JP Morgan executes first DeFi trade on public blockchain

by · November 3, 2022

Multinational banking firm JP Morgan has successfully completed its first ever cross-border transaction using decentralized finance (DeFi) on a public blockchain.

The trade was facilitated by the Monetary Authority of Singapore’s (MAS) Project Guardian on November 2 – which was established as part of a pilot program to “explore potential decentralized finance (DeFi) applications in wholesale finance markets.”

In other words, the pilot was a new step in investigating how traditional financial institutions can use tokenized assets and DeFi protocols to perform financial transactions, among other use cases.

Singapore’s largest bank – DBS Bank, Tokyo-based banking company SBI Digital Asset Holdings and business leadership platform Oliver Wyman Forum also participated in the pilot program.

The trade was executed on the Ethereum layer-2 network Polygon, using a modified version of the Aave protocol’s smart contract code.

MAS said a “live cross-currency transaction” involving tokenized Singapore dollars and Japanese yen deposits was conducted, along with a simulated exercise of buying and selling tokenized government bonds.

Tyrone Lobban, head of blockchain launch and Onyx Digital assets at JP Morgan’s Onyx business unit, shared the news on Twitter on November 2, noting that the tokenized SGD deposits were the first issuance of tokenized deposits by a bank.

MAS fintech chief Sopnendu Mohanty said it was a “big step” towards more efficient financial networks and the latest pilot has helped develop the country’s digital asset strategy, commenting:

“The live pilots led by industry participants show that with the right guardrails in place, digital assets and decentralized finance have the potential to transform capital markets.”

Umar Farooq, CEO of Onyx by JP Morgan — a business unit of the asset management firm that focuses on blockchain technology — told Bloomberg on Nov. 2 that JP Morgan’s chain transaction “was the first time a major bank, possibly any bank, had tokenized deposits on a public blockchain.”

DeFi lending protocol Aave too commented on the new pilot, adding that the DeFi trade is a “huge milestone” for the industry, as it “represents a huge step towards bridging traditional financial assets to DeFi.”

Project Guardian was only officially launched in May. 2022, which came about a month after a partnership was struck between JP Morgan and DBS to build a new blockchain interbank platform to complement the central bank’s digital currencies (CBDC) work.

Related: Security tokenization could be the next big use case for blockchain technology

The milestone comes as many of the biggest financial players have predicted big things in store for blockchain-based tokenization of real-world assets.

The Boston Consulting Group estimated the total size of tokenized illiquid assets will reach $16.1 trillion by 2030 in a September 2022 report.

While Cynthia Wu, CEO of digital asset service platform Matrixport, recently told Cointelegraph that “almost everything can be tokenized in 5-10 years” and that non-fungible tokens could be the instrument used to represent off-chain assets such as real estate deeds , shares and bonds.