EDITOR NOTE: Imagine a digitally-based debt asset that can efficiently timestamp and monitor transactions to a point where interest (to be paid/owed) can be calculated down to the minute. Such is JPMorgan’s blockchain-based network repo platform. Aside from bolstering the fiat system and expanding the reach of the banking system, the technology itself is quite impressive. Fintech may add sophistication, efficiency, and convenience to the financial economy. As necessary as they are in today’s digital world, do they add real value to a monetary system whose value system ought to be much simpler? Is it easier to deal with the complexities of value in the fiat system versus the price stability of a gold standard, for instance? Ironically, some innovations can be necessary and even urgent despite advancing a level of anti-production that’s detrimental to the society it’s intended to benefit
Its first trade came on June 17, when it swapped a tokenized version of a U.S. Treasury bond for JPMCoin, JPMorgan’s internal representation of a digital dollar, according to Mathew McDermott, global head of digital assets for Goldman’s global markets division. He declined to give the value of the trade.
“We see this as a pivotal moment for the digitization of transactional activity,” McDermott said Tuesday in an interview. Unlike in the traditional repo market, the exact amount of time the banks took to complete the transaction was quantifiable. In this case, it was 3 hours and 5 minutes.
Knowing the precise time is a big step up from the current market, as is the way the collateral and cash are interchanged simultaneously and immediately, McDermott said.
“We pay interest per the minute,” he said. “We firmly think this will change the nature of the intraday marketplace.”
JPMorgan created the new repo market using its version of the Ethereum blockchain, with its first trades in December. It has since gone on to trade more than $1 billion a day through its Onyx blockchain platform. The firm is speaking with more than 10 banking and investing clients about joining the repo network, according to spokeswoman Jessica Francisco. Bank of New York Mellon Corp. served as the custody agent for the trades.
Transactions in the $2.4 trillion repo market raise cash overnight or for a few days, but are difficult to arrange within the same trading day. The digitized upgrade provides that ability to JPMorgan, using so-called smart contracts on an Ethereum-based blockchain that allow cash and Treasuries to be returned instantaneously.
Wall Street began experimenting with blockchain about five years ago. In addition to JPMorgan, a blockchain pioneer among Wall Street banks, Paxos Trust Co. is using it to settle some equity trades in near-real time. Arca is offering digital shares in a U.S. Treasury fund, showing that distributed-ledger technology can help streamline finance.
McDermott said Goldman Sachs’s participation in the JPMorgan market fits in broadly with how it’s thinking about enterprise blockchain, a system where all participants are known to one another.
“There’s the growing focus on the potential of this technology,” he said. Then he added something rarely heard from rival bankers:
“It’s been great working with JPMorgan and BNY on this.”
Originally posted on Bloomberg