JPMorgan Wants to Bring Trillions of Dollars of Tokenized Assets to DeFi

The bank’s recent tokenization of money market funds with BlackRock dovetails with an institutional DeFi project led by the Monetary Authority of Singapore.

AccessTimeIconJun 11, 2022 at 8:50 p.m. UTC
Updated May 11, 2023 at 5:36 p.m. UTC

AUSTIN, Texas — JPMorgan (JPM) hopes it has found a way for decentralized finance (DeFi) developers to leverage the yield-generating potential of non-crypto assets.

Speaking to CoinDesk at Consensus 2022 in Austin, Texas, Tyrone Lobban, head of Onyx Digital Assets at JPMorgan, described in detail the bank’s institutional-grade DeFi plans and highlighted how much value in tokenized assets is waiting in the wings.

  • Three Crypto Predictions in 2024
    02:07
    Three Crypto Predictions in 2024
  • Why Injective's INJ Has Surged 3,000% in 2023
    00:52
    Why Injective's INJ Has Surged 3,000% in 2023
  • DeFi Market Rebounds to $50B as Speculators Hunt for Yield
    01:11
    DeFi Market Rebounds to $50B as Speculators Hunt for Yield
  • How Spool Is Aiming to Help Institutions Enter DeFi
    11:05
    How Spool Is Aiming to Help Institutions Enter DeFi
  • “Over time, we think tokenizing U.S. Treasurys or money market fund shares, for example, means these could all potentially be used as collateral in DeFi pools,” Lobban said. “The overall 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.”

    Institutional DeFi generally means imposing know-your-customer (KYC) strictures on crypto’s permissionless lending pools, which has started to happen in pockets of innovation such as Aave Arc, as well as in a recently announced project involving Siam Commercial Bank and Compound Treasury.

    JPMorgan’s plans incorporating the tokenization of traditional assets point to a much larger scale. Onyx Digital Assets sees two complementary parts to bringing bank-grade DeFi to fruition, Lobban explained.

    One component is JPMorgan’s blockchain-based collateral settlement system that was extended last month to include tokenized versions of BlackRock’s money market fund shares, a kind of mutual fund invested in cash and highly liquid short-term debt instruments. That kind of application on the Onyx Digital Assets blockchain, which is settled in the bank’s in-house digital token JPM Coin, has had $350 billion in trading volume, Lobban pointed out.

    The second piece of the puzzle is a recent pilot that is being led by the Monetary Authority of Singapore and includes JPMorgan, DBS Bank and Marketnode and is dubbed “Project Guardian.” It tests institutional-friendly DeFi using permissioned liquidity pools that are made up of tokenized bonds and deposits.

    These ventures into DeFi will involve public blockchains and have a permissioned structure similar in many ways to what is being done by the likes of Aave Arc and Fireblocks. One difference, Lobban noted, is that verifying customer information in Project Guardian is being done by large financial institutions that are participating, as opposed to DeFi platforms and crypto-native custody firms. In other words, a JPMorgan trader has to prove he has the rights and entitlements to trade on behalf of the Wall Street bank.

    Verifiable credentials

    Another difference is the novel approach to permissioned DeFi done using digital identity building blocks, such as W3C verifiable credentials.

    “We want to use verifiable credentials as a way of identifying and proving identity, which is different from the current Aave model, for instance,” Lobban said. “Verifiable credentials are interesting because they can introduce the scale that you need to provide access to these pools without necessarily having to maintain a white list of addresses. Since verifiable credentials are not held on-chain, you don’t have the same overhead involved with writing this kind of information to blockchain, paying for gas fees, etc.”

    JPMorgan hasn't decided what DeFi platforms and counterparties it will work with, Lobban said, but it will be among the recognized offerings. “It’ll be from the bench of protocols that you’d expect, battle-tested with high TVLs (total value locked). But we haven't yet worked out which ones yet.”

    Lobban explained that for the past two and a half years, JPMorgan has quietly been exploring digital identity in the context of blockchain and digital assets.

    “If we can put this identity layer in front of DeFi that enables KYC-based access, then each of those protocols should just naturally be able to support institutions without necessarily having to make too many changes to what they’re doing,” Lobban said. “Do we have to set up separate permissioned pools and make changes to the existing protocols? Or can these things work out of the box?”

    Disclosure

    Please note that our privacy policy, terms of use, cookies, and do not sell my personal information has been updated.

    CoinDesk is an award-winning media outlet that covers the cryptocurrency industry. Its journalists abide by a strict set of editorial policies. In November 2023, CoinDesk was acquired by the Bullish group, owner of Bullish, a regulated, digital assets exchange. The Bullish group is majority-owned by Block.one; both companies have interests in a variety of blockchain and digital asset businesses and significant holdings of digital assets, including bitcoin. CoinDesk operates as an independent subsidiary with an editorial committee to protect journalistic independence. CoinDesk employees, including journalists, may receive options in the Bullish group as part of their compensation.

    Ian Allison

    Ian Allison is an award-winning senior reporter at CoinDesk. He holds ETH.


    Read more about