Author: Zhao Qirui

Editor: Zhao Yidan

Part Three: The Evolution and Deep Meaning of Regulating Classified Assets

The regulatory path laid out by the Monetary Authority of Singapore (MAS) in the digital asset space is a strategic map filled with high-contrast colors, drawn by prudent selection and bold exploration. MAS's regulatory policy is a highly differentiated strategic system that accurately identifies the economic functions and risk profiles of different digital assets, reflecting Singapore's national ambition of "doing what should be done and not doing what should not be done."

The so-called "not doing" refers to decisively cutting off the rampant and highly volatile retail cryptocurrency speculation—MAS is actively "cooling down" the market through a series of stringent regulations to defend its reputation as a top financial center.

Conversely, the "doing" involves concentrating all valuable policy sunlight and regulatory soil on those species that truly possess future potential—stablecoins aimed at becoming reliable settlement mediums and the tokenization of real-world assets (RWA) aimed at enhancing capital market efficiency. Through this strategic trade-off, Singapore is isolating low-value-added risks while focusing national resources on leading high-value institutional financial innovation.

3.1 Cryptocurrency (DPT): From Embracing to Taming

From AML/CFT to Financial Stability

Initially, MAS's regulatory focus on DPT, as indicated by the original intent of the Payment Services Act (PSA), was primarily centered on compliance with anti-money laundering and counter-terrorism financing (AML/CFT) measures. However, as previously mentioned, the arrival of the "post-FTX era" completely changed everything.

At the end of 2022, the global cryptocurrency market experienced an unprecedented crisis of trust. Two events closely related to Singapore—the collapse of the FTX exchange and the bankruptcy of the local crypto fund Three Arrows Capital (3AC)—ignited this crisis.

FTX was once the second-largest cryptocurrency exchange globally and had received approximately $275 million in investment from Singapore's sovereign fund Temasek Holdings, symbolizing Singapore's significant presence in the global fintech landscape. However, in November 2022, FTX filed for bankruptcy due to severe fund misappropriation and internal risk control failures, affecting millions of users and institutional investors worldwide. Temasek subsequently announced a full impairment of its investment and, in a rare statement, acknowledged a "judgment error" in its due diligence.

Almost simultaneously, Three Arrows Capital, founded in Singapore, also faced a liquidity collapse. As a crypto hedge fund that once managed over $10 billion in assets, 3AC quickly lost its ability to repay due to high leverage and excessive exposure to the Luna/Terra ecosystem after the stablecoin UST collapsed, leading to a court-ordered liquidation. The successive eruptions of these two events acted like two interconnected financial bombs, severely damaging Singapore's reputation in the global crypto-financial ecosystem and directly triggering a wave of criticism regarding the "overly friendly and open" regulatory environment.

Lawrence Wong, then Minister of Finance and Deputy Chairman of MAS, later acknowledged in a public speech that these events "caused actual reputational damage to Singapore's international financial image" and emphasized the need to "recalibrate the balance between innovation and robustness." This statement was widely seen as a signal of a shift in Singapore's digital asset regulatory approach.

It was this shocking event that provided MAS with undeniable political capital and market opportunity, allowing it to push a series of long-prepared stringent regulations aimed at fundamentally reshaping market structure into execution without resistance. The core of MAS's regulation thus underwent a decisive expansion, placing consumer protection, market integrity, and financial stability at an unprecedented center stage. The underlying logic of this shift is that MAS's risk perception of DPT has deepened: its high volatility and speculative nature make it fundamentally unsuitable for retail investors.

By the time MAS launched a series of measures between 2023 and 2024, it became clear that these were a set of coordinated actions aimed at systematically dismantling and neutralizing the highest-risk segments of the retail crypto market.

The regulatory storm directly targeted speculative behavior—MAS decisively restricted digital payment token service providers (DPTSP) from offering DPT lending and staking services to retail customers. This restriction does not apply to non-retail customers but requires DPTSPs to provide clear risk disclosure documents and obtain explicit consent from customers. The ban will officially take effect in June 2025.

The strategic intent of this measure goes far beyond mere consumer protection; it proactively raises the threshold and cost of retail speculation at the market structure level. The speculative activities in the DPT market heavily rely on leverage, credit, and high-yield staking products. By cutting off retail users' access to leverage and fixed income (staking), MAS aims to curb excessive speculative behavior in the market. It also forces DPTSPs to shift towards more robust, low-risk services or completely pivot their business focus to institutional clients, thereby eliminating business models that only serve high-risk retail speculation.

However, merely restricting speculative tools is not enough. To fundamentally eradicate the core issues similar to FTX's fund misappropriation, the second regulatory blow followed: mandatory statutory trust isolation of customer assets. Customer assets must be held in segregated accounts on trust and safeguarded by MAS-licensed financial institutions or overseas custodians meeting specific credit ratings (e.g., "A-").

