JPMorgan Chase has transformed money market fund shares into tokens to execute an over-the-counter derivatives trade between BlackRock and Barclays Bank using blockchain technology.
The development answers an industry-wide appetite for frictionless transfer of collateral ownership without the hassle of moving assets using traditional means.
JPMorgan's Tokenized Collateral Network (TCN) application utilises a blockchain network which sits between a collateral receiver and a collateral provider to enable the transfer of tokenized ownership interests. In the transfer between BlackRock andd Barclays Tokenization occurred within a matter of minutes through connectivity between the fund’s Transfer Agent and TCN.
Tom McGrath, deputy global COO of the cash management group at BlackRock, says: “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 has the potential to drastically reduce settlement fails, provide near-instantaneous real-time change of ownership, as well as release assets trapped at recordkeeping agents to help participants maximise utilisation across their assets, says Tyrone Lobban, head of Onyx Digital Assets at JPMorgan
“Using the bank’s blockchain network Onyx Digital Assets meant the collateral moved almost instantaneously, compared with over the course of a day,” he says.
The blockchain application is now live, with a pipeline of other clients and transactions in the works.
JPMorgan has been a proponent of blockchain technology and, in recent years, increasingly embraced digital assets. Over time, Onyx could potentially be a bridge that connects institutional investors with decentralised finance platforms in the crypto economy, according to Lobban.
He adds: “With Onyx Digital Assets we’ve created a tokenisation platform that will ultimately enable trillions of dollars of traditional assets to be brought into the broader blockchain ecosystem - not only solving real-world financial services problems, but also providing an institutional scale Ethereum Virtual Machine-based chain that is compatible with the innovation of DeFi.”
Since Onyx was established in 2020, the Digital Assets platform has also facilitated intraday repurchase, or repo, transactions in order to provide short-term borrowing in fixed income through the exchange of cash for tokenized collateral. By July this year more than $300 billion of these repo transactions had been processed on the network.
Says Lobban: "We believe the TCN app can be even bigger given the size of the $15 trillion+ collateral market."