JPMorgan Forays Ito Decentralized Finance With Singapore

JPMorgan Chase & Co is exploring the tokenization of DeFi on the blockchain as part of an initiative by the central bank of Singapore to investigate the economic possibilities and use cases with added value of the cryptocurrency.

In addition to JPMorgan, 'Project Guardian' also involves Singapore-based multinational DBS Bank Ltd and digital market infrastructure provider MarketNode, a licensed financial institution that will serve as a 'trust anchor.'

According to Singapore's central bank, the Monetary Authority of Singapore (MAS), the project will investigate the viability of asset tokenization and decentralized financing (DeFi) utilizing an open, interoperable network.

It is expected to facilitate the trading of crypto assets on platforms using existing financial infrastructure.

The blockchain sector will investigate a variety of concerns, including institutional-grade DeFi protocols to counteract market manipulation and vulnerabilities.

The first industrial pilot under 'Project Guardian', according to MAS, includes the deployment of tokenized bonds and deposits in approved liquidity pools allowing DeFi applications to borrow and lend on public blockchain networks.

Sopanedu Mohanty, Chief Fintech Officer at MAS, noted in a statement, "This [tokenization] might potentially improve the efficiency, accessibility, and affordability of financial services, increase liquidity in financial markets, and promote economic inclusion."

Tokenization makes it possible for a cryptocurrency token to represent a traditional asset such as shares. Targeting the wholesale finance sector, MAS Pilot appears capable of functioning similarly to the DeFi Protocol Away, enabling a liquidity pool.

Umar Farooq, the chief executive officer of Onyx, the bank's digital asset subsidiary for fixed income trading, disclosed JPMorgan, since its launch in 2020, has reportedly processed approximately $300 billion in transactions.

According to authorities, a bank holding a particular quantity of tokenized bonds will often post it as collateral, which is secured by a smart contract. The institution can then borrow up to 75% of the value of the deposit, with interest.

In the meantime, additional depositors who prefer to earn interest on their tokenized cash can do so by supplying liquidity to a pool that pays them a share of the interest collected from 75% of what they have borrowed, as well as from any other banks.

According to analysts, loan interest rates are determined by an algorithm based on supply and demand.

The demand from borrowers will cause the interest rate to increase, and vice versa. In this approach, tokenization could revolutionize the role of commercial lenders in mainstreaming cryptocurrency and blockchain.