This regulation, effective from October 4, 2024, is a direct remedy to the "core issue" of asset commingling seen in various centralized platforms globally. It leverages the judicial advantage established by the court ruling that under Singapore's common law system, crypto assets can be deemed "property" that can be held in trust, creating an insurmountable legal firewall. Once assets are placed under statutory trust, they are legally insulated from the service provider's own assets, independent of the operational assets and liabilities of the DPTSP. This means that if a DPTSP goes bankrupt, customer assets enjoy a high level of bankruptcy isolation protection, as they were never company assets but rather assets held in trust for customers. This mechanism maximizes the assurance that customers can recover their assets in the event of platform bankruptcy, fundamentally reshaping the legal relationship between customers and platforms, enhancing market integrity.

After securing customer assets with a "legal lock," MAS turned its attention to the operational quality and professionalism of service providers themselves. If physical asset isolation addresses the "safety of money," then strict regulations on business conduct and risk management aim to resolve the "integrity and professionalism of people."

Through documents such as the "Guidelines for Consumer Protection by Digital Payment Token Service Providers" (PS-G03) and the "Notice on Disclosure and Communication," MAS mandates service providers to provide clear risk warnings and disclose certain specified matters in the public platforms of DPTSPs and customer agreements. These disclosures include fees, terms and conditions, and redemption arrangements.

At the same time, service providers are required to strictly adhere to the "Technology Risk Management Guidelines" (TRM) and "Cyber Hygiene Notice," which core provisions require financial institutions to establish a sound and reliable technology risk management framework to enhance system security, reliability, resilience, and recoverability. Specific requirements cover areas such as identity verification, data loss protection, and detection and prevention of cyberattacks. These high-standard institutional requirements constitute a hard compliance threshold, objectively serving to filter market participants, repeatedly emphasizing that only entities with "institutional DNA" can establish a foothold in the market.

From Retail Suppression to Guiding Market "Institutionalization"

When observing the aforementioned series of measures as a whole, their common strategic direction is crystal clear: Singapore is severely suppressing retail speculation, but its ultimate goal is to reshape the participation of retail users under higher professional and safety standards, that is, to guide the entire retail DPT market towards "institutionalization."

The conclusion of "strictly limiting retail participation" is also based on these solid evidences:

Product Restrictions: Prohibiting lending and staking services to retail customers directly cuts off retail investors' access to high-yield and high-leverage speculative tools.

Risk Qualitative Assessment: MAS has long reiterated the view that cryptocurrency trading is highly volatile and speculative, making it unsuitable for retail investors.

Market Access: MAS explicitly prohibits DPT service providers from promoting DPT services to the public in public places or through social media influencers, thereby creating a physical isolation from a marketing perspective.

However, this does not mean a complete strangulation. MAS's true intention is to ensure that retail users can only participate in the market through those licensed intermediary institutions (MPIs/SPIs) that are subject to the strictest regulations—these intermediaries must comply with customer asset protection, technology risk management, and anti-money laundering obligations comparable to traditional financial institutions.

The recently implemented licensing system under the Financial Services and Markets Act (FSMA) requires all entities established in Singapore but serving overseas clients to also be licensed, and MAS has clearly stated that such licenses "will only be issued in very limited circumstances." This move closes the "regulatory arbitrage" loophole that exploits Singapore's reputation for cross-border, unregulated activities.

Thus, we finally clarify how MAS executes this insightful strategy, how it has thoroughly "tamed" the once "wild" DPT field through high costs, strict standards, and institutionalized tools, and how it has abandoned the position of becoming a "retail cryptocurrency trading center" to solidify its positioning as an "institutional-level digital asset innovation and governance center."

3.2 Stablecoins: Building a Trustworthy Settlement Medium

If the "taming" of the DPT market is Singapore's decisive "cleaning of the battlefield," then its strategy towards stablecoins is to carefully "forge" the first cornerstone of the future financial highway on the cleaned land.

MAS's approach to stablecoins demonstrates a highly constructive strategic intent, with goals that go far beyond risk management, actively designing and forging a reliable digital settlement medium. Against the backdrop of the global stablecoin market being reduced to a "ruin of trust" due to events like Terra/Luna, the independent regulatory framework released by MAS in August 2023 is building an unprecedented "fortress of trust" from the ground up, brick by brick, using new and stronger materials on this ruin.

However, the question arises: why legislate separately instead of using the PSA?

We believe this reflects MAS's deep strategic considerations. First, while some stablecoins may be viewed as DPT under the PSA, MAS strategically separates the high-risk speculative attributes of DPT from stablecoins with potential payment system functions. The independent framework aims to isolate systemic risks arising from insufficient reserves or algorithmic mechanisms, focusing on the utility of stablecoins as payment and settlement tools.

Placing SCS under independent, high-standard regulation elevates stablecoins to a "financial infrastructure-level" asset. This move aims to cultivate a reliable "anchor of value," enabling seamless integration with the regulated traditional financial system, thereby serving Singapore's broader institutional fintech blueprint, as seen in the construction of Project Guardian.

