JP Morgan's Cryptocurrency Strategy Entails A Multi-Trillion Dollar Investment

As illustrated by Aave Arc and a recently announced collaboration with Siam Commercial Bank and Compound Treasury, institutional DeFi entails implementing know-your-customer criteria on crypto’s permissionless lending pools. Mr. Lobban believes that tokenizing US Treasurys or money market fund shares will enable them to be used as collateral in DeFi pools.

One distinction, according to Mr. Lobban, is that big financial institutions, rather than DeFi platforms and crypto-native custodial organizations, validate customer information under Project Guardian. To put it another way, a JPMorgan trader must demonstrate that they are authorized to trade on behalf of the Wall Street bank.

JPMorgan hasn’t decided which DeFi systems and counterparties it would work with, according to Mr. Lobban, but it will be among the well-known possibilities. For the past two and a half years, JPMorgan has been quietly exploring digital identity in the context of blockchain and digital assets, he noted.

JP Morgan is looking to invest trillions of dollars in the DeFi industry. JP Morgan believes it has uncovered a way for Decentralised Finance (DeFi) developers to profit from the yield-generating potential of non-crypto assets. Tyrone Lobban, the head of JPMorgan’s Onyx Digital Assets, spoke to CoinDesk at Consensus 2022 in Austin, Texas, about the bank’s institutional-grade DeFi ambitions and the potential value in tokenized assets.

Blockchain-Based Collateral Settlement System

As illustrated by Aave Arc and a recently announced collaboration with Siam Commercial Bank and Compound Treasury, institutional DeFi entails implementing know-your-customer criteria on crypto’s permissionless lending pools. Mr. Lobban believes that tokenizing US Treasurys or money market fund shares will enable them to be used as collateral in DeFi pools.

Mr. Lobban continued, The final goal is to bring these trillions of dollars of assets into DeFi so that we can use these new mechanisms for trading, borrowing, and lending, but with the scale of institutional assets. Onyx Digital Assets sees two complementary parts to bringing bank-grade DeFi to fruition, according to him.

One component is JPMorgan’s blockchain-based collateral settlement system, which was recently expanded to include tokenized BlackRock money market fund shares. The trade volume for this type of application on the Onyx Digital Assets blockchain, which is paid in the bank’s in-house digital token JPM Coin, has reportedly hit $350 billion, according to Mr. Lobban.

Customer Information Under Project Guardian

The second element is ‘Project Guardian,’ a Monetary Authority of Singapore-led trial including JPMorgan, DBS Bank, and Marketnode. To test institutional-friendly DeFi, it uses permissioned liquidity pools made up of tokenized bonds and deposits. Similar to what Aave Arc and Fireblocks are doing, these DeFi businesses will leverage public blockchains and a permission system.

One distinction, according to Mr. Lobban, is that big financial institutions, rather than DeFi platforms and crypto-native custodial organizations, validate customer information under Project Guardian. To put it another way, a JPMorgan trader must demonstrate that they are authorized to trade on behalf of the Wall Street bank.

Another area of differentiation is the novel approach to permissioned DeFi, which is based on digital identity-building components like W3C verifiable credentials. JPMorgan hasn’t decided which DeFi systems and counterparties it would work with, according to Mr. Lobban, but it will be among the well-known possibilities. For the past two and a half years, JPMorgan has been quietly exploring digital identity in the context of blockchain and digital assets, he noted.

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Andrew is a blockchain developer who developed his interest in cryptocurrencies while his post-graduation. He is a keen observer of details and shares his passion for writing along with being a developer. His backend knowledge about blockchain helps him give a unique perspective to his writing