The tokenization platform, called the Tokenized Collateral Network, will be a gateway to convert traditional assets into digital assets via JP Morgan.
JP Morgan’s explorations with crypto have been much the talk of the industry in recent times. In September, the bank partnered with Bank ABC of Bahrain for cross-border payments. Meanwhile, it also released deposit tokens powered by blockchain technology. This time, JP Morgan has announced its own tokenization platform.
The blockchain application will gain prominence as the Tokenized Collateral Network. The main use case of this application will be to enable collateral transfers without moving assets. Underlying ledgers will help implement it.
Blackrock is the first client of the blockchain application. The investment firm enrolled in a trade with JP Morgan. During the trade, the Tokenized Collateral Network created digital tokens from shares of a money market fund. The tokens were thereafter transferred to Barclays Bank.
During the transfer, the tokens acted as collateral for a derivative trade. The volumes from the blockchain app are relatively small compared to JP Morgan’s other operations. But it could soon improve for the better.
Tyrone Lobban from JP Morgan confirmed the application used the bank’s Onyx blockchain for the collateral transfer. The in-house network made it possible for instant transactions. Lobban also confirmed the blockchain would help use locked capital as collateral. JP Morgan’s strategy includes allowing their clients to convert other assets into collateral as well.
“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,” said Tom McGrath, Deputy Global COO at Blackrock.
He was referring to the usefulness of money market funds during periods of high volatility. Since clients could now use the blockchain application to convert shares of such funds into collateral, efficiency, and risks would increase. In such cases, they would have had to otherwise convert the shares into cash.