Therefore, returning to the construction of this fortress, we can see that it follows a logically progressive, multilayered reinforcement of four layers of protection. These protections precisely target the core defects of previous market chaos, aiming to ensure that stablecoins regulated by MAS possess reliability equivalent to that of fiat currencies.

The first layer is the most crucial for value stability. MAS insists that issuers of single-currency pegged stablecoins (SCS) must always hold high-quality, highly liquid reserve assets, with a total value that must never be less than 100% of the total amount of issued SCS in circulation at any time. By strictly limiting reserve assets to cash, cash equivalents, and short-term government securities, MAS has fundamentally excluded algorithmic stablecoins that rely on complex mechanisms, as well as opaque stablecoins that hold high-risk assets.

To ensure this layer of protection is unassailable, isolation measures are also implemented. Reserve assets must be completely segregated from the issuer's own assets, held by licensed custodians, and stored in segregated accounts. Issuers are also required to conduct independent verifications monthly (to be published online) and annual external audits to demonstrate the status of their reserves. These requirements aim to eliminate the risks of asset commingling and misappropriation that have occurred in several centralized platforms in the past through institutionalized transparency.

Building a robust exit mechanism is key to reassuring users. Here, Singapore grants holders a final, irrevocable right—to redeem SCS for an equivalent amount of fiat currency at face value within five working days of making a request. This is not merely an operational regulation; it serves as a legal safeguard that acts as a "stabilizer" under market pressure, significantly reducing users' panic selling tendencies. It is an "emergency exit" that connects the digital world with real-world cash flows, fundamentally providing ample legal assurance for peg reliability.

Furthermore, to ensure that the issuer's operational risks do not erode customer reserves, MAS requires issuers to maintain a minimum paid-up capital of no less than SGD 1 million or 50% of their annual operating expenses (whichever is higher). The significance of this capital buffer is to protect the integrity of the reserve assets. If an issuer faces losses due to poor operations, management errors, or system failures, it must use its own capital buffer to absorb these operational risks rather than tapping into the customers' 1:1 reserves. This ensures that the issuer's operational risks do not erode customer reserve assets, thereby guaranteeing that the 1:1 ratio between reserves and issued circulation is always maintained. Additionally, issuers are prohibited from engaging in lending, staking, or other risky activities, further isolating risk activities from the issuance function.

The fourth layer completes the construction of the fortress through comprehensive transparency. It is no doubt that project parties must be troubled by Singapore's detailed white paper publication requirements, which necessitate a very clear explanation of their value stability mechanisms, potential risks, holder rights, and the audit results of reserve assets. This mandatory transparency empowers market participants (especially institutional investors) to conduct independent risk assessments. Institutions can independently assess the quality of the stablecoin's reserves and compliance levels based on publicly audited data, thereby establishing a trust system based on information rather than speculation.

Through this series of institutional arrangements, MAS aims to elevate stablecoins from a volatile crypto asset to a quasi-public utility-level "settlement rail" in Singapore's digital economy. The label "MAS Approved" is akin to stamping a stablecoin with a "Digital Seal of Approval" representing national credit.

For the CEO of a stablecoin issuer, this label is not just an embellishment but a lifeline for their business model. In a market where everyone claims to be "stable," it is an unreplicable moat and the only key to unlocking the doors of the world's most conservative banks and wealth management firms. For the Chief Risk Officer (CRO) of a global bank, the significance of this label is even greater: it moves a stablecoin from the "Other Digital Assets" (high-risk) category on the balance sheet directly into the "Cash and Cash Equivalents" (high liquidity, low risk) category, clearing key compliance and risk barriers for institutions to conduct innovative businesses like DeFi and RWA settlements within Singapore. This means that the stablecoin is no longer a risk to be managed but a highly efficient tool for instant settlement and optimizing global liquidity pools.

It is not an exaggeration to say that without this trustworthy "settlement tool" crafted by MAS, Project Guardian, as a comprehensive plan leading global RWA innovation, would never be able to truly launch.

The stablecoin framework is a key part of Singapore's macro strategy to seize dominance in the next generation of financial market infrastructure (FMI).

3.3 RWA: The Bridge to the Future

If the regulation of DPT and stablecoins is Singapore's "walls" and "foundation" in consolidating its financial fortress, then its layout in the realm of real-world assets (RWA) is a decisive "expedition." This is a forward-looking, leading, and even aggressive strategic layout.

In stark contrast to the "risk control" strategy (i.e., strictly limiting retail speculation) for digital payment tokens (DPT) and the "infrastructure building" strategy (i.e., creating a reliable settlement medium) for stablecoins, the Monetary Authority of Singapore (MAS) adopts a proactive strategy in the RWA field, actively leading experiments and defining future market standards in collaboration with institutional giants, aiming to seize dominance in the next generation of financial market infrastructure (FMI).

The legal foundation for RWA in Singapore is primarily regulated under the Securities and Futures Act (SFA) framework, with the core driving force behind its RWA strategy being the "Project Guardian."

