- Wall Street stalwarts are intensifying their commitment to putting assets on distributed ledgers.
- JPMorgan Chase and Visa join BlackRock and Franklin Templeton in pursuit of new infrastructure.
- Complexity of different assets and financial system will be a challenge.
In a major effort to upgrade the backbone of the global financial system, JPMorgan Chase and Visa have joined a project to test the feasibility of tokenising cash and other assets, SIFMA, a securities industry trade group announced Wednesday.
The project will also examine how such a system might fit in the financial regulatory regime that governs the markets and the global payment systems.
Tokenisation has emerged as a prime goal of influential players on traditional finance, such as BlackRock CEO Larry Fink, as well as crypto platforms like Berlin-based Swarm Markets.
This is because transforming a security such as a stock or a bond into a tokenised asset akin to Bitcoin promises to make it easier to process and trade. Tokenising these assets on a distributed digital ledger and recording them in a single record of account could improve settlement times and costs.
Tokenisation also holds promise for the Byzantine world of payments processing, where Visa and Mastercard, as well as PayPal, are giants.
The catch
The catch is that different assets behave in very different ways, and present contrasting risk and reward dynamics for users. A US Treasury bond, for instance, is a very different instrument than cash or stocks, each of which are processed and transmitted from market to market in their own systems.
SIFMA acknowledged this complexity and the challenge it poses for institutions.
The fact tokenisation is attracting the likes of JPMorgan and Visa underscores how important the financial establishment deems blockchain technology.
It’s unclear whether the project’s participants will turn to a public blockchain such as Ethereum, or a private network like JPMorgan’s Onyx ledger. A bespoke network for the pilot is also a possibility.
SIFMA did not immediately respond to DL News’ request for comment.
Tokenising all the things
Pitched as one of the key use cases for blockchain technology, tokenisation is finally gaining serious traction.
Heavyweights like BlackRock, the top money manager worldwide with $9.1 trillion in assets, and Franklin Templeton have already moved ahead with their own tokenisation plays.
BUIDL, or the BlackRock USD Institutional Digital Liquidity Fund, holds a mix of cash, short-term debt agreements, and US Treasury bonds. It has raked in $382 million since its launch on March 20.
In April, Franklin Templeton, which manages more than $1.5 trillion in assets, enabled the peer-to-peer transfer of BENJI, its yield-bearing, dollar-pegged token.
The BENJI token is a share in the firm’s $380 million US Government Money Fund launched on the Stellar blockchain.
Liam Kelly is DL News’ Berlin correspondent. Contact him at liam@dlnews.com.