JPMorgan’s live trading on a public blockchain is a “significant step” for institutional DeFi
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(Kitco News) –
JPMorgan conducted its first live trade on a public blockchain on Wednesday. The ground-breaking industry pilot saw JPMorgan, Singapore’s DBS Bank and Japan’s SBI Digital Asset Holdings conduct foreign exchange and government bond transactions against liquidity pools made up of tokenized Singapore government bonds, Japanese government bonds, Japanese yen (JPY) and Singapore dollars (SGD).
The transaction was conducted as part of Project Guardian, the Monetary Authority of Singapore (MAS) pilot project established in May 2022 to explore the economic potential and value-added use cases of asset tokenization.
“This is a significant step in the blockchain journey of financial institutions,” said Umar Farooq, CEO of JPMorgan’s Onyx blockchain business unit. â??Project Guardian reinforces our continued belief that tokenized deposits combined with identity on a public blockchain is a path to the future of money.â?�
The trade was executed on Polygon, an Ethereum layer-2 network, and used a customized version of Aave’s smart contract code. After the successful transaction was announced, Aave tweeted â??@jpmorgan. Transactions on a public blockchain using Aave smart contracts are a major milestone for DeFi, and represent a huge step towards bringing traditional financial assets into DeFi, to fully realize the opportunities offered by DeFi smart contract-based dApps.â?�
Decentralized finance (DeFi) makes it possible to carry out financial transactions between entities directly using smart contracts, without the need for financial intermediaries.
“The live transactions conducted during the first pilot show that cross-currency transactions of tokenized assets can be transacted, cleared and settled instantly among live participants,” MAS wrote in a statement. “This frees up costs associated with executing trades through clearing and settlement intermediaries, and managing bilateral counterparty trading relationships required in today’s over-the-counter (OTC) markets.”
Polygon was chosen so that the transactions could be done on Ethereum, keeping gas fees to a minimum according to Tyrone Lobban, Head of Blockchain Launch & Onyx Digital Assets, who outlined the financial and technical implications of the successful pilot in a series of tweets. Aave’s allowable pool functionality enabled them to set custom parameters such as interest rates and exchange rates, he added.
Lobban also said JPMorgan’s issuance of tokenized Singapore Dollar deposits was the first time tokenized deposits were issued by a bank.
“This has been an incredible undertaking with many, many people working tirelessly to get here: large regulated FIs executing the first direct trade of tokenized deposits through VC-based DeFi on public chain,” he wrote.
In the future, MAS pilots intend to use other blockchains and protocols to test interoperability, which is a key requirement for various financial institutions around the world to embrace DeFi, Lobban added.
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