explore the potential of distributed ledger technology in promising use cases;
• second, support the tokenisation of financial and real economy assets;
• third, enable digital currency connectivity; and
• fourth, anchor players with strong value propositions and risk management.

He also discussed the five areas of risk in digital assets that MAS’ regulatory approach is focused on:

• first, combat money laundering and terrorist financing risks;
• second, manage technology and cyber related risks;
• third, safeguard against harm to retail investors;
• fourth, uphold the promise of stability in stablecoins; and
• fifth, mitigate potential financial stability risks.

Project Guardian will test the feasibility of applications in asset tokenisation and Decentralised Finance (DeFi) while managing risks to financial stability and integrity. MAS aims to develop and pilot use cases in four main areas:

1. Open, interoperable networks – exploring the use of public blockchains to build open, interoperable networks that enable digital assets to be traded across platforms and liquidity pools. 
2. Trust anchors – establishing a trusted environment for the execution of DeFi protocols through a common trust layer of independent trust anchors. Trust anchors are regulated financial institutions that screen, verify and issue verifiable credentials to entities that wish to participate in DeFi protocols. 
3. Asset tokenisation – examining the representation of securities in the form of digital bearer assets and the use of tokenised deposits issued by deposit-taking institutions on public blockchains.  
4. Institutional grade DeFi protocols – studying the introduction of regulatory safeguards and controls into DeFi protocols to mitigate against market manipulation and operational risk. The project will also examine the use of smart contract auditing capabilities to detect code vulnerabilities.

Led by the Innovation Hub's Singapore Centre, Project Dunbar demonstrated that financial institutions could use CBDCs issued by participating central banks to transact directly with each other on a shared platform. This has the potential to "reduce reliance on intermediaries and, correspondingly, the costs and time taken to process cross-border transactions".