The SFA's "technology neutrality" principle provides an unparalleled first-mover advantage for the layout. It allows the emerging concept of RWA to operate within a mature and stable securities law framework without waiting for entirely new legislation, providing institutional investors with valuable assets—regulatory certainty. This mechanism avoids the legal rewrites and political deadlocks that other jurisdictions may face when defining "security tokens," winning Singapore a valuable time window and institutional trust in the global race for RWA.

On MAS's strategic chessboard, RWA is not merely a tool for enhancing efficiency but a key lever for reshaping the global capital market landscape. The mission of Project Guardian goes far beyond passive testing; it aims to explore the practical application of asset tokenization and decentralized finance (DeFi) concepts in the wholesale financing market.

After countless experiments, a core design that could become the "philosophical cornerstone" of future institutional DeFi has emerged—"Trust Anchors." This is MAS's key design for embedding "compliance" into DeFi. Trust Anchors are regulated financial institutions responsible for screening, verifying, and issuing Verifiable Credentials (VC) to entities wishing to participate in the tokenization network. The mechanism embeds KYC directly into DeFi protocols, ensuring that participants only transact with verified, qualified counterparties. It addresses the core concerns of traditional finance regarding anti-money laundering (AML) and counterparty risk while leveraging the efficiency brought by smart contracts.

This mechanism is an excellent structural solution proposed by Singapore to address the challenges of the next generation of the global token market, aiming to bridge the core contradictions of "decentralization" and "accountability." It cleverly "programs" the compliance genes of traditional finance—KYC verification by regulated financial institutions—into the smart contracts of blockchain.

Thus, MAS's vision for its role in the RWA field is very clear: it aims to evolve beyond traditional regulators to become proactive market promoters and architects of future rules.

By leading the application direction of DLT in capital markets (RWA, interoperability, Trust Anchors), Singapore is consolidating its long-term position as a top global financial center. MAS's vision is to create a future where any asset can be fractionalized, market access costs are significantly reduced, and trust is established through greater transparency and accountability. This proactive, visionary offensive strategy is the core support for Singapore's aim to capture the most valuable institutional business in the digital asset economy and position itself as an "institutional asset fortress."

Due to the importance of the content, these specifics will be elaborated in the next section.

Part Four: Project Guardian and Singapore's RWA Ambitions

If the third part outlines the contours of Singapore's strategy, then this fourth part attempts to dissect the core driving force of the RWA strategy—"Project Guardian"—with surgical precision.

Led by the Monetary Authority of Singapore (MAS), this public-private partnership initiative is far from a simple technology testing ground; it is the top-level design for Singapore's vision of the next generation of global financial market infrastructure (FMI).

4.1 MAS's Top-Level Strategic Design

A close reading of the official texts released by MAS regarding Project Guardian reveals that the information conveyed goes far beyond technological innovation; it is an attempt to reshape the global financial architecture. MAS clearly positions Project Guardian as a plan to explore the feasibility of asset tokenization and decentralized finance (DeFi) concepts in the wholesale financing market. The strategic goal is to comprehensively enhance the liquidity and efficiency of financial markets by establishing standardized protocols, developing robust risk management frameworks, and promoting seamless cross-border interoperability.

The official vision can be deconstructed into "three pillars and four domains": three mutually supportive pillars that together form a strategic blueprint for a regulated, institutional-level digital asset ecosystem; and four key focus areas—"open, interoperable networks," "developing a common layer of trust," "the use of asset tokenization and tokenized deposits," and "introducing regulatory safeguards and controls"—clearly validate the strategic nature of these pillars.

Laying the Global Digital Highway

The first pillar of the blueprint aims to address the "dual island" dilemma currently faced by the global financial world: the T+2 delayed settlement caused by the fragmented infrastructure of traditional finance's fixed income market and cross-border payments, and the liquidity fragmentation in the crypto world due to interoperability issues among public chains, leading to offset liquidity management where every cross-institutional or cross-market transaction requires cumbersome intermediaries and reconciliation processes.

To this end, MAS's ambitions are evident: it intends to personally lay down the "digital highway" for the next generation of global finance. Through the "Global Layer One" (GL1) core initiative, MAS is committed to building an open, accessible "foundational digital backbone" that adheres to principles of openness and accessibility to facilitate cross-border trading of tokenized assets and the integration of global liquidity pools. Complemented by the "Interlinked Network Model" (INM) as a universal framework for exchanging digital assets across independent networks, Singapore is attempting to position itself as the "Digital Geneva" for the future global flow of digital value—a neutral, efficient, and interconnected global trust hub.

The Philosophical Cornerstone of Regulated DeFi

On this digital highway, a new set of traffic rules and governance systems must be established. The second pillar of the blueprint is MAS's excellent solution to address the core contradiction of "decentralization" and "accountability"—the "Trust Anchors."

