JPMorgan Chase has launched its first collateral settlement for clients using blockchain.
Currently, this financial institution, which is the largest bank in the United States by assets, is promoting commercial apps that are built on technology that is a kind of base of cryptocurrency.
JPMorgan’s tokenized collateral network, or TCN, was used by BlackRock to convert shares of one of its money market funds into digital tokens. These virtual assets were then transferred to Barclays Plc as collateral for OTC derivatives trading between the two institutions. This was announced by Tyrone Lobban, head of Onyx Digital Assets at JPMorgan.
Experts say that in this case there is a rare example of commercialization of a blockchain proposal developed by the bank. At the same time, the volumes are small compared to JPMorgan’s overall business.
Many Wall Street companies have spent about ten years testing blockchain apply cases in order to simplify some of the more complex processes. The lack of apps for commercial use has forced some critics to ask about the ability of this technology to become useful for the financial industry.
Tyrone Lobban says that the apply of the Onyx Digital Assets bank’s blockchain network has attested instantaneous movement compared to the implementation of the process during the day within the framework of standard procedures. He argues that as a result of the potential scaling of the technology, it is possible to increase the level of efficiency as a result of the release of blocked capital, which can be used as collateral in current transactions.
Ed Bond, head of trading services at JPMorgan, says that the new app in the future will provide the financial institution with the opportunity to offer clients the use of other types of assets as collateral, including stocks and fixed income.
JPMorgan tested TCN in May applying an internal transaction.
Blockchain supporters claim that the use of this technology will allow financial institutions to apply their shares in money market funds as collateral, noting that in this case there is no need to exchange for cash, as provided for in traditional processes. Also, according to them, in this case, transactions are accelerated. Another advantage of blockchain, they call risk reduction during periods of market stress.
Tom McGrath, deputy Global Operations Director of the Blackrock Cash management group, says that money market funds are of particular importance in providing liquidity to investors at times when there is a high level of volatility. According to him, the tokenization of money market fund shares as collateral for clearing and margin transactions can reduce operational friction when margin requirements are met.
JPMorgan is also launching a system called JPM Coin. As part of this solution, wholesale customers of a financial institution will be able to make payment transactions in dollars and euros through the blockchain network. The bank has already used this system to process about $300 billion.
Many of JPMorgan’s largest competitors are also actively implementing projects related to blockchain and digital assets. For example, in November last year, Goldman Sachs Group introduced its platform, which allows clients to issue securities in the form of digital assets.
As we have reported earlier, JPMorgan Boosts Its Stake in Brazil’s C6 Bank.