JP Morgan’s long-term bet on blockchain

For many, the ups and downs of cryptocurrencies have had too much impact on their perception of the technology driving this emerging asset class – DLT and blockchain technology.

For those of us interested in the technology, what happens with cryptocurrencies has no bearing on our plans. What can be achieved with shared ledgers and tokenization is so much more than price speculation, and if there’s one big company that knows this better than anyone, it’s JP Morgan.

I recently sat down with Tyrone Lobban, Head of Blockchain Launch & Onyx Digital Assets at JP Morgan. Tyrone has been involved in blockchain at JP Morgan since the early days. In our discussion, there were a number of key lessons about how JP Morgan has positioned itself for success with respect to web3 and its future.

Be prepared for the long road ahead

JP Morgan has invested in the use of blockchain in their business since 2015. Over the past 7 years, they have completed over 60 proof of concepts focused on both internal and external customer-facing initiatives.

I know of no other large company that has shown this level of commitment to blockchain over the past 7 years and continues to do so.

Some of the crucial announcements that have taken place during this period include:

• In 2016, they made headlines with the public announcement of their enterprise-focused fork of Ethereum — Quorum.

• In 2020, they launched their platform Onyx Digital Assets which has processed over $300 billion of intraday repo transactions (over three quarters backed by government bonds).

• In 2022, they made DeFi trades on the public Polygon blockchain with DBS Bank as part of the Monetary Authority of Singapore’s Project Guardian.

JP Morgan is the world’s largest bank outside of China, and today they continue to process over 1 billion dollars per day on blockchain.

This level of investment and commitment dwarfs those made by many other organizations. Many are still exploring potential applications via proof of concepts, but still have a lot of work to do to take these to production.

Steel sharpens steel

JP Morgan acknowledges that not all projects will succeed, but it is ultimately a numbers game. As with any craft, the more you practice it, the better you get at it, and JP Morgan has now reached a point where they have not only identified several key use cases where it makes sense to use blockchain, but also those that do t .

This ongoing experimentation is critical to understanding how the best blockchain technology can serve your organization. Your first pilot or proof of concept is unlikely to yield significant returns, but it will yield a lot of learning that will help make the next work more impactful.

Uncertainty should not be an obstacle

There is still a lot of uncertainty about how the web3 landscape will develop. Public blockchains continue to be criticized for their lack of privacy, pseudo-anonymity of participants, and performance.

Conversely, private blockchains are criticized for their governance overhead, introduction challenges and separation from public blockchains.

Against this landscape, JP Morgan did not decide to wait to play. Instead, they were able to identify the ways in which the current landscape could serve their needs.

They tokenized deposits and conducted DeFi transactions on a public network and brought a decentralized identity implementation into the project to ensure that all participants in transactions were identifiable.

The work took place in a regulator-sanctioned sandbox environment, which helped them identify regulatory challenges that exist with the current legal framework to support such activities.

On the private network front, they launched their Onyx platform using a private permissioned network given the challenges of working with public networks.

By being at the forefront of these developments, you can be sure that JP Morgan will be well-positioned to help regulators pass legislation where appropriate, and react quickly to create products and services that comply with the regulations when they appear.

Completely new ecosystems will be required

It is likely that once frameworks exist to allow banks to tokenize deposits, JP Morgan will no doubt be an early mover in the space given their experience so far.

Asset tokenization initiatives can feed into a number of other ecosystem initiatives for the bank. For example, it recently emerged that JP Morgan has registered a trademark for a cryptocurrency wallet – unsurprisingly called the JP Morgan Wallet. Although JP Morgan has not announced this wallet themselves, it shows a significant opportunity they can easily expand to given their existing reach and customer base.

In addition, their Onyx platform is not only for repo transactions, it also hosts their Liink network which has over 100 participants who use the network to exchange payment-related information with each other, reducing the time it takes to make payments between institutions .

The future

There are many other initiatives that JP Morgan is no doubt involved in that will be made public in due course. However, many will undoubtedly benefit from following their guidance.

JP Morgan has a significant track record in financial services and it seems very likely that it will continue to maintain its position as the market leader as blockchain technology becomes more mainstream.