JP Morgan has announced a significant milestone, revealing that it has successfully conducted the first blockchain-based live collateral settlement transaction involving BlackRock and Barclays. This transaction used JPMorgan’s Ethereum-based Onyx blockchain technology and the bank’s Token Collateral Network (TCN).
BlackRock used this system to tokenize shares from one of its money market funds, which were later transferred to Barclays PLC to serve as collateral in over-the-counter (OTC) derivatives trading.
The tokenization of traditional financial assets represents a major development for banks, and JP Morgan has been at the forefront of this initiative. Other major players, such as City, are making great strides in this area.
JPMorgan Blockchain Collateral Settlement
TCN to request Facilitate the conversion of shares from one of BlackRock’s money market funds into digital tokens. According to Tyrone Lobban, head of Onyx Digital Assets at JPMorgan, these tokens were quickly transferred to Barclays as collateral for OTC derivatives trading.
The tokenization process took just a few minutes and was enabled through communication between the fund’s transfer agent and TCN, JPMorgan’s press release said. The near-instantaneous transfer between BlackRock and Barclays represents an important milestone for all three entities involved, as it represents the first example of money market fund shares being used as collateral between their binary derivative counterparties.
Le Pen emphasized that Onyx Digital Assets enables clients to access intraday liquidity through repo transactions. He added that with the launch of TCN, clients can derive additional benefit from their MMF investments by deploying MMF token shares as collateral – a faster and more cost-effective way to meet margin requirements.
JPMorgan Spearheads Tokenization
Since the TCN implementation is live, JPMorgan has a series of other clients and transactions, according to Le Pen. Notably, the bank conducted an internal transaction to test TCN in May.
Advocates of blockchain technology argue that its use will simplify the process for financial institutions to use their shares in money market funds as collateral. This is because they will not need to exchange them for cash, a step required in traditional operations. This shift can lead to faster transactions and potentially reduce risk during market volatility.
Tom McGrath, executive vice president of global operations for BlackRock’s Cash Management Group, emphasized that tokenizing money market fund shares as collateral in clearing and margin transactions can significantly reduce operational friction in meeting margin calls when market sectors face acute margin pressures.
In addition to TCN, JPMorgan also operates JPM Coin, a system that enables wholesale clients to make payments in dollars and euros through a blockchain network. From its launch until June of that year, the bank processed nearly $300 billion through this system. JPMorgan is also overseeing a blockchain-based repo application and exploring a digital deposit token to speed up cross-border settlements.
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