Global financial institutions propel blockchain innovation under Project Guardian

UBS, SBI, DBS, Citigroup and other major banks are reshaping finance through various innovations, including the world’s first cross-border digital bond repurchase transaction (repo), and a foreign exchange (FX) trading application under the Monetary Authority of Singapore’s (MAS) Project Guardian.

World’s first cross-border digital bond repo

Under Project Guardian, UBS Group, SBI Digital Asset Holdings (SBI DAH), and DBS has completed its first cross-border repo transaction using a digital bond issued on a public blockchain, demonstrating blockchain’s efficiency in real-time cross-border distribution and settlement spanning Japan, Singapore, and Switzerland.

The groundbreaking transaction took place on 15 November 2023, and involved tokenised Japanese Yen and a JPY-denominated digital bond. Additionally, UBS Asset Management and SBI Digital Markets (SBI DM) concluded a technical pilot for tokenised fund issuance on the Ethereum network as part of Project Guardian.

The exercise yielded tangible results; aside from 24/7 settlement, it also showed efficiencies in operations and capital, compliance, and security. Mike Dargan, group chief operations and technology officer at UBS, emphasised the feasibility of automated and instantly-settled transactions across multiple jurisdictions. 

Mike Dargan, Group Chief Operations and Technology Officer at UBS

Fernando Luis Vázquez Cao, CEO of SBI DAH, showcased robust partnerships and their institutional-grade digital asset ecosystem. He highlighted the regulator-sponsored initiative, focusing on real-world implementation, going beyond proof-of-concept (PoC). 

Fernando Luis Vázquez Cao, CEO of SBI DAH

Project Guardian evolved from stablecoins to cross-border securities transactions on a tokenised format. It included alliances with Financial Services Agency of Japan (JFSA), Financial Market Supervisory Authority (FINMA), and Financial Conduct Authority (FCA).

Cao said: “The year 2022 was super successful. We call the attention of other regulators. That’s why in 2023, JFSA, FINMA, the FCA joined. You will see not only Project Guardian as a regulator-sponsored initiative—you will see some of us start to commercialise all of that. This is probably the first time that this kind of initiative has actually started a new business ecosystem, and that’s where we are fully committed.”

The close collaboration underscores the advantages of having multiple regulators and central banks working together. Cao noted: “Together, we have gone through decades of suitability tests so that we can protect consumers in the event of a black swan event.”

SBI adopts ‘hub and spoke’ architecture

Global financial services company SBI DM has adopted a ‘hub and spoke’ architecture to originate and distribute products globally. The company prioritises standardised identity overlays and collaborates with partners like DBS and JP Morgan to address risks associated with blockchain technology. SBI DM aims to commercialise blockchain for efficiency and cost savings, with notable interest from institutional investors.

Winston Quek, CEO of SBI DM, outlined the platform’s trajectory over the past two years, driven by the recognition that blockchain efficiencies could streamline fund management complexities. He emphasised the company’s key roles in origination, distribution, and custody, with AsiaNext and SBI Zodia as integral components. He foresees significant transformation in fund management within the next 12 to 18 months. 

Quek remarked: “We are protocol agnostic. We are blockchain agnostic. We can be the bridge from one jurisdiction to another because every jurisdiction has their preferred blockchain technology. We felt that there are several layers within funds management that are fairly complex in terms of its operations, and settlement. So, we chose to embark on this journey to be able to look at where the efficiencies of blockchain can bring to the whole product.”

He explained that through the blockchain approach, the company has discovered that the efficiencies of speed can be realised. There are genuine cost savings to the whole exercise, he said, adding: “Blockchain brings to the whole game efficiency, cost reduction, disintermediation, reduction of layers—that somehow doesn’t quite get the limelight that it deserves. Interoperability is very key. Wallets have to be able to accept multiple protocol tokens. They must also, on the final stage, be able to be used as collateral.”

Highlighting the highest standards in product delivery, Quek stressed the importance of workflow, governance, and controls to establishing trust and credibility in the evolving digital asset space. SBI DM actively engages in building bridges and promoting collaboration for a cohesive digital framework, acknowledging the collective nature of the digital asset industry.

Winston Quek, CEO of SBI DM

Collective progress is essential

Reflecting on their collaboration with MAS, Cao emphasises moving beyond theoretical discussions to tangible actions. He said: “We think that if you’re going to be moving over certain businesses to subsidise [those that are] blockchain-based and potentially public blockchain-based, we need to build some processes and governance around it. We need to be able to offer detailed financial services to all our partners in the ecosystem.”

He added: “I see the MAS team—they’ve been thought leaders. People like our approach. They like the fact that we are not doing PoCs on a laptop; we were doing something real.”

Cao emphasises the importance of motivated partnerships and ongoing collaboration, recognising the efforts of industry pioneers. SBI DM’s ethos revolves around the idea that collective progress is essential to unlock the full potential of digital assets.

Addressing new risks introduced by emerging technologies, Cao highlighted the need for understanding and mitigating these risks. SBI DAH dedicated nine months to identify and address potential failure scenarios, establishing a legal structure to handle such situations. This regulator-sponsored initiative is expected to evolve into new commercial opportunities, marking the inception of a distinctive business ecosystem.

