One of the world’s largest banks has been quietly working on a multi-trillion dollar project called institutional DeFi. J.P. Morgan executive Tyrone Lobban said that the bank could multiply the tokenized collateral backing DeFi from its current $97 billion into the trillions — despite its chief exec Jamie Dimon saying bitcoin is “worthless” last year.
Today, the mark-to-market capitalization of all crypto assets is approximately $930 billion. If J.P. Morgan were to launch institutional DeFi with trillions of dollars, it would at least triple the size of this industry.
The bank has already tokenized versions of money market funds by BlackRock. These tokenized funds transact on J.P. Morgan’s in-house blockchain, Onyx. The network utilizes a proprietary token, JPM Coin.
Monetary Authority of Singapore
Also, J.P. Morgan is working on institutional DeFi alongside Singapore’s central bank. Dubbed Project Guardian, J.P. Morgan and the central bank aim to “test the feasibility of applications in asset tokenization and DeFi.”
The central bank said that Project Guardian will first explore DeFi applications for wholesale funding markets. In its pilot program, J.P. Morgan will create a permissioned liquidity pool with tokenized deposits and bonds for Singapore.
Moreover, J.P. Morgan will also help Singapore’s central bank with executing borrowing and lending on a publicly verifiable, permissioned, blockchain-based network.
The @MAS_sg and @banquedefrance completed a wholesale CBDC cross-border payment and settlement experiment supported by J.P. Morgan’s Onyx, which simulated cross-border transactions involving multiple CBDCs on a common network between Singapore and France.
Institutional DeFi could take a while
Although J.P. Morgan’s head of Onyx Digital Assets claimed that his “overall goal” is to tokenize trillions of dollars worth of assets, he did not specify the present value of institutional DeFi assets.
Indeed, advancing the project into trillions will take a lot of time. Institutional DeFi has strict compliance standards, insurance, warranty settlements, as well as obligations like Know Your Customer (KYC), Anti-Money Laundering (AML), and Combating the Financing of Terrorism (CFT).
Importantly, institutional DeFi also requires W3C verifiable credentials. This specification by the World Wide Web Consortium (W3C) provides a mechanism to express cryptographically secure, private, and machine-verifiable credentials over the internet.
Participants in J.P. Morgan’s institutional DeFi must cryptographically prove that they are authorized to trade on behalf of a bank, for example. W3C verifiable credentials are preferable to a bank-maintained whitelist, J.P. Morgan’s Lobban said.