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JPMorgan's live trade on a public blockchain is a "significant step" for institutional DeFi

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(Kitco News) - JPMorgan successfully executed their first live trade on a public blockchain on Wednesday. The groundbreaking industry pilot saw JPMorgan, Singapore’s DBS Bank, and Japan’s SBI Digital Asset Holdings conduct foreign exchange and government bond transactions against liquidity pools made up of tokenized Singapore Government Securities Bonds, Japanese Government Bonds, Japanese Yen (JPY) and Singapore Dollars (SGD).

The transaction was conducted as a part of Project Guardian, the Monetary Authority of Singapore (MAS) pilot project established in May 2022 to explore the economic potential and value-adding use cases of asset tokenization.

“This is a significant step in the blockchain journey of financial institutions,” said Umar Farooq, CEO of JPMorgan’s Onyx blockchain business unit. “Project Guardian reinforces our continued conviction that tokenized deposits combined with identity on a public blockchain is a path to the future of money.”

The trade was executed on Polygon, an Ethereum layer-2 network, and used a customized version of Aave’s smart contract code. After the successful transaction was announced, Aave tweeted “@jpmorgan transacting on a public blockchain using Aave smart contracts is a huge milestone for DeFi, and represents a massive step towards bringing traditional financial assets into DeFi, to fully realize the opportunities afforded by smart contract based dApps.”

Decentralized finance (DeFi) enables financial transactions to be performed between entities directly using smart contracts, without the need for financial intermediaries.

“The live transactions executed under the first pilot demonstrate that cross currency transactions of tokenized assets can be traded, cleared and settled instantaneously among direct participants,” MAS wrote in a statement. “This frees up costs involved in executing trades through clearing and settlement intermediaries, and the management of bilateral counterparty trading relationships as required in today’s over-the-counter (OTC) markets.”

Polygon was chosen so that the transactions could be done on Ethereum, keeping gas fees to a minimum according to Tyrone Lobban, Head of Blockchain Launch & Onyx Digital Assets, who spelled out the financial and technical implications of the successful pilot in a series of tweets. Aave’s permissioned pools functionality enabled them to set custom parameters such as interest and fx rates, he added.

Lobban also said that JPMorgan’s issuance of tokenized Singapore Dollar deposits was the first time tokenized deposits were issued by a bank.

“This has been an incredible undertaking with many, many ppl working tirelessly to get here: large regulated FIs conducting the 1st live trade of tokenized deposits through VC-based DeFi on public chain,” he wrote.

In the future, MAS pilots intend to employ other blockchains and protocols to test interoperability, which is a key requirement for different financial institutions around the world to embrace DeFi, Lobban added.

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