In a significant move, JPMorgan Chase has leveraged blockchain technology to transform money market fund shares into tokens for executing an over-the-counter derivatives trade between BlackRock and Barclays Bank. This innovation addresses the industry’s growing desire for a seamless transfer of collateral ownership without the complications associated with conventional asset transfer methods.
JPMorgan’s Tokenized Collateral Network (TCN) application harnesses blockchain technology to enable the transfer of tokenized ownership interests. According to Tom McGrath, deputy global COO of BlackRock’s cash management group, “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.”
The application offers the potential to significantly reduce settlement failures, provide nearly instantaneous real-time ownership changes, and free assets held by recordkeeping agents, enabling participants to optimize their asset utilization. Tyrone Lobban, head of Onyx Digital Assets at JPMorgan, notes that “Using the bank’s blockchain network Onyx Digital Assets meant the collateral moved almost instantaneously, compared with over the course of a day.”
This blockchain application is now operational, with a lineup of other clients and transactions in the pipeline. JPMorgan has been a proponent of blockchain technology and has been increasingly embracing digital assets in recent years. Over time, Onyx Digital Assets could serve as a bridge connecting institutional investors with decentralized finance platforms in the cryptocurrency economy.
Lobban adds, “With Onyx Digital Assets, we’ve created a tokenization platform that will ultimately enable trillions of dollars of traditional assets to be brought into the broader blockchain ecosystem. This not only addresses real-world financial services challenges but also provides an institutional-scale Ethereum Virtual Machine-based chain compatible with DeFi innovations.”
Since the establishment of Onyx in 2020, the Digital Assets platform has also facilitated intraday repurchase (repo) transactions, enabling short-term borrowing in fixed income through cash exchange for tokenized collateral. By July of this year, the network had processed over $300 billion worth of repo transactions.
Lobban states, “We believe the TCN app can be even bigger given the size of the $15 trillion+ collateral market.”
