Bank of Italy Taps Polygon for Institutional DeFi Pilot

The Bank of Italy has partnered up with Polygon, an Ethereum scaling team, on a pilot program intended to create a regulated platform for “institutional DeFi.”

Polygon Labs will work with Milano Hub, the innovation center of Italy’s central bank, to launch the “Institutional DeFi for Security Token” ecosystem. “DeFi is an innovative financial technology based on decentralized protocols… that aim to replicate existing financial services in an inclusive and transparent manner,” Milano Hub said.

“It’s groundbreaking to see a G7 Central Bank, the regulator, and associations of banks and funds collaborate in this way on a large-scale tokenized asset initiative,” Colin Butler, Global Head of Institutional Capital at Polygon Labs, told The Defiant.

The pilot aims to create a regulated environment for security token trading while exploring different designs for security tokens, and shows that major financial institutions remain interested in the potential of blockchain technology despite the negative sentiment that has surrounded the sector lately.

The news comes as Italy has been moving to regulate cryptocurrency domestically.

Crypto remained largely unregulated until the current administration’s 2023 budget was passed in December and included a 26% capital gains tax on crypto profits.

In early June, the Bank of Italy published a 34-page report condemning crypto for failing to deliver “many promises in terms of the efficiency, resilience, and transparency of the financial system.” The report advocated for tighter regulations to protect against risks posed by the sector, while also pledging to support the growth of DeFi and crypto activities which are regulatory compliant.

Development Support

Starting this month, selected projects will receive “development support” from Milano Hub for six weeks. The program will include seminars, events, and conferences featuring experts in pertinent banking, financial, and regulatory matters.

Fireblocks, an institutional digital asset custodian, and DVRS, a development team focussed on automated market maker exchanges, will also participate in the project alongside Italian banks, asset management companies, and financial institutions.

“This is another great example of institutions seeing the relevance of blockchain to their business processes and choosing Polygon as the infrastructure layer to launch their DeFi ecosystem,” Butler said.

Polygon’s MATIC token is up around 10% over the past month.