JPMorgan Chase has innovatively transformed money market fund shares into tokens to facilitate an over-the-counter derivatives trade between BlackRock and Barclays Bank, leveraging blockchain technology.
This development addresses a pressing industry need for a seamless transfer of collateral ownership, bypassing the complexities associated with traditional asset movements. The Tokenized Collateral Network (TCN) application from JPMorgan utilizes a blockchain network to streamline transactions between collateral receivers and providers, allowing for the quick transfer of tokenized ownership interests. In the recent transaction between BlackRock and Barclays, tokenization was completed in minutes, thanks to the integration between the fund’s Transfer Agent and TCN.
Tom McGrath, deputy global COO of the cash management group at BlackRock, remarked, “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.”
Tyrone Lobban, head of Onyx Digital Assets at JPMorgan, noted that this application has the potential to significantly reduce settlement fails, offer nearly instantaneous real-time ownership changes, and free up assets currently in the custody of recordkeeping agents, thereby enhancing asset utilization for participants. He emphasized, “Using the bank’s blockchain network Onyx Digital Assets meant the collateral moved almost instantaneously, compared with over the course of a day.”
The blockchain application is currently operational, with a range of other clients and transactions in development. Over the past few years, JPMorgan has been a strong advocate for blockchain technology and has increasingly adopted digital assets. According to Lobban, Onyx could evolve into a vital link connecting institutional investors with decentralized finance platforms in the crypto economy.
Lobban further stated, “With Onyx Digital Assets, we’ve created a tokenization platform that will ultimately enable trillions of dollars of traditional assets to be integrated into the broader blockchain ecosystem—addressing real-world financial services challenges, while also establishing an institutional-scale Ethereum Virtual Machine-based chain that aligns with DeFi innovations.”
Since its inception in 2020, the Onyx Digital Assets platform has also handled intraday repurchase (repo) transactions, facilitating short-term fixed income borrowing through the exchange of cash for tokenized collateral. By July of this year, the network had processed over $300 billion in these repo transactions.
Lobban remarked, “We believe the TCN app can be even bigger, considering the size of the $15 trillion+ collateral market.”