The introduction of the "Trust Anchors" design fundamentally reflects MAS's philosophical choice to build a "Permissioned DeFi." Trust Anchors are regulated financial institutions whose core responsibility is to screen and verify participants before they enter the network and to issue them Verifiable Credentials (VC). These credentials essentially embed KYC/AML verification into digital tokens within smart contracts. In MAS's pilot, Trust Anchors will verify liquidity providers or trader wallet addresses before whitelisting them.

This mechanism is a key innovation by MAS that transforms the abstract concept of "compliance" (such as KYC/AML) into concrete, executable "code" within smart contracts. It completely eradicates the critical issues of anonymity and lack of accountability that deter institutional capital in the public DeFi world, ensuring that institutional participants "only trade with verified counterparties," thus addressing traditional finance's core concerns regarding anti-money laundering (AML) and counterparty risk.

Core Pillar Three: "Seamless Trading of Assets"—Unlocking Trillions of Dollars in Dormant Capital

From a business perspective, achieving seamless trading and settlement of assets, as well as cross-border interoperability, is key to unlocking the immense value of trillions of dollars in illiquid private assets globally and is the ultimate direction for various business models.

The pilot areas of Project Guardian (fixed income, asset management, foreign exchange) clearly indicate that its commercial goal is to release the potential of traditionally illiquid assets such as private equity, real estate funds, and private credit through tokenization. A core example is MAS's explicit mention that tokenization can unlock the liquidity of illiquid assets like private equity, real estate funds, and private credit. Additionally, MAS is exploring the issuance of tokenized investment tools (such as Variable Capital Companies, VCC) and providing best practice recommendations through the Guardian Fund Framework (GFF) to simplify the establishment process of multi-asset tokenized investment tools.

Therefore, we can say that by tokenizing these private assets and utilizing smart contracts for atomic settlement, MAS aims to construct a new "public market infrastructure" that reduces transaction execution costs and settlement cycles from days to minutes or even seconds, addressing the entry barriers and high friction costs of the global private market, thereby providing tangible and measurable business enhancements for global institutional clients.

In summary, MAS aims to establish an "Institutional-Level Digital Asset Innovation and Governance Center." Through Project Guardian, MAS is setting the technical, governance, and compliance standards for the global institutional tokenization market. This ecosystem will be an open and interoperable "digital backbone" (GL1), where all transactions occur in a regulated, permissioned environment provided by Trust Anchors. This will position Singapore as a global hub connecting traditional finance (TradFi) and compliant digital finance, thereby consolidating its long-term status as a top international financial center. MAS's strategy is to proactively build rather than passively respond, embedding compliance into the technological architecture through public-private cooperation to seize the dominance in defining the future financial market infrastructure (FMI).

4.2 Key Pilot Projects Review

The fixed income market is the cornerstone of traditional finance and one of the earliest and most in-depth testing grounds for Project Guardian. The pilot project focuses on tokenizing government bonds and digital bond repurchase agreements (Repo), aiming to introduce the efficiency of smart contracts into the high-value field of wholesale financing.

Case One: Fixed Income

The traditional fixed income market has long been plagued by the "chronic ailment" of lengthy and fragmented settlement processes. This delay not only locks up valuable capital but also creates significant counterparty risk. Additionally, the repurchase and collateral management models suffer from operational fragmentation, manual reconciliation, and inefficient liquidity, especially in cross-border transactions that require pre-financing. The primary battle for Project Guardian is to perform a precise surgical operation in this area.

In an exercise involving giants such as J.P. Morgan, DBS, and Deutsche Bank Securities as initiators and liquidity providers, tokenized government bonds and digital repurchase agreements were used as starting points. Utilizing J.P. Morgan's Kinexys digital asset platform (based on enterprise-level Ethereum DLT) and the public blockchain network Polygon, and drawing on Aave's permissioned pool concept to control parameters (such as exchange rates and interest rates), the pilot project demonstrated the capability of atomic settlement for intra-day repo transactions. This means that the age-old business principle of "payment upon delivery" can finally be perfectly executed in the digital world with the certainty of code, completely eliminating the settlement risks that have plagued the financial industry for decades. Settlement times were compressed from days to minutes or even seconds, potentially saving backend costs of tens of millions of dollars annually, and more importantly, validating that public blockchain networks (like Polygon) can be used in an institutional-level permissioned environment.

Despite the technological breakthroughs, how to seamlessly embed compliance requirements such as KYC/AML into smart contracts and how to address the uncertainties of legal finality in cross-border transactions remain key challenges before scaling applications. However, these challenges have become the most valuable strategic intelligence. In this practical deployment, financial institutions like DBS played a crucial role in MAS's "Trust Anchors" blueprint, ensuring that the entire experiment consistently operated on an invisible "compliance track."

This design is key to embedding programmability into DeFi protocols, ensuring the accountability and risk management required for institutional adoption. The ultimate product of the experiment is far more than just successful transactions; it is a strategic document aimed at seizing the global standard-setting dominance—the "Guardian Fixed Income Framework" (GFIF).

