Will it boost the promotion of domestic DeFi? - SBI VC Trade and others participate in a demonstration experiment adopted as a fintech support project by the Financial Services Agency | CoinDesk JAPAN

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Will it boost the promotion of domestic DeFi──SBI VC Trade, Mizuho Trust Bank, and others participate in a demonstration experiment selected as a fintech support project by the Financial Services Agency

The project by the "DeFi (Decentralized Finance) Research Group" which includes SBI VC Trade, Sony Bank, and Daiwa Securities Group, has been selected as a support target by the Financial Services Agency's "FinTech Proof of Concept Hub" established in 2017. The agency announced this on June 6, making it the 10th supported project.

The FinTech Proof of Concept Hub aims to organize and support the resolution of regulatory and practical challenges faced by fintech companies and financial institutions when implementing innovative financial services in society. So far, a total of nine proof of concept experiments have been adopted, including the development of a system that simplifies customer identification (KYC) using blockchain technology, and details and results of these proof of concept experiments can be confirmed on the agency's website.

The proof-of-concept experiment adopted this time is conducted by a DeFi research group composed mainly of regulated businesses such as financial institutions and cryptocurrency exchanges, and will examine how to provide DeFi services to customers who have completed identity verification. The expected duration of the experiment is from June to September this year.

The research group was established with the aim of creating an environment where banks, securities companies, trust banks, and cryptocurrency exchange operators can safely utilize DeFi together with their clients. Lawyers and developers have also joined in seeking a compliant approach to DeFi.

The participating companies are the following 8 companies, and the secretariat is served by KPMG Japan.

  • SBI VC Trade Co., Ltd.
  • Sony Bank, Inc.
  • Daiwa Securities Group Inc.
  • Nomura Holdings, Inc.
  • Bitbank Inc.
  • Mizuho Trust & Banking Co., Ltd.
  • Sumitomo Mitsui Trust Bank, Limited
  • Mitsubishi UFJ Trust and Banking Corporation

According to the release, the proof-of-concept will utilize "tokens" modeled after cryptocurrencies. It will examine how to reduce risks related to money laundering and terrorist financing for customers using DeFi. Specifically, it will identify technical and legal challenges regarding the following four items and assess their feasibility.

・Providing services using AMM functionality to customers who hold hosted wallets (custodial wallets) managed by financial institutions.

・Measures indicating that identity verification by financial institutions has been conducted for addresses linked to user-managed unhosted wallets (non-custodial wallets).

・ Tokens that can only be transferred between addresses where identity verification has been completed.

・ Access to specific AMM features using the relevant token by verified customers.

In the future, it is planned to create an environment that makes DeFi more accessible by identifying effective blockchain technologies through demonstration experiments and collaborating with authorities such as the Financial Services Agency. It is expected that a system will be developed that allows verified customers and financial institutions to handle tokens compliant with regulations safely.

The fact that this matter has been adopted by the Financial Services Agency can be seen as part of a movement where diverse players, such as trust banks, securities companies, and cryptocurrency exchange operators, collaborate across traditional boundaries to engage in DeFi. Attention is also focused on future developments.

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