Quek said: “As an industry as a whole, it is almost impossible to be able to do this by ourselves. So one of the ethos of SBI DM and SBI DAH, is to always look for motivated partners to be able to come along on this journey. Let’s not tokenise for the sake of tokenising. Let’s really define what the value of tokenisation brings to the game—a bank, a corporate, a buyer, a seller, investor—all have different motivations for tokenising.”

He also emphasised the need to define the value that tokenisation brings to various stakeholders. Tokenisation should serve a purpose beyond asset delivery, whether it involves democratising access or creating operational efficiencies. 

He sees tokenisation as transcending digitising assets; it adds significant value to diverse stakeholders in finance and securities. This includes democratising asset ownership and enhancing efficiency, cost savings, and services throughout the market lifecycle. SBI DM aims to leverage a comprehensive digital asset ecosystem offering end-to-end solutions through parent company SBI DAH. 

Singapore’s strategic position as a global origination and distribution hub for digital financial products and its ability to facilitate bridges between blockchains and legacy systems positions it as a pivotal player in the tokenised asset space.

Citigroup transforming FX trading with blockchain

Alongside these latest developments, Citigroup has begun testing a blockchain application for bilateral spot foreign-exchange (FX) trades under Project Guardian, enabling real-time streaming of price quotes and recording trade executions on a blockchain. Currently being tested for USD-SGD trades, the on-chain solution has the flexibility to be applied to any fiat currency pair.

Developed in collaboration with partners T Rowe Price and Fidelity International, the application focuses on pre-trade, execution, and post-trade processes, ensuring compliance and security. Leveraging a private permissioned instance of the Avalanche blockchain, Citigroup aims to build foundational capabilities to offer liquidity, pricing, and risk management to global clients on both traditional rails and blockchain.

Sam Hewson, head of FX sales at Citi, said: “We are taking steps towards building foundational capabilities to offer liquidity, pricing and risk management to our global clients wherever they choose to trade—be it on traditional rails or on blockchain.”

Sam Hewson, Head of FX Sales at Citi 

Blue Macellari, head of digital asset strategy at T Rowe Price said: “Developing user-friendly institutional-grade execution is key to future scalability. This application is an important first step towards unlocking the value of a full end-to-end blockchain-based trading lifecycle.”

Blue Macellari, Head of Digital Asset Strategy at T Rowe Price 

Emma Pecenicic, head of digital propositions and partnerships at APACxJ Distribution, Fidelity International, said: “Distributed ledger technology will revolutionise financial systems, democratising access to services and investments. As a global asset manager, we’re eager to collaborate with partners like Citi to explore innovations such as the Blockchain FX Solution for improved efficiencies and investor benefits.”

Emma Pecenicic, Head of Digital Propositions and Partnerships at APACxJ Distribution, Fidelity International 

Citigroup’s blockchain-driven FX solution ensures the pricing and execution of bilateral spot FX trades with real-time streaming of price quotes and secure recording of trade executions on a blockchain. 

Shobhit Maini, head of digital assets for global markets at Citigroup, explained that the ‘request for streaming’ application, which is under Project Guardian, enables institutional counterparties to issue real-time pricing requests for bilateral FX trades. It provides real-time streaming of price quotes, enhancing transparency and enabling real-time post-trade analysis on a single platform. 

The broader perspective on digital assets sees blockchain technology contributing to efficiency gains, cost reduction, and automation, unlocking access to previously unavailable assets. Despite initial hurdles in education, the industry is maturing, and regulatory frameworks are developing, paving the way for the growth of digital assets. 

Citigroup’s approach prioritises solving client pain points, managing risks, and complying with regulations, with a focus on sustainable development and collaboration with regulators for long-term viability.

Maini emphasised the historical application of blockchain in optimising post-trade processes but highlighted the innovative approach of the application in addressing pre-trade and execution processes. 

The application’s testing phase demonstrated its potential to streamline cross-border payments by embedding the FX leg within blockchain transactions. Maini stressed the importance of trust, capital efficiency, pricing efficiency, and data privacy.

Shobhit Maini, Head of Digital Assets for Global Markets at Citigroup

Access and efficiency, key themes in digital assets

Maini hinted at the potential extension of the application beyond FX trading. He said: “We anticipate $10 trillion in assets on the blockchain by 2030, but achieving this requires essential steps. We’ll build some infrastructures, while fintech will handle others. Legal and regulatory frameworks must also be established for this journey to materialise.”

Maini’s perspective is rooted in client-centric digital asset strategies, ensuring that every initiative adds value without introducing risks to the system, and considers blockchain a team sport, requiring collaboration among multiple parties. He identifies two major themes in digital asset evolution: access and efficiency.

He envisions a future where blockchain facilitates cross-border payments, embedding the FX leg within blockchain transactions. He emphasises the importance of maintaining essential attributes of institutional trading transactions, including trust, capital efficiency, pricing efficiency, and data privacy. Maini’s insights highlight the potential expansion of blockchain applications to tokenised assets, lending, and repos, with a focus on relationship-based oracles.

Maini said: “Our view for anything in relation to financial services—not just digital assets—is that we have a responsibility towards making sure that everything that’s done adds value and does not add risks to the system. Blockchain is a team sport and requires multiple parties to work together.”

The financial industry is becoming a more efficient, globally connected ecosystem, with institutions and regulators working together to integrate digital assets into mainstream financial systems.