Case Two: Asset Management

Asset and wealth management is the second major area that Project Guardian focuses on, aiming to use tokenization technology to address the inherent issues of liquidity shortages in the private market and inefficiencies in fund management.

Due to this issue, trillions of dollars in global private market assets are locked away. For example, for wealth managers, the monthly rebalancing of client portfolios requires thousands of manual steps. Singapore has prepared two keys to unlock this: one is the technological key—asset tokenization; the other is the legal key—its unique and flexible Variable Capital Company (VCC) legal structure.

In this exploration led by global asset management giants like Franklin Templeton and BlackRock, tokenized money market funds (MMF) and funds issued under Singapore's VCC legal structure became the focus. J.P. Morgan's pilot demonstrated that tokenization could simplify the rebalancing of portfolios involving over 3,000 manual steps for wealth managers into just a few clicks. Meanwhile, BlackRock's BUIDL fund's assets under management (AUM) grew to over $2 billion by 2025, and Franklin Templeton's MMF AUM also exceeded $740 million, eloquently proving the genuine demand from institutions for compliant RWA products.

Many leading products (such as BUIDL and FOBXX) are deployed on public blockchains (like Ethereum, Polygon, Avalanche), but through permissioned token contracts and centralized controls by transfer agents like Securitize/Franklin Templeton, it is ensured that only KYC-compliant qualified investors can hold and trade them. The eVCC project demonstrated how blockchain can simplify the lifecycle management of funds, specifically validating that tokenized funds (like MMF) can achieve 24/7 trading and near-instant T+0 settlement.

However, the treasure hunt also outlines future challenges. Despite the successful issuance in the primary market, liquidity in the secondary market remains insufficient; the eVCC project pointed out that more explicit legal guidance from MAS is still needed in key areas such as digital share registration and transfer tools; additionally, the complexity of cross-border tax treatment still exists, which may affect investors' actual returns. Although MAS has launched the Guardian Fund Framework (GFF), the industry must further adopt standards like the Common Data Model (CDM) to address interoperability and data fragmentation issues between different platforms.

However, the VCC fund tokenization pilot clearly reflects Singapore's "Institutional Asset Fortress" strategy, providing a highly efficient and flexible legal foundation for tokenized funds through the tailored legal tool of VCC. The release of GFF provides a composable token classification system aimed at addressing the liquidity fragmentation issues caused by the lack of standardization in current MMF and fund tokenization. This reflects MAS's intention to seize global standard-setting authority by establishing industry best practices. The success of products like BUIDL further proves a core principle to the world: regulated, "Trust Anchors"-backed RWA products are the only pathway for institutional capital to enter the on-chain world, and compliance itself is the strongest moat.

Case Three: Foreign Exchange Trading and Cross-Border Transactions

The third experiment is to bridge the "risk canyon" of cross-border payments, the area with the highest friction and risk in traditional finance. The core enemy here is known as "Herstatt risk," which refers to the settlement risk of "payment received but not paid," as well as the inefficiencies in global treasury management caused by network island effects.

To achieve instant, atomic payment-versus-payment (PvP) settlement between heterogeneous networks using tokenized deposits or tokenized cash, a complex project involving diverse giants such as Ant Group, HSBC, BNY Mellon, and Citibank tested various innovative solutions. Ant Group utilized its Singapore global treasury center to demonstrate how real-time multi-currency clearing can enhance settlement efficiency to the minute level through smart contracts; BNY Mellon and OCBC successfully achieved secure interoperability between different underlying ledgers using the clever cryptographic handshake of Hash Time-Locked Contracts (HTLC), proving that even with different underlying technologies, secure and near-instant settlements can be achieved; HSBC and OSTTRA piloted PvP settlement coordination, aiming to fundamentally eliminate settlement risks through smart contract mechanisms; Citi and Fidelity explored integrating foreign exchange swaps (FX swaps) into tokenized MMFs for real-time risk hedging.

These pilots successfully validated the feasibility of the technology, but they also exposed deeper challenges: the fragmentation of cross-border regulation and the potential emergence of new "liquidity islands" due to the lack of common standards. These challenges have become the strategic basis for MAS to promote its grander initiatives such as the "Global Layer One" (GL1) and "Interlinked Network Model" (INM). These foreign exchange pilots not only proved the technological feasibility but also highlighted the absolute necessity of a regulated, trustworthy digital cash (as aimed to be created by MAS's stablecoin framework) as a foundation for institutional-level settlements.

The participation of various giants underscores that MAS's RWA strategy directly targets the high-value B2B business of global treasury and wholesale finance, aiming to attract the funding pools and regional headquarters of multinational companies to settle in Singapore by providing faster, more compliant, and more transparent settlement infrastructure.

