JPMorgan Chase & Co. has gone live with its first collateral settlement for clients using blockchain, as the largest US bank by assets pushes ahead with commercial applications built on the technology at crypto’s core.
(Bloomberg) — JPMorgan Chase & Co. has gone live with its first collateral settlement for clients using blockchain, as the largest US bank by assets pushes ahead with commercial applications built on the technology at crypto’s core.
JPMorgan’s Tokenized Collateral Network, or TCN, was used by BlackRock Inc. to turn shares in one of its money market funds into digital tokens, which were then transferred to Barclays Plc as collateral for an over-the-counter derivatives trade between the two institutions, Tyrone Lobban, head of Onyx Digital Assets at JPMorgan, said in an interview.
It’s a rare instance of a blockchain app developed by a bank being commercialized, but volumes are still tiny compared with JPMorgan’s overall business. While Wall Street firms have spent about a decade testing ways to use blockchain to simplify some of their more complex processes, the paucity of applications in commercial use has prompted critics to question whether the technology has any real utility in finance.
According to JPMorgan’s Lobban, using the bank’s blockchain network Onyx Digital Assets, meant the collateral moved almost instantaneously, compared with over the course of a day. At scale, the technology would increase efficiency by freeing up locked capital so that it could be used as collateral in ongoing transactions, he said.
Through the application, the bank wants to eventually let clients use other assets as collateral, including equities and fixed income, according to Ed Bond, head of trading services at JPMorgan.
“Institutions on the network can use a wider scope of assets to meet any collateral requirements they have on the back of trading,” Bond said in an interview.
Now the application is live, the bank has a pipeline of other clients and transactions, he added. JPMorgan tested TCN using an internal transaction in May.
Blockchain proponents say that using the technology will make it easier for financial institutions to use their shares in money-market funds as collateral because they won’t have to redeem them for cash, as they currently do when using traditional processes. That would make the transactions faster and potentially reduce risks during times of market stress.
“Money market funds play an important role in providing liquidity to investors in times of high market volatility,” Tom McGrath, deputy global chief operating officer of the cash management group at Blackrock said in a statement. “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.”
JPMorgan also runs a system called JPM Coin, which enables wholesale clients to make dollar and euro-denominated payments through a blockchain network. The bank has used it to process around $300 billion from its launch until June this year. In addition, the company runs a blockchain-based repo application, and is exploring a digital deposit token to accelerate cross-border settlements.
Many of JPMorgan’s biggest rivals are also pushing ahead with blockchain and digital-asset projects.
Goldman Sachs Group Inc. unveiled its digital-asset platform in November, saying clients can use it to issue financial securities in the form of digital assets in areas such as real estate. The Wall Street firm, along with Banco Santander SA and Societe Generale SA, helped the European Investment Bank issue a digital bond last year using blockchain technology. Asset managers, such as Franklin Templeton, have also been experimenting with ways to process transactions for their funds using blockchain technology.
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