JPMorgan (JPM) hopes it has found a way for decentralized finance (DeFi) developers to leverage the non-crypto assets’ yield-generating potential.
Tyrone Lobban, head of Onyx Digital Assets at JPMorgan, shared with CoinDesk at Consensus 2022 in Austin, Texas, described in detail the bank’s institutional-grade DeFi plans. He also highlighted how much value in tokenized assets that is waiting in the wings.
“Over time, we think tokenizing U.S. Treasurys or money market fund shares, for example, means these could all potentially be used as collateral in DeFi pools,” Lobban said. “The overall goal is to bring these trillions of dollars of assets into DeFi, so that we can use these new mechanisms for trading, borrowing [and] lending, but with the scale of institutional assets.”
JPMorgan’s plans incorporating the tokenization of traditional assets indicates a much larger scale. According to Lobban, Onyx Digital Assets sees two complementary parts to bringing bank-grade DeFi to success.
One component is JPMorgan’s blockchain-based collateral settlement system that was recently extended last month to tokenized versions of BlackRock’s money market fund shares, a type of mutual fund that is invested in cash and highly liquid short-term debt instruments. Lobban said that there is $350 billion in trading volume for this kind of application on the Onyx Digital Assets blockchain, which is settled in the bank’s in-house digital token JPM Coin.
Led by the Monetary Authority of Singapore, the second piece of the puzzle is a recent pilot which includes JPMorgan, DBS Bank and Marketnode and is dubbed as “Project Guardian.” This pilot project tests institutional-friendly DeFi using tokenized bonds and deposits in permissioned liquidity pools.
The novel approach to permissioned DeFi done using digital identity building blocks, such as W3C verifiable credentials is another difference.
“We want to use verifiable credentials as a way of identifying and proving identity, which is different from the current Aave model, for instance,” Lobban said. “Verifiable credentials are interesting because they can introduce the scale that you need to provide access to these pools without necessarily having to maintain a white list of addresses. Since verifiable credentials are not held on-chain, you don’t have the same overhead involved with writing this kind of information to blockchain, paying for gas fees, etc.”
It is undecided which DeFi platforms and counterparties it will work with but Lobban said,“It’ll be from the bench of protocols that you’d expect, battle-tested with high TVLs (total value locked). But we haven’t yet worked out which ones yet.”
Lobban explained that JPMorgan has quietly been exploring for the past two and a half years, digital identity in the context of blockchain and digital assets.
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