4.3 Industry Response and Collaboration

From the previous analysis, it can be concluded that Project Guardian is a public-private partnership sandbox project deeply collaborated by the Monetary Authority of Singapore (MAS) with 17 global financial institutions (FIs) and international policymakers, including the UK's Financial Conduct Authority (FCA) and the International Monetary Fund (IMF). Global financial giants such as J.P. Morgan, HSBC, DBS Bank, Standard Chartered Bank, Citi, Fidelity International, BNY Mellon, Ant Group, and Apollo are core participants.

For these institutions, which are often seen as conservative and large, the motivation to participate in Project Guardian, which requires real financial investment and top talent, lies in the unique opportunity it provides to test disruptive technologies in a regulated, low-risk environment, thereby maintaining core competitiveness in the next generation of financial markets.

Internal Efficiency Revolution and Cost Reduction

For the Chief Operating Officers of HSBC or Standard Chartered Bank, the appeal of Project Guardian is extremely specific and harsh: it offers a once-in-a-lifetime opportunity to use tokenization to tackle the complex backend settlement and manual reconciliation processes that consume hundreds of millions of dollars in profits each year.

This is not just a technological upgrade; it is a "profit defense battle" concerning shareholder returns. Whether it is Ant Group achieving real-time multi-currency clearing through its global treasury center or BNY Mellon and OCBC achieving instant settlement across ledgers, the common goal is to wield the reform blade against their "legacy systems." When J.P. Morgan's experiment can simplify a monthly portfolio rebalancing process involving over 3,000 manual steps into just a few clicks, the operational cost savings and capital relief behind it become the richest spoils of this battle.

The second driving force for institutions participating in Project Guardian is future growth. Financial giants foresee that tokenization is not only a tool for cost reduction and efficiency improvement but also the key to unlocking a "new frontier" and creating entirely new revenue growth curves. This new frontier consists of trillions of dollars in illiquid private assets. Through Project Guardian, Standard Chartered Bank is exploring how to tokenize trade finance assets, while Apollo is collaborating with J.P. Morgan to reshape the management model of alternative assets. More importantly, proprietary platforms like HSBC's Orion and Goldman Sachs' DAP are turning "Tokenization as a Service" (TaaS) into reality, enabling them to provide new tools to unlock asset value to a vast customer base, thereby deepening customer relationships.

For traditional finance (TradFi), participating in Project Guardian is also a strategic defense. The automation and transparent protocols of DeFi are seen as potentially unlocking faster settlements and 24/7 markets. By testing "permissioned DeFi" in controlled environments like Project Guardian, these institutions can cautiously navigate the potential of decentralized technology, ensuring they maintain core positions in the next generation of financial markets and avoid being disrupted by fintech companies. Therefore, this is no longer a defense but a proactive strike.

For globally systemically important banks (GSIBs), the highest-level strategic consideration is to seize the definition and standard-setting authority of financial market infrastructure (FMI). In the financial world, establishing the rules for making money is more important than making money itself. By co-authoring industry reports, such as the Guardian Fund Framework (GFF) and the Guardian Fixed Income Framework (GFIF), participants (such as Schroders, UBS, and the International Capital Market Association, ICMA) can define the future industry blueprint and best practices. This ensures that future global tokenization standards will be maximally compatible with their existing technology stacks, business processes, and regulatory frameworks.

The firsthand experience gained from deep participation in Project Guardian is invaluable. For example, banks like J.P. Morgan used the "Trust Anchors" technology in the Project Guardian pilot to embed KYC verification through Verifiable Credentials (VCs) on public chains, ensuring that transactions only occur between verified counterparties. This profound understanding of the operational mechanisms of "permissioned DeFi" and the technical accumulation provides them with a decisive "cognitive advantage."

This first-mover advantage is reflected in the fact that J.P. Morgan's Onyx digital asset network has matured and can handle over $15 trillion in tokenized transaction volume; asset management companies like BlackRock have gained significant market share by bringing traditional assets on-chain through tokenized money market funds (such as BUIDL).

However, all these ambitions regarding efficiency, growth, and power point to one question: why Singapore?

At this point, our previous analysis can provide a sufficient answer to this question. Project Guardian itself has become a "neutral alliance" that absorbs multiple national regulatory agencies. For these financial giants, in an era where regulatory uncertainty has become the greatest obstacle to innovation, Singapore is not an option but a necessity.

4.4 The Implications of Project Guardian

Yes, Project Guardian is indeed a well-thought-out strategic product filled with trade-offs. From the day of its inception, it has attracted attention, to the extent that its presence can be seen around the world.

But is Project Guardian really that good? The power struggles, compromises, and real risks behind it are often unknown.

Standards are Power

The success of Project Guardian in the "laboratory" is akin to testing a giant ship in a calm harbor. However, when this giant ship sails into the global ocean, especially placed in a real, cold world, the real challenges are just beginning.

