Singapore FinTech Festival 2023 Recap

Before delving further into the details of the SFF, I would like to highlight an article I wrote about DeFi regulation based on the CCI DeFi regulation framework. I believe it is one of the most well-articulated and sensible pieces on how to regulate DeFi, coming from institutions like a16z that have the necessary legal and technological insights, as they back CCI.

Special thanks to

• Latham and Watkins for a wonderful dinner, it was great to reconnect with colleagues in the industry and make new acquaintances. Thank you Simon Hawkins and Andrew Moyle for hosting.

• Sygnum for another dinner, was great to finally meet Gerald Goh and Mathias Imbach in person. Thank you Jennifer Lewis for the invite.

• Prof Heng Wang from SMU for inviting me to the SMU one-day conference. Very insightful.

• CFTE for the SFF ticket!

I have been attending SFF since 2017, and it has been improving every year. The panels are consistently insightful and interesting, the booths offer a chance to gain a better understanding of the industry, and it's always a pleasure to connect with colleagues in the field. FinTech is a vast industry, and at times, the possibilities for exploring one's interests can seem endless.

SFF, of course, is more than just tokenization and DLT. AI is a big area which is really revolutionizing FinTech both on the customer-facing side and the way developers work. GitHub had a booth showcasing Copilot, which I have been tinkering with myself. As an hobbyist programmer, I must say it is nothing short of revolutionary. I managed to get some little projects such as a AMM monitoring script working in a few minutes with the help of Copilot. I can’t imagine what it can do in the hands of skilled programmers.

But let's shift our focus to digital assets. MAS has made several announcements regarding Project Guardian and Project Orchid, both of which play a significant role in the tokenization movement. Project Guardian serves as an umbrella project for asset tokenization and institutional DeFi, while Project Orchid is a progressive initiative that specifically focuses on programmable money.

Project Guardian and Asset Tokenization

The Guardian announcements are significant. They demonstrate the forward-thinking culture of the MAS and its willingness to experiment in collaboration with commercial banks. Let’s talk through four of the main points:

• ‘Global Layer One’ (GL1) initiative

• Buy-side Asset Tokenization Projects

• More pilots

• Involvement of more policymakers

Global Layer One Initiative

In a panel featuring Alan Lim (MAS), Umar Farooq (JPM), Caroline Butler (BNY Mellon), Tommaso Mancini-Griffoli (IMF), Dr. Christoph Puhr (UBS), and Masashi Watanabe (MUFG), the GL1 was discussed.

What is the GL1? The MAS release states:

MAS is collaborating with international policymakers and FIs including BNY Mellon, DBS, JP Morgan and MUFG to explore the design of an open, digital infrastructure that will host tokenised financial assets and applications. This new initiative, called Global Layer One (GL1), will facilitate seamless cross-border transactions and enable tokenised assets to be traded across global liquidity pools, while meeting relevant regulatory requirements and guidelines. The participation of public-private stakeholders will help ensure that foundational digital infrastructures are established in accordance with international standards.

Based on what was mentioned during the panel, it can be described as a blockchain designed specifically for banks and financial institutions. It seems to find a middle ground between a fully-permissioned blockchain (controlled by specific financial institutions for their internal purposes) and a public blockchain such as Ethereum.

The name of the project provides a clue. For those who are unfamiliar, public blockchains like Ethereum are commonly known as "layer ones". This aligns with the goals of Guardian, which has publicly emphasized the importance of open networks.

JPM's Umar Farooq made some clear points:

• He doesn't see large transactions using public blockchains as feasible, stating "Sending 100 million to another bank on a public blockchain where no one is accountable is not feasible."

• He is skeptical about bridges, referencing the Wormhole hack in the crypto world.

• He highlights the challenges of integrating different blockchains.

In my opinion, this initiative could be very significant. It would be logical for it to be Ethereum-based, considering that Onyx already runs on permissioned Ethereum.

Who will be allowed to build apps on GL1? 🤔

It's worth noting that the concept of 'one ledger to run them all' has also been discussed in relation to the Regulated Liability Network and the BIS's 'Unified Ledger'.

The "Interlinked Network Model" (INM) initiative launched by the MAS appears to be more focused on ensuring that multiple blockchains work together. The INM whitepaper explores interoperability, examining various bridge models, standards, and legal and compliance considerations.

Buy-side Asset Tokenization Projects

The history of asset tokenization has mostly focused on the sell-side. For instance, in Singapore, several security token platforms can assist companies in raising capital through tokenized securities. Additionally, they enable tokenization of current private equity holdings and facilitate secondary trades.

There were a few announcements during SFF regarding buy-side tokenization, with asset managers as the primary users. I believe that this indicates a greater level of maturity in asset tokenization as a whole.

JPM and Apollo (one of the largest alternative asset management companies in the world, with AUM ~$500B) announced ‘Crescendo’, a project around portfolio management of tokenized securities, which allows for better discretionary management of tokenized alternative assets. (Alternative assets being broadly defined as non-publicly traded equities and bonds)

The main concept revolves around using tokenization to improve access to alternative investments and streamline portfolio management. Currently, access to alternative investments is primarily limited to sophisticated investors. Incorporating alternative assets into portfolios can boost returns, enhance diversification, and reduce volatility. Tokenization enables smooth portfolio rebalancing, in real time and at scale, by integrating public and alternative assets.

The project also involved other blockchain service providers such as Provenance Blockchain, Ava Labs, Oasis Pro, Axelar, Layer Zero and Biconomy.

