JPMorgan Chase & Co., the largest US bank by assets, has successfully completed its first collateral settlement using blockchain technology.
This milestone was achieved through its Tokenized Collateral Network (TCN), which transformed shares from BlackRock Inc. into digital tokens for an over-the-counter derivatives trade with Barclays.
JPMorgan Diving Deeper Into Blockchains for Traditional Finance
This is a rare instance of a bank-developed blockchain application being commercialized. It also underscores the potential efficiency gains of such technology in the financial sector.
Tyrone Lobban, head of Onyx Digital Assets at JPMorgan, said,
“Using the bank’s blockchain network Onyx Digital Assets meant the collateral moved almost instantaneously, compared with over the course of a day.”
The TCN expands the scope of assets that can be used as collateral, including equities and fixed income. Ed Bond, head of trading services at JPMorgan, explained,
“Institutions on the network can use a wider scope of assets to meet any collateral requirements they have on the back of trading.”
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The blockchain application is now live, with a pipeline of other clients and transactions in the works. This development is expected to streamline financial transactions, making them faster and potentially reducing risks during times of market stress.
“Money market funds play an important role in providing liquidity to investors in times of high market volatility,” said Tom McGrath, deputy global chief operating officer of the cash management group at Blackrock. He continued,
“The tokenization of money market fund shares as collateral in clearing and margining transactions would dramatically reduce the operational friction in meeting margin calls when segments of the market face acute margin pressures.”
A Sister Blockchain to JPM Coin
JPMorgan also runs a system called JPM Coin, a blockchain-based system for wholesale clients to make dollar and euro-denominated payments. The bank has used it to process around $300 billion since its inception.
However, the introduction of JPM Coin has sparked speculation about its potential impact on other cryptocurrencies, such as XRP. As a stablecoin, JPM Coin is pegged to the US dollar, offering stability crucial for large-scale transactions within JPMorgan’s wholesale payments business.
Unlike XRP, JPM Coin is a closed network solution within JPMorgan Chase’s ecosystem.
Despite its closed network design, the recent introduction of euro-denominated payments for JPM Coin suggests a broader expansion plan. This could increase its usage and market reach.
JPM Coin accounts for only a fraction of JPMorgan’s daily $10 trillion payments. However, its growth potential is massive. The ability to execute payments faster than traditional transactions could be a game-changer in the industry.