The Onyx unit of JP Morgan Chase & Co, the number one U.S. banking system, has conducted the first live trade on a public blockchain. This is a significant step towards integration with the underlying DeFi systems.
The crypto arm of the New York-based lender conducted trades as part of a new project launched in Singapore. It partnered with DBS Bank and SBI Digital Asset Holdings to conduct live foreign exchange swaps of tokenized Japanese yen (JPY) and Singapore dollars (SGD). While the transaction was not a crypto trade, it did utilize the public DeFi infrastructure of the Ethereum ecosystem.
Joint initiative of the financial industry
Project Guardian is a collaborative financial industry initiative to test the feasibility of tokenization applications and DeFi. The goal of the project is to explore DeFi applications in wholesale funding markets. At the same time, the major banks involved are seeking to test the risks to financial stability and integrity. The project is supported by the central bank of the Asian city-state of Singapore, the Monetary Authority of Singapore (MAS).
"The live pilots led by industry participants show that digital assets and decentralized financial applications (DeFi) have the potential to transform capital markets if the proper guardrails are in place." - Sopnendu Mohanty, Chief FinTech Officer of MAS
The programs and experiments ultimately serve to establish policy guidelines and frameworks for DeFi. For now, the project is using Polygon, a proof of stake scaling solution for Ethereum, to minimize transaction costs. According to Ty Lobban, who works on Web3 products at Onyx, Project Guardian will also collaborate with other blockchain networks in the future.
Modified version of Aave Arc
The project deployed a modified version of Aave Arc and created a token representing Singapore dollar deposits with JP Morgan (JPM SGD). This is the institutional version of the leading DeFi credit protocol, Aave, which integrates AML/KYC regulatory requirements into the platform.
WORLD! J.P. Morgan has executed its 1st *LIVE* trade on public blockchain using DeFi, Tokenized Deposits & Verifiable Credentials, part of @MAS_sg Project Guardian ???https://t.co/XI212SG4zg Many world 1sts here, & since this is public ⛓ here’s a transparent?on what we did:
— Ty Lobban (@TyLobban) November 2, 2022
Aave Arc Ventures cultivated the institutional investor business. Offering the leading DeFi money market was critical in allowing regulated banks like JP Morgan to use DeFi pools in a safe and regulated manner. It allows banks to trade only with verified dealers. A regulated bank cannot allow money laundering or trade with unknown traders, which is why the KYC/AML policies of the Aave Arc platform are critical.
Proprietary blockchain platforms no longer sufficient?
JP Morgan's Onyx is at the forefront of a major shift in the financial services industry. The crypto arm of the financial giant is offering a blockchain-based retail payments platform. With it, the banking giant aims to reshape the way money, information and assets move around the world.
Onyx Digital Assets is a blockchain-based network that enables the processing, recording, and exchange of digital assets for payment (delivery-versus-payment, DVP) across multiple asset classes. The network provides access to the JPM Coin system, which is used to support the payment side of Onyx Digital Assets transactions. More than half of the world's largest banks have embraced the new paradigm, using blockchain technology to facilitate the exchange of payment information.
But as this pilot project proves, even the weightiest US bank needs to join the public blockchain ecosystem. While previous JP Morgan efforts were always based on self-issued blockchain infrastructure, a paradigm shift seems imminent. Established smart contract platforms are no longer "money laundering platforms" but critical infrastructure for the future of the financial industry.
Finally, check out the report that we co-authored that goes into further details of why Institutional DeFi could enable the next generation of finance, as well as further details on Project Guardian https://t.co/FxQDauLjzr /fin
— Ty Lobban (@TyLobban) November 2, 2022
