JPMorgan is the biggest systemic bank in the world. It is also the Wall Street bank investing the most resources into building its digital asset capabilities and product offerings. It is a flag bearer for the banking industry when it comes to tokenization adoption.
So when J.P. Morgan Onyx’s Head, Umar Farooq, told the world at Consensus 2024 this week, that "the number of transactions explode by factors of ten" on the Onyx blockchain since the enabling of programmability late last year, my interest was naturally piqued.
The fact that the activities on its Onyx blockchain is surging tenfold brings to mind a few questions:
What are JPMorgan’s main digital asset products and how is it scaling them?
What does this signal about the likely adoption path for other banks?
What does this mean for the adoption path of various tokenized products?
In this week’s newsletter, I will map out JPMorgan’s various digital asset products and GTM strategies.
Let’s dive in.
Onyx Product Offerings
According to its website, JPMorgan has 4 main main product categories:
Liink (Interbank data sharing)
Coin System (JPM Coin)
Digital Asset (Tokenized assets)
Blockchain Launch (Internal blockchain R&D team)
Given our focus on tokenization, we will be focusing on Coin System and Digital Asset product categories.
The Coin System
JPMorgan Coin is Onyx’s flagship product. Launched in 2020, JPM Coin leverages JPMorgan’s own private and permissioned Onyx blockchain, based on a private version of Ethereum called Quorum, to allow JPMorgan's own corporate clients to send cross-border payments instantaneously and 24/7.
It achieves this by tokenizing cash balances held at JPMorgan by qualified corporate customers. It’s primarily deployed by institutions and large corporates such as Siemens treasury, which uses tokenized deposits to move money between its subsidiaries worldwide.
JPMorgan doesn’t like to refer to JPM Coin as tokenized deposits. It prefers to call it the blockchain-based bank account. But no matter what you call it, it is a much faster and more capital efficient way to move money vs the conventional time-consuming correspondent banking route.
By late 2023, JPM Coin was seeing around $1 billion in transaction volume a day. For context, the following are some comparable benchmarks:
JPMorgan processes around $10 trillion in daily transfers
Visa does around $12 trillion transaction volume a year
Other tokenized cash assets such as stablecoins have transfer volume between $600 billion to $2 trillion+ a month
However, all of this has nothing to do with programmability. All of this was simply the result of leveraging blockchain’s instantaneous settlement and 24/7 always-on features.
JPMorgan most likely hit a wall when it comes to onboarding its internal clients last year given the current willingness and technological readiness with various corporates.
So to scale up the usage number, JPMorgan decided to offer JPM Coin to smaller banks who may want such a feature as instantaneous transfer settlement but didn’t have the resources to build their own products.
In 2023, JPMorgan signed on other banks, such as Bahrain's Bank ABC and UAE's First Abu Dhabi Bank (FAB), to enable their own corporate customers to transact with US based JPMorgan corporate clients 24/7 and instantaneously.
An example includes ABC Bank’s client Aluminium Bahrain (ALBA). ALBA used the enterprise blockchain system for real-time US Dollar payments with U.S. counterparties that are also JP Morgan bank account holders. The Central Bank of Bahrain oversaw the transactions.
The news about JPM Coin’s expansion to support Euros in addition to USD and ABC Bank’s intention to use the system for payments between Bahrain and the UK, Singapore and Hong Kong make me suspect this GTM strategy will only be broadened.
Adding programmability to the JPM Coin product would likely make the product more sticky as it allows clients to expand use cases that increase their usage and reliance on the blockchain.
Programmable payments allow a wider range of rules than conventional conditional payments. JP Morgan provides a new “If-This-Then-That” interface via its online treasury portal. Siemens was its first client to use this feature. Followed by Cargill and FedEx.
Seems that not only will allow more conditional payment logic but also enable more capital efficient treasury management.
The comment made by Dr. Peter Rathgeb, Group Treasurer of Siemens AG, re enabling programmability was telling. “This will take Siemens to the next level of automation to not only optimize the use of working capital but also enable data-driven digital business models and support the scalability of our Siemens business from the treasury side”
By May 2024, it is said that Onyx is handling about $2 billion daily in transaction volume.
