MAS considered aspects of tokenization and DeFi protocols


MAS presented a report summarizing the results of work with BIS over Project Guardian. The initiative aims to study the compliance of tokenization and DeFi with international standards.

As part of the project, the participants considered the possibility of integrating protocols into the institutional market infrastructure.

The experts tested the “viability” of DeFi applications, as well as options for transforming real assets into digital tokens without risking global financial stability and integrity.

The paper reveals the case for open and interoperable private blockchains that offer the exchange of tokenized assets using decentralized financial protocols.

The report aims to introduce best practices for DeFi applications that can regulate the exchange of asset classes such as stocks, fixed income instruments, foreign exchange and investment funds.

The document introduces a common structure for design options that allow trading of similar instruments.

MAS experts came to the conclusion that public blockchains can be more risky compared to private ones – validators do not require approval or authorization from official regulators. Also, in the absence of central control over who can act as such, networks become susceptible to malicious activity.

Private blockchains have been called “more selective” by experts because they only allow pre-authorized organizations to join. This creates a controlled environment where all participants are known and trusted entities, reducing the chance of fraudulent or malicious activity.

Analysts cited a report on risk in DeFi. In particular, they mentioned the threat of concentration of votes in minutes, where decisions are often made and implemented by only a few controlling entities.

The report also mentions the exposure of public networks to the risk of unplanned outages.

“Most existing protocols may not support enterprise-level requirements and may not provide sufficient reliability and fault tolerance”, experts added.

The study notes that the path to DeFi regulation comes with a number of challenges as the regulatory framework for tokenized financial assets and DeFi is still under development.

The document mentions key aspects such as the recognition of digital financial assets as property, the definition of settlement finalization, and the management of DeFi protocols.

The situation is aggravated by the fact that in different jurisdictions DeFi transactions can be regulated by different regulations. To solve the problem, a coordinated international approach is needed, the experts pointed out.

The study lists several pilot projects that have demonstrated the potential of tokenization to improve customization, enable wider adoption, and reduce the cost and time associated with the exchange of financial products.

Recall that BIS experts called CBDC-based tokenization the future of the global financial system, and cryptocurrencies are an erroneous branch of this process.

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