MAS & SGX on How Project Ubin is the Way of the Future for Blockchain Interoperability .

We speak to Singapore's monetary authority and exchange on a new, groundbreaking fintech project

MAS & SGX on How Project Ubin is the Way of the Future for Blockchain Interoperability


At the Project Ubin booth at Singapore Fintech Festival. From L to R: Andrew Koay (SGX), Peter Shen (SGX), Johan Toll (Nasdaq), Wee Kee Toh (MAS).

By Johan Toll, Head of Digital Assets, Market Technology

We had a blast at this year’s Singapore Fintech Festival, which is considered the largest festival of its kind in the world.

In addition to all the goings on, Nasdaq was part of an announcement by the Monetary Authority of Singapore (MAS) and Singapore Exchange (SGX) around an exciting blockchain collaboration called Project Ubin. Last week’s announcement was on the partnership successfully developing Delivery versus Payment (DvP) capabilities for the settlement of tokenized assets across different blockchain platforms. The goal is to simplify post-trade processes and further shorten settlement cycles.

I took a few minutes to speak with Wee Kee Toh, Assistant Director, FinTech & Innovation Group (FTIG), Monetary Authority of Singapore (MAS) and Peter Shen, Head of Technology Strategy & Transformation, Singapore Exchange (SGX) about this groundbreaking project.

Gentlemen, thank you for taking the time to speak with me. How did the idea for Project Ubin come about originally?

Wee Kee Toh (WKT): We started Project Ubin about two years ago. At that time, everyone was talking about blockchain technology. It sounded like a silver bullet for all types of issues in the financial industry, so of course we got interested. But once we started looking deeper into this, we realized that the understanding of the technology was superficial – everyone was saying something, but no one was actually doing anything.

As an industry, it is not healthy if everyone wants to be a fast follower. This is why we decided to initiate a blockchain project that would bring financial institutions together, to experiment and learn from each other.

Payments was a natural use-case for us as we run inter-bank payments, and have the expertise and knowledge in this space. Furthermore, there are limited proprietary benefits for any one party, so participants are more willing to collaborate and share in an open manner. This was a good opportunity to bring the industry together, and learn through practical experimentation.

Where did you see inefficiencies and opportunities where DLT could be applied?

Peter Shen (PS): Distributed Ledger Technology (DLT) has the biggest potential to transform capital markets and break through the constraints that have been in place for years, where many of the workflows originated from mainframe technology and you had to run processes in batches. DLT could change all of this and you could have trade-by-trade securities settlement in real-time. The inefficiencies that DLT can address are quite profound.

In terms of securities settlement, the smart contract is the key to unlock the opportunities in DLT. In a smart contract, we can institute and enforce the rights and obligations in an autonomous or supervised manner, depending on the use case. A good example is you can institute corporate actions into a smart contract that is designed as a security, and the smart contract can automatically pay out dividends to the beneficiary owners, eliminating many of the manual and even automated downstream processes that are required today.

WKT: We see DLT being most useful in use cases where there is no central operator or party. In a single asset scenario, such as Singapore dollars in domestic payments, there is a natural trusted party, and centralized infrastructure works well, so it may not make a lot of sense to use blockchain technology. However, payments are usually not made in itself, but in exchange for goods or services. It could be financial products, digital products or physical products, but the concept is the same – you pay the seller and receive the goods or services in return.

For simplicity, let’s call these products “assets”. In the real world, it is likely that these assets are recorded on different ledgers, and are liabilities of different parties. Correspondingly, there is no single natural trusted party to operate a centralized infrastructure for all these different assets. If the same scenario is modelled on blockchain, we would have cash on one blockchain, and assets on other different blockchains. We see value in allowing for the simultaneous exchange of assets on these different blockchains, which would reduce, or even eliminate settlement risk.

This project focused on Delivery versus Payment (see footnote) (DvP) settlement of securities and cash, but the applications are far wider. It is not just securities that can be tokenized. For example, what if we look beyond and explore, say physical assets such as property titles. Can they be tokenized? This would allow for cheaper, faster transactions. Additionally, could we reduce the need for manual processes, and have them automated with Smart Contracts that runs autonomously, fairly, and safely?

This is a massive project. Describe the process of working across multiple teams and different organizations. How did you work together to achieve success?

PS: Our experience collaborating on Project Ubin DvP was excellent. SGX and MAS led the architecture design and we had technology partners that came in and contributed their skills in terms of development and building the products.

One thing we wanted to do differently with the DvP project was to build the prototypes in code and to actualize the models. So rather than just have an industry report, we would have live prototypes that users can interact with to showcase the DvP models.

It was a wonderful and intense experience working with our three different partners. Each had different agendas and priorities, but we all wanted the same thing – this created a lot of healthy interaction and robust debates on how we should do it. All of us came away with great learnings and insight on how we could realistically deploy DLT at an industry level.

