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American investment bank Goldman Sachs has completed its first repurchase agreement (repo trade) by tapping into the blockchain network of its rival, JP Morgan. A report unveiled this news on June 23, noting that the bank conducted the transaction on June 17, where it changed a tokenized version of a US Treasury bond for JPMCoin, JP Morgan’s stablecoin, which is pegged 1:1 to the US dollar. Reportedly, this transaction only took three hours and five minutes from start to completion.
According to Matthew McDermott, the Global Head of Digital Assets at Goldman Sachs Global Markets Division, this transaction marked a crucial moment in the digitization of transactional activity. He added that JP Morgan’s blockchain network ability to quantify the amount of time needed is a massive step into the future, seeing as the traditional repo market could not do this.
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While he did not disclose the amount of money involved in the transaction, McDermott touted the system for simultaneously and instantaneously interchanging collateral for cash.
Explaining the importance of these features, McDermott said banks pay interest per minute. He noted that the platform’s ability to calculate how much is needed to complete a repo trade would revolutionize the nature of the intraday marketplace.
Using the blockchain to disrupt the traditional finance sector
JP Morgan developed its repo market solution by leveraging its version of the Ethereum blockchain, dubbed Onyx. After JP Morgan successfully executing the first blockchain-based intraday repo trade, Scott Lucas, the bank’s Head of Markets DLT, said tapping blockchain technology had helped it address the technical inefficiencies in the $4.6 trillion (£3.29 trillion) repo market.
He added that the blockchain had helped the bank create new opportunities that streamline operational processes and expedite the settlement of repo trades. Per Lucas, the solution unlocks trapped liquidity for intraday use and helps mitigate risk profiles for its clients.
Since its launch, JP Morgan’s blockchain-based repo market solution has handled transactions worth more than $1 billion (£0.72 billion). Reportedly, the Bank of New York Mellon served as the custody agent in all these trades. Per Jessica Francisco, JP Morgan’s spokesperson, the bank is currently holding talks with more than ten banking and investing clients about embracing its repo network.
Apart from JP Morgan, other mainstream companies are increasingly leveraging the blockchain to overcome the barriers found in traditional finance markets. These include, but are not limited to Paxos, which is using the technology to settle equity trades in near real-time, and Arca, which is offering digital shares in a US Treasury fund.