JP Morgan's Crypto Strategy Includes Trillions Of Dollars Investment

JP Morgan believes it has discovered a mechanism for decentralised finance (DeFi) developers to take advantage of non-crypto assets' yield-generating potential.

Tyrone Lobban, the head of JPMorgan's Onyx Digital Assets, spoke to CoinDesk at Consensus 2022 in Austin, Texas, about the bank's institutional-grade DeFi aspirations and how much value is waiting in the wings in tokenised assets.

Institutional DeFi means enforcing know-your-customer standards on crypto's permissionless lending pools, as demonstrated by Aave Arc and a recently announced collaboration with Siam Commercial Bank and Compound Treasury.

Mr Lobban said they believed that tokenising US Treasurys or money market fund shares would allow them to be utilised as collateral in DeFi pools.

"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," added Mr Lobban.

According to him, Onyx Digital Assets sees two complementing aspects to bringing bank-grade DeFi to fruition.

JPMorgan's blockchain-based collateral settlement system, which was recently expanded to incorporate tokenised copies of BlackRock's money market fund shares, is one component.

According to Mr Lobban, the trading volume for this type of application on the Onyx Digital Assets blockchain, which is paid in the bank's in-house digital token JPM Coin, has reached $350 billion.

The second component is 'Project Guardian', an experiment led by the Monetary Authority of Singapore involving JPMorgan, DBS Bank, and Marketnode.

It uses permissioned liquidity pools made up of tokenised bonds and deposits to test institutional-friendly DeFi.

These DeFi enterprises will use public blockchains and a permission structure, similar to what Aave Arc and Fireblocks are doing.

One difference, according to Mr Lobban, is that under Project Guardian, major financial institutions, rather than DeFi platforms and crypto-native custodial organisations, validate client information.

To put it another way, a JPMorgan trader must show that they have legal permission to trade on the Wall Street bank's behalf.

The new approach to permissioned DeFi, based on digital identity-building aspects like W3C verifiable credentials, is another point of differentiation.

According to Mr Lobban, JPMorgan hasn't chosen which DeFi platforms and counterparties it would work with, but it will be among the well-known options. 

JPMorgan has been quietly studying digital identification in the context of blockchain and digital assets for the past two and a half years, he added.