JPMorgan has partnered with BlackRock and Barclays to execute its first blockchain-based collateral settlement for clients. The transaction was effected on JPMorgan's Ethereum-based Onyx blockchain, coupled with its Tokenized Collateral Network (TCN).
The transaction involved BlackRock, the world's largest asset manager, tokenising shares in one of its money market funds. These tokenised shares were transferred to Barclays Plc, as collateral in an over-the-counter (OTC) derivatives trade.
The tokenisation process was reportedly completed in minutes enabled by connectivity between the fund's Transfer Agent and TCN. The transfer between BlackRock and Barclays was practically instantaneous. The tokenised shares are now being utilized as collateral between counterparties to a derivatives trade, demonstrating the composability and speed of blockchain based protocols and tokens.
The benefits of tokenising securities and real-world assets have been a hot topic this year in mainstream financial markets. JPMorgan got the tokenisation ball rolling over a year ago, while other financials giants like Citi have highlighted tokenisation as blockchain's "killer use case".
According to Bloomberg, Tyrone Lobban, JPMorgan's Head of Onyx Digital Assets, commented:
Onyx Digital Assets already enables clients to access intraday liquidity via repo transactions. Now, with the launch of TCN, clients can benefit from additional utility from their MMF investments by posting tokenized MMF shares as collateral – a faster, more cost-effective way of meeting margin requirements.
Tom McGrath, Deputy Global COO of the Cash Management Group at BlackRock, echoed this sentiment, emphasising the reduction in operational friction. He explained to Bloomberg that:
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.
The successful collaboration between these financial titans further underscores that blockchain technology is quickly moving in the mainstream financial sector. This shift is marked by the promise of faster and more efficient settlement, along with greater transparency and security. While this journey is still underway, tokenization looks set to revolutionize traditional financial markets in the coming years.
Written by Steven Pettigrove and Luke Higgins