What we were trying to achieve with the DLT, it couldn’t be done with one single party; it had to be done at the industry level where we brought in multiple participants each with unique characteristics. For example, we had Nasdaq with its scale and experience of running multiple markets both as a technology provider as well as an exchange. We had Anquan, which as a FinTech startup was small but very agile. We also had Deloitte which had experience in blockchain working with their clients around the world. This allowed us to create a fantastic proof-of-concept (POC) that blends together all these different flavors, a “kaleidoscope” of capabilities that could be applied to various work flows and solutions. We came up with different prototypes and actual code with demonstrated market feasibility that you could interact with. This is how we believe an industry collaboration should work.

WKT: Henry Ford best summarizes our idea of collaboration: “If everyone is moving forward togetherthen success takes care of itself.” We made it a point to ensure that all the parties agree to a common direction, and benefit from the project, while accepting that each party may have slightly different organizational aim.

For example, many of the financial institutions saw this as a learning opportunity, for them to find out more about the technology and how they could use it for other use cases within their respective organizations. On the other hand, some of them were working actively on blockchain, so they wanted to put their experience and expertise to the test by taking on more active roles. And then we have the technology partners who were building their own platforms and products, and were looking for first-hand experience with users working on challenging use-cases, to understand the challenges and build better systems.

From our perspective, collaboration is about bringing all these different parties together and moving in a common direction, and success is when everyone benefits from the participation. If everyone finds value in what he is doing, and everyone moves forward together, they will all put in their best for the project, and success would then come naturally.

How do you feel Project Ubin has moved the needle globally for how payments and securities are cleared and settled?

PS: Ubin is unique in terms of POCs around the world, especially those we have seen on payments and settlement of securities. We looked at how we could secure investor protection, as well as the rights and obligations of the market participants. The concept of arbitration is also unique to this project. It provides recourse to buyers and sellers should a dispute arise after the transaction has been completed. Most exchanges today will have an error-trade policy to safeguard the interests of the market, where an error-trade price range is instituted at the contract level. A market participant can apply to the exchange to rectify a trade has been executed above or below the error-trade price threshold, and the exchange would be able to reverse the trade in the best interests of the marketplace. This is a concept we have instituted in our blockchain prototype where three parties will sign a transaction together i.e. the buyer, the seller and the arbitrator. Even though the arbitration functionality may not be used, its presence as a recourse gives confidence to market participants to trade. Furthermore, the arbitration process can be done “on chain” instead of “out of chain” as it done today, where trade issues have to go into litigation, which can become an expensive and protracted process that really benefits no one. With arbitration on chain, you can make the process of dispute management more seamless and transparent for all parties involved, especially if you have policies in place that allow for automated recovery processes.

WKT: No one single project would move the needle. What would move the needle is the efforts of the industry as a collective whole. Project Ubin is a journey, and our aim is to bring the industry along with us on this journey. We are not here to develop the best possible product or solution – that is best done by commercial entities. Our role is to promote development in the industry, and facilitate and provide an environment where innovation can flourish.

In that regard, we have been very open with sharing our project findings, such as the four reports published since the start of Project Ubin. We also released the source codes from Phase 2, which were base prototypes for tokenized cash, built on three different DLT platforms. The open sharing has sparked off further developments in the industry, across commercial banks, central banks, and technology players. This is how we see the industry moving forward together, and in my view, has moved the needle.

PS: One of the indications that the Ubin project is succeeding is that our industry report is actually cited by many other projects around the world. Together with Nasdaq we have built a POC that is very relevant to other jurisdictions and they’re using our lessons learnt as a starting point for their own experiments. We see this encouraging innovation not just locally, but all over the world.

WKT: We have also created avenues for collaboration with other parties including other central banks. We see opportunities for blockchain in multi-asset scenarios. For example, if Singapore has tokenized currencies on blockchain, and Canada, Thailand and South Africa have that too, how can we link up all these different blockchain projects to allow for cross-border payments? Such experiments will help broaden and deepen our understanding of this space, and spark further developments in the industry.

What’s next? Is there a new phase in the works?

WKT: We are currently working with the Bank of Canada on how we can link up the two blockchain platforms, Project Jasper and Project Ubin, for cross-border payments. We have some ideas on several technical models that could work. There is still so much to explore, so we welcome further collaborations from other central banks.

Once we have the Payment versus Payment (PvP) - cross-border payments - piece, we can then look at how PvP and DvP can come together. Imagine this: if there is an investor in Canada who owns Canadian dollars and he or she wants to purchase corporate bonds in Singapore, we can link up the three different blockchain platforms for Singapore dollars settlement, Canadian dollars settlement, and bonds settlement in both countries, and allow this to be done in a single atomic transaction across the three platforms. This could reduce settlement risks and time significantly.

PS: We see this DvP project not as the destination, but a part of the journey. We want to look at how to take the lessons learned, the prototypes we’ve built, the architectures we have designed and move to test this with market participants. There is also the possibility to link up DvP with the cross-border payments project, which is currently payments versus payments (PvP). This is a new world we are trying to create that benefits all participants.

Delivery versus Payment (DvP) is a settlement procedure where securities and monies are simultaneously exchanged to ensure that delivery of securities occurs if and only if the corresponding payment is made.
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