JPMorgan Looking to Bring DeFi Yields to Non-Crypto Assets via Tokenization

Wall Steet behemoth JPMorgan has reportedly found a way that enables DeFi developers to leverage the yield-generating potential of non-crypto assets.

JPMorgan Could Bring DeFi Yields to Non-Crypto Assets

According to a Coindesk report published June 11, JPMorgan hinted that it has found a way to bring trillions of dollars of tokenized assets to DeFi.

At Consensus 2022 in Austin, Texas, Tyrone Lobban, head of Onyx Digital Assets at JPMorgan told Coindesk the bank’s institutional-grade DeFi plans and highlighted the amount of value in tokenized assets waiting to be poured into the DeFi landscape.

He said:

“Over time, we think tokenizing U.S. Treasurys or money market fund shares, for example, means these could all potentially be used as collateral in DeFi pools. The overall goal is to bring these trillions of dollars of assets into DeFi, so that we can use these new mechanisms for trading, borrowing [and] lending, but with the scale of institutional assets.”

For the uninitiated, institutional DeFi differs from retail DeFi in that the former typically requires users to pass certain know-your-customer (KYC) strictures to benefit from the underlying digital asset’s permissionless pools.

To date, several leading DeFi protocols have unveiled their institutional-grade DeFi solutions such as Aave Arc, Compound Treasury, and others.

Lobban added that JPMorgan’s plans to incorporate the tokenization of traditional assets is on a much larger scale. He added that Onyx Digital Assets views two complementary parts to bringing bank-grade DeFi to fruition.

What Are the Components?

Per the report, the first component is JPMorgan’s blockchain-based collateral settlement system. The system was extended in May to include tokenized versions of BlackRock’s money market fund shares which is essentially a kind of mutual fund invested in cash and highly liquid short-term debt instruments.

Lobben noted that such kind of application on the Onyx Digital Assets blockchain – settled in the bank’s in-house digital token JPM Coin – has witnessed a whopping $350 billion in trading volume.

The second component is a recent pilot called “Project Guardian” being spearheaded by the Monetary Authority of Singapore which includes JPMorgan, DBS Bank, and Marketnode. While not much is know about this pilot yet, we do know that it tests institutional-friendly DeFi using permissioned liquidity pools that are made up of tokenized bonds and deposits.

Lobban added that JPMorgan’s approach to permissioned DeFi will involve digital identity building blocks, such as W3C verifiable credentials.

“We want to use verifiable credentials as a way of identifying and proving identity, which is different from the current Aave model, for instance,” Lobban said. “Verifiable credentials are interesting because they can introduce the scale that you need to provide access to these pools without necessarily having to maintain a white list of addresses. Since verifiable credentials are not held on-chain, you don’t have the same overhead involved with writing this kind of information to blockchain, paying for gas fees, etc.”