JPMorgan Set Foot in the DeFi Field Through the Asset Token Pilot in Singapore

The US investment bank JPMorgan Chase & Co is piloting the tokenization of DFI on the blockchain, which is part of the Central Bank of Singapore’s project to explore the economic potential and value-added use cases of cryptocurrencies.

The project is called “project Guardian”. The initiative also includes Singapore multinational DBS Bank Limited and marketnode, a digital market infrastructure operator. Together with JPMorgan Chase & Co , these regulated financial institutions will act as “trust anchors”.

According to the monetary authority of Singapore (MAS), the Central Bank of the city country, the project will study the feasibility of using open and interoperable networks for asset tokenization and decentralized Finance (DFI).

It said that this is expected to enable cryptocurrency assets to be traded across platforms, including the existing financial infrastructure. The entire blockchain industry will explore a series of issues, including the institution level DeFi protocol, to address market manipulation and risks.

MAS said that the first industry experiment under ‘project guardian’ involves the use of token bonds and deposits in the licensed liquidity pool of the DeFi application to borrow and lend on the blockchain based public network.

“It [tokenization] has the potential to improve the efficiency, accessibility and affordability of financial services, increase the liquidity of financial markets and enhance economic inclusiveness,” sopnendu Mohanty, chief financial technology officer of the monetary authority of Singapore, said in a statement.

Bring DeFi Into the Mainstream

Tokenization allows encrypted tokens to represent traditional assets such as stocks. For the wholesale capital market, the MAS pilot seems likely to operate in the same way as the DeFi protocol AAVE, which has a licensed liquidity pool.

According to observers, usually, banks holding a certain number of token bonds will lock them in a smart contract as collateral. The entity can then borrow up to 75% of the deposit while paying interest.

At the same time, other depositors who wish to earn interest from their token cash can do so by providing liquidity to a pool that pays them a portion of the interest from 75% of the borrowed money, as well as from any other bank that may borrow from the bonds.

Analysts said that the interest rate of borrowing is calculated according to the algorithm, based on supply and demand. The higher the demand of the borrower, the higher the interest rate, and vice versa. Tokenization in this way can help transform the role of commercial lenders in cryptocurrency and blockchain mainstreaming.

“JPMorgan Chase & Co … Believes that deposits accessible on the public blockchain are the next step in the evolution of digital commercial bank currencies…” Said Umar Farooq, CEO of Onyx, the bank’s digital asset subsidiary responsible for fixed income trading. It is reported that the Department has completed transactions worth about US $300billion since its launch in 2020.

Temasek, the co owner of DBS Bank, JPMorgan Chase & Co and marketnode, has participated in the separate test of Singapore’s blockchain based interbank payment system partior. The goal of the enterprise platform is to improve the speed of cross-border payment and reduce its cost. It is expected that cross-border payment will rise to US $156trillion by the end of 2022.