In the international financial arena, standards equate to power. Once an initial standard adopted by major players begins to operate, the path dependency it creates makes it extremely difficult for subsequent competitors (other financial centers) to start anew. Singapore understands this well and is taking the lead in establishing a "minimum viable ecosystem" endorsed by regulators and participated in by global financial giants through Project Guardian. Even though MAS has proactively set the exploration agenda for institutional-level tokenization through Project Guardian, leading and promoting the development of core concepts such as "open, interoperable networks" and "shared trust layers," while attracting deep participation from globally systemically important banks and asset management companies, it has also included policymakers from the IMF and regulatory agencies from major jurisdictions such as the UK (FCA), Japan (FSA), and Switzerland (FINMA).

However, in a horizontal comparison, doesn't the regulatory sandbox and standards across the strait in Hong Kong, especially its tolerance for speculation, seem more vibrant and dynamic? In fact, starting from the increasingly severe geopolitical realities, the practical guarantees of strength in other fields make it more convincing that the standard will pass smoothly. If we take a bird's-eye view of the current geopolitical landscape, the outflow of Singapore's assets and talent to Europe, America, and other regions raises the biggest question mark regarding whether this strategy will land in Singapore.

The Nature of the "Walled Garden"

Project Guardian has built a "walled garden" for institutional capital. This garden is undoubtedly beautiful and safe: order prevails within, and every visitor undergoes strict scrutiny by the "Trust Anchors" steward, thereby eliminating the issues of anonymity and lack of accountability that deter institutional capital in the public DeFi world. By encoding KYC/AML policies into smart contracts, it achieves "programmable compliance," addressing the core regulatory and operational concerns of traditional financial institutions (TradFi) regarding public chains.

But we must face the cost of this garden. Beyond the high walls lies a vast, chaotic yet vibrant and innovative "permissionless tropical rainforest." MAS's choice is a profound and pragmatic philosophical compromise: it actively relinquishes the unpredictable disruptive forces of the rainforest in exchange for absolute controllability and certainty within the garden, making the services provided by Project Guardian closer to a traditional intermediary financial system driven by DLT.

The "permissioned DeFi" model forms a permissioned network, which is controlled by one or a group of entities (alliances) and cannot achieve true decentralized governance or censorship resistance. For example, the VC mechanism of Project Guardian introduces centralized control, including the revocation of credentials and transaction restrictions, which contradicts the spirit of decentralization.

Although Project Guardian is committed to achieving interoperability, its permissioned environment and customized compliance logic limit its seamless composability with the vast, permissionless public chain DeFi ecosystem (such as Uniswap and Aave's public pools). This model may lead to new liquidity islands, similar to the data silo issues within traditional finance.

The idea of "taking technical efficiency while discarding ideology" is certainly appealing, but whether it can be realized is another matter.

The Iceberg in Reality

We must acknowledge that for a nascent entity, its newness itself may be its greatest flaw. The success of the Project Guardian pilot project only proves the technical feasibility of tokenization in a "laboratory" (i.e., regulated, high-trust institutional alliance) environment. However, the true bottleneck to global-scale adoption is not the technology itself but the intricate non-technical barriers.

Imagine a tokenized real estate share issued in Singapore being purchased by a Brazilian investor through a Japanese node. But when a dispute arises, whose law prevails? The greatest obstacle to global cross-jurisdictional authority is not the code but the "iceberg of law and humanity." In the absence of established international standards, and with the difficulty of quickly forming them in the short term, regulatory consistency is hard to implement in a timely and sustained manner, leading to significant transaction risks.

For tokenized assets, especially those involving fractionalization of RWA (such as real estate funds), there are huge differences in how countries handle capital gains, income sources, and holding taxes. For example, how should capital gains be taxed on a transaction involving a 0.01% share of a tokenized real estate asset? The differing tax treatments of digital assets across countries will impose a significant compliance burden and operational difficulty on global investors. Although MAS has provided the "Digital Token Issuance Guidelines," cross-border tax issues require collaboration between the Inland Revenue Authority of Singapore (IRAS) and multiple national tax authorities, and currently, work in this area is still in its early stages globally.

The key of the Project Guardian plan—the "Trust Anchors" mechanism requires identity verification and compliance checks for participants, meaning that KYC/AML data needs to be synchronized or verified between cross-border nodes and Trust Anchors. This cross-border data flow potentially conflicts with data sovereignty regulations such as the EU's General Data Protection Regulation (GDPR). Although privacy technologies like Zero-Knowledge Proofs (ZKP) offer theoretical solutions, the maturity of their large-scale deployment, as seen in the outcomes of the Guardian Fund Framework (GFF) and "Global Layer One" (GL1), remains unknown.

These intricate non-technical barriers—mutual recognition of cross-border laws and the path dependency of tax issues—are strategically intended to limit the vision of Project Guardian on a global scale. The next challenge for MAS will be how to transform these "laboratory results" into something that can be "applied" in the global financial system, ensuring that the "default standards" of the future global tokenization market are maximally aligned with Singapore's vision and legally accepted, possessing legal certainty and tax clarity in cross-border infrastructure, which requires international collaboration and framework compatibility that transcends regulatory boundaries.

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