Onyx Digital Assets
While JPM Coin focuses on payment efficiency, Onyx Digital Assets deals with commercial asset tokenization and its various use cases.
It has 3 distinct products:
Digital Financing (Intraday repo)
Tokenized Collateral Network (Collateral management solution)
Digital Debt Servicing (DCM)
Intraday Repo
Banks use repo as a way to meet short-term funding. However, despite repos’ intended purpose of raising short term funding, the settlement usually takes two days. The delay in settlement means wasted capital efficiency. Blockchain, with its instant settlement, makes it practical to have repo transactions that span a few hours rather than a day or more.
Introduced first in 2020, JPMorgan’s tokenized intraday repo solution has onboarded Goldman Sachs, BNP Paribas and DBS as users. By May 2022, the cumulative intraday repo volume conducted on Onyx passed $300 billion.
For context, Broadridge, a major player in the tokenized repo market, was already doing $35 billion in daily volume in 2022.
Tokenized Collateral Network
Launched in 2022, the Tokenized Collateral Network leverages blockchain’s instantaneous settlement and always-on nature to reduce settlement inefficiency in collateral posting processes that involve different custodians.
JPMorgan executed the first transaction by tokenizing BlackRock money market fund shares and using them as collateral. The effort allows investors to pledge a wider range of assets as collateral and use them outside of market operating hours.
In late 2023, JPMorgan’s Tokenized Collateral Network, or TCN, was used by BlackRock to tokenize its money market fund shares, which were then transferred to Barclays as collateral for an over-the-counter derivatives trade between the two institutions.
While the assets used so far have been money market funds, JPmorgan plans to tokenize equities, fixed income and other asset types in the future.
Digital Debt Servicing
This is JPMogan’s latest digital asset product. In April 2024, the City of Quincy on the outskirts of Boston Massachusetts issued a $10 million municipal bond using this product. JPMorgan was the sole underwriter of the tax-exempt seven year bonds and the issuance used the Onyx private permissioned blockchain.
Adoption Path for Other Banks
The fact that JPMorgan managed to onboard clients for its JPM Coin product outside the US signal two interesting possibilities when it comes to broader banking industry adoption:
JPMorgan competitors are unlikely to use its products
But there are far more banks who may be customers
For every product JPMorgan introduces, there is likely already competition from other big banks. Take the JPM Coin for example. As a tokenized cash solution, it faces competing products from other systemic banks.
For instance, Citi has its own tokenized deposit solution housed in the newly launched Citi Token Services. Or HSBC is conducting tokenized deposit trials with Ant Group’s blockchain.
However, there are over 10,000 banks in the world but fewer than a dozen banks with resources to compete with JPMorgan’s tokenization effort.
The ones who have the resources are likely to develop competing products themselves in-house or through investment in startups such as this case. These large banks are likely to be the trend-setters of digital asset products that are introduced to the market.
But there are far more banks that cannot compete with JPMorgan’s tokenization R&D effort. JPM Coin’s expansion into the Middle East gave us a glimpse of other smaller banks' likely adoption path. These smaller banks are likely to be trend adopters and also customers for big banks’ battle-tested solutions.
Adoption Path for Tokenized Products
The biggest banks such as JPMorgan and Citi are likely to have the biggest reach and impact when it comes to getting market feedback regarding traction of any tokenized product.
Thus whatever product that gets the best traction numbers at one of these systemic banks are likely to be the lowest hanging fruit for adoption in general for the market.
So far, the 2 biggest traction numbers being seen across various tokenized solutions are
The fact that “the number of transactions exploded by factors of ten” on the Onyx blockchain since the enabling of programmability late last year is a tell-tale sign that we are still at the beginning of the adoption growth curve in these two verticals.
It is also my belief that these two verticals will serve as foundational building blocks for the tokenization of other financial assets and products, contributing to the maturation of onchain capital markets.
As the onchain capital market matures, other less liquid assets such as private credit and real estate will start to see more use cases with traction emerge.
Disclaimer: This content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice.