Cash Recall: JP Morgan Partners With Blackrock To Launch Blockchain-Based Tokenized Collateral Network

As its first client, Blackrock, the largest asset manager in the world, used JP Morgan’s newest Tokenized Collateral Network (TCN) ‘to turn shares in one of its money market funds into digital tokens, which were then transferred to Barclays Plc as collateral for an over-the-counter derivatives trade between the two institutions,’ Bloomberg reported, citing Tyrone Lobban, head of Onyx Digital Assets at JPMorgan.

According to the Onyx website, powered by JP Morgan, the TCN “is an application enabling investors to utilize assets as collateral. Transfer collateral ownership without moving assets in underlying ledgers — while remaining invested — starting with money market funds.”

The megabank adds that the TCN can provide “Real-time transfer of collateral ownership,” among other features.

Ed Bond, head of trading services at JPMorgan, added the beyond cash the bank foresees using this platform to use other assets as collateral, including equities and fixed income.

Institutions on the network can use a wider scope of assets to meet any collateral requirements they have on the back of trading.

Bond said

As noted in a report by CoinDesk, JP Morgan joins the likes of Citibank who launched a similar blockchain system in September. The WinePress detailed that venture upon its public release, which too allows for the convertibility and tokenization of assets like cash into a digital token.

Bloomberg, in their article, echoed Citibank’s touted benefits of their new blockchain network in relation to the new TCN. The publication wrote: ‘Blockchain proponents say that using the technology will make it easier for financial institutions to use their shares in money-market funds as collateral because they won’t have to redeem them for cash, as they currently do when using traditional processes. That would make the transactions faster and potentially reduce risks during times of market stress.’

Money market funds play an important role in providing liquidity to investors in times of high market volatility. The tokenization of money market fund shares as collateral in clearing and margining transactions would dramatically reduce the operational friction in meeting margin calls when segments of the market face acute margin pressures.

Tom McGrath, deputy global chief operating officer of the cash management group at Blackrock said in a statement.

Bloomberg also highlighted that other institutions are dabbling in this field:

‘Goldman Sachs Group Inc. unveiled its digital-asset platform in November, saying clients can use it to issue financial securities in the form of digital assets in areas such as real estate. The Wall Street firm, along with Banco Santander SA and Societe Generale SA, helped the European Investment Bank issue a digital bond last year using blockchain technology. Asset managers, such as Franklin Templeton, have also been experimenting with ways to process transactions for their funds using blockchain technology.’

But moving into more digitalized networks away from the physical can be problematic. When the JP Morgan announced the official launch of the TCN, Japan was having major trouble with their interbank fund transfer system, completely brought down and made inoperable for days because of a “glitch,” preventing millions of transactions from being made. This was highlighted in a report by Lena Petrova, CPA.

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AUTHOR COMMENTARY

Just like before with Citigroup’s move to launch a tokenized network, the importance of this news will in fact be missed and ignored.

No one is saying the overt goal out loud, but this really translates to is a cash recall. These banks, and more are surely are going to do this, are going to allow customers to convert cash into a fake, digital token on a computer and hard drive somewhere. This is a silent move towards a cashless economy and CBDCs, but is getting real no press time.

You don’t hold it, you don’t own it; and while paper money is worthless in of itself, at least we can still tangibly keep it. These tokens you cannot; and Japan’s debacle with their transfer systems only goes to highlight how fractured this system is, and why we should avoid it.

Thorns and snares are in the way of the froward: he that doth keep his soul shall be far from them.

Proverbs 22:5

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[7] Who goeth a warfare any time at his own charges? who planteth a vineyard, and eateth not of the fruit thereof? or who feedeth a flock, and eateth not of the milk of the flock? [8] Say I these things as a man? or saith not the law the same also? [9] For it is written in the law of Moses, Thou shalt not muzzle the mouth of the ox that treadeth out the corn. Doth God take care for oxen? [10] Or saith he it altogether for our sakes? For our sakes, no doubt, this is written: that he that ploweth should plow in hope; and that he that thresheth in hope should be partaker of his hope. (1 Corinthians 9:7-10).

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