JPMorgan’s Ethereum-based private blockchain network, Onyx Digital Assets, was used by London-based funds management company Fidelity International to tokenize shares of a money market fund (MMF).
According to Fidelity International, a distinct company from the US-based Fidelity Management and Research, tokenization happened almost instantly thanks to link between the fund’s transfer agent (JPMorgan’s transfer agency business) and Tokenized Collateral Network, an application that resides between a collateral receiver and a collateral provider on the bank’s Onyx blockchain.
Banks now prioritise tokenization of traditional financial assets, a project JPMorgan has been working on for a while. Tokenization is the process of creating a virtual investment vehicle on a blockchain that represents physical assets like real estate, collectibles, and precious metals. Bonds and stocks also function. In 2019, Fidelity International, which has a lengthy history with digital assets, collaborated with Swiss bank Sygnum on a tokenization initiative.
Tokenized shares of a BlackRock money-market fund were used in JPMorgan’s first live blockchain-based collateral settlement transaction in October of last year. In exchange for collateral in an over-the-counter derivatives operation, the shares were transferred to Barclays. With the public BUIDL project and the tokenization services provider Securitize, BlackRock has continued to promote tokenization.
According to Stephen Whyman, head of debt capital markets at Fidelity International, “tokenizing our money market fund shares to use as collateral is an important and natural first step in scaling our adoption of this technology.” Whyman made this statement via email.
“The advantages are evident for our clients and the larger financial system; specifically, the enhanced efficacy in meeting margin requirements and the decrease in transaction expenses and operational risk.” Money market shares, a class of mutual fund that makes investments in premium short-term debt instruments and cash equivalents, were tokenized before JPMorgan launched its TCN. According to the bank, there are plans to grow into a variety of asset classes, fixed income, and stocks.
According to Keerthi Moudgal, head of product at Onyx Digital Assets, JP Morgan, “Fidelity’s participation in TCN brings its MMF units onto our network through tokenization, adding a new asset that is otherwise prohibitively complex to use across today’s collateral landscape.”