The MAS has also announced a "new funds workstream" that focuses on the native issuance of Variable Capital Company (VCC) funds on digital asset networks (presumably DLT). The workstream aims to address tax, policy and legal considerations while increasing distribution channels for asset managers.

More pilots

The Guardian announcement revealed several pilots involving multiple financial institutions:

Citi, T. Rowe Price Associates, Inc., and Fidelity International are testing institutional-grade mechanisms to price and execute bilateral digital asset trades efficiently. They are also exploring real-time post-trade reporting and analytics for digital asset trades.

BNY Mellon and OCBC are trialing a cross-border FX payment solution that enables secure and interoperable payment solutions across heterogeneous networks.

Ant International is trialing a treasury management solution to enhance global liquidity management funding. This solution enables real-time multi-currency clearing and settlement through their global treasury center in Singapore, which supports over 40 currencies.

Franklin Templeton is exploring the issuance of a tokenized money market fund through a Variable Capital Company (VCC) structure. This structure utilizes digital asset networks to maintain records of fund shares.

J.P. Morgan and Apollo are collaborating on the use of digital assets to enable more seamless investment and management of discretionary portfolios and alternative assets, as mentioned earlier.

Involvement of more policymakers

MAS had previously announced the formation of a Project Guardian policymaker group, comprising regulators from Japan, Switzerland, and the UK in October. During this SFF, it was announced that the IMF would also be joining the Project Guardian policymaker group.

Therefore, indications suggest that asset tokenization is gaining momentum.

Project Orchid

To recap, Project Orchid is about Purpose-Bound Money (PBM), which was announced at the previous SFF. PBM focuses on the programmability of money, regardless of whether it is in the form of a central bank digital currency (CBDC), stablecoin, or deposit token.

This year saw more pilots under the Project Orchid umbrella:

• Amazon: Escrow for eCommerce

• UOB - OCBC: Fungibility trial for Digital Singapore Dollar

• JPM: Institutional PBM with payment controls for deposit tokens

• UOB - Grab - StraitsX: Singapore Pitstop Pack

The MAS had also released Orchid Blueprint, which details ‘the infrastructure for the safe and innovative use of digital money in Singapore’.

As I sat through the various presentations, I couldn't help but feel that something significant is happening in Singapore regarding programmable money. To my knowledge, no other jurisdiction is carrying out pilots with programmable money on such a large scale. I daresay, Singapore’s concentration of crypto companies and talent has translated into the regulated side, validating the Crypto - Fiat Innovation Dialectic. ☯️

Stablecoin vs Tokenized Deposit Debate

One of the highlights of SFF for me was the debate on Stablecoins vs Tokenized Deposits, which I understand had a previous round at the Point Zero Forum. The panel consisted of:

Team Crypto

• Dante Disparte (Circle)

• Rich Teo (Paxos)

• Staci Warden (Algorand)

Team Banking

• Umar Farooq (JPM)

• Caroline Butler (BNY Mellon)

• Dr. Anna-Naomi Bandi-Lang (UBS)

The debate was moderated by Jo Yeo (MAS).

I thought it was an excellent debate with many of the important points in this discussion raised. The motion was ”Stablecoins, and not tokenised deposits, are better positioned to unlock economic opportunities and uplift financial inclusion”.

To summarise:

Team Crypto (Stablecoins)

1. Safety Over Banks: Team Crypto asserts that stablecoins could be safer than banks, especially if given access to clearing accounts with central banks. They argue that deposits are kept safe in bankruptcy-remote entities. The current system forces stablecoin issuers to rely on commercial banks, leading to vulnerabilities as seen in the SVB case.

2. Utility in Crisis Situations: Stablecoins have proven to be useful in situations where traditional banking systems fail, such as fundraising during the Ukraine crisis.

3. Operational Advantages Over Banks: Lower transaction costs for cross-border transactions and non-stop operation, including during holidays. In contrast to the traditional banking system which doesn’t operate 24/7.

4. Accessibility and Financial Inclusion: They advocate for the inclusive nature of stablecoins, useful in regions with limited banking access or hyperinflation.

Team Banking (Tokenized Deposits)

1. Stability and Safety: Emphasize the stability and safety of tokenized deposits, supported by the established regulatory frameworks and experience of traditional banking. They cite a recent Moody’s report that claims 609 depegs in large cap stablecoins in 2023.

2. Risk Management and Trust: Focus on banks' risk management capabilities, their history of handling crises, and the trust built in the banking system.

3. Regulatory Compliance: Argue for the importance of regulatory compliance in banking, including KYC and AML standards.

4. Financial Inclusion Through Traditional Banking: Contend that financial inclusion can be achieved through banking systems, as evidenced by projects like Aadhar / UPI in India.

An audience poll was taken to determine the winner: Team Crypto. Given that financial inclusion was the motion, this is not totally surprising. I believe we can foresee a future where CBDCs, tokenized deposits, and stablecoins coexist, each serving distinct use-cases.

IMF MD’s Kristalina Georgieva strong opening on CBDC

In a sign of things to come, IMF MD Kristalina Georgieva opened the conference by announcing the launch of a CBDC handbook from the IMF, and that ‘now is not the time to turn back’ on CBDCs. Quite frankly, I don’t think the majority of the audience even knew what CBDCs were.

Other observations

Not many crypto booths / exchanges from 2022. Must be the crypto winter or policy shift.

That’s it for this week’s newsletter! Let me know if you attended SFF and what your thoughts were.