In the wake of major banks and financial institutions embracing crypto post the Trump Inauguration, it is important we understand what form this may take and how blockchain technologies will complement existing monetary systems for faster, cheaper, and borderless transactions and settlements.
Playing by the Decentralised Rules in the Centralised World
For the longest time, centralised institutions set the rules, and decentralised entrepreneurs had little choice but to comply. However, under the Trump presidency, the balance has shifted. The centralised world now finds itself adapting to the rules of the decentralised landscape. Following another bold move from the Crypto President, the U.S. is now blocking centralised banks’ attempts to leverage decentralised technologies for centralised control.
Under the guidance of President’s Crypto Czar, David Sacks, who has taken a strong stance against CBDCs (Central Bank Digital Currencies) in the U.S., there are positive signs pointing towards stablecoins as the next frontier for maintaining the dominance of the U.S. dollar and leading the charge in the crypto space. While this policy is specific to the U.S., the global influence of the American economy can create push factors that encourage other countries to follow suit. Historically, the U.S. has led the way in setting strategic banking stances.
Crypto Goes Mainstream
The crypto space is no longer a niche on the fringes of society. In recent years, it has seen a slow but sure entry into the mainstream, with major players now advocating the world of crypto with gusto. For example, Blackrock CEO Larry Fink has stated his prediction that Bitcoin will reach $700,000. Similarly, Bank of America’s CEO and major financial institution Morgan Stanley have given pro-crypto signals.
Does the Rebrand of J.P. Morgan’s Early Coin System Offer a Glimpse of What’s to Come?
J.P. Morgan Chase has been experimenting and rolling out both internal and client-facing blockchain solutions. The sheer volume of initiatives can sometimes obscure the key takeaways for the average reader. To help, we’ve compiled a timeline that offers a high-level overview of J.P. Morgan’s blockchain movements over the past six years.
The JPM Coin System is a permissioned blockchain system that functions as both a payment rail and a deposit account ledger. This means J.P. Morgan customers can experience the benefits of blockchain transactions in a secure, permissioned environment, enabling real-time liquidity and cross-border payments even beyond banking hours and on holidays.
Launching the JPM Coin System in February 2019
The JPM Coin System (now Kinexys Digital Payments) is a permissioned blockchain designed to function both as a payment rail and a deposit account ledger. This allows J.P. Morgan customers to experience blockchain transaction benefits in a secure, controlled environment, facilitating real-time liquidity and cross-border payments, even outside of banking hours and on holidays. The creation of the JPM Coin as a settlement token underpinned these advantages. By 2023, the system was reportedly handling an average daily volume of $1 billion, placing J.P. Morgan ahead of the curve in adapting to decentralised trends.
Launching Onyx in 2020
In 2020, J.P. Morgan launched Onyx, expanding on its JPM Coin system by adding asset tokenisation for money market funds, offering instant settlement capabilities, and introducing LIINK, a data-sharing network for banks. Onyx also opened up its blockchain technology to broader partnerships, offering blockchain lab testing to financial institutions. Notable collaborations included the National Bank of Canada, Goldman Sachs, Pfizer, and Western Asset Management.
Launching Kinexys in December 2024
Kinexys is the formalisation of the JPM Coin and Onyx offerings, designed to serve a wider range of businesses. This marks a significant step in J.P. Morgan’s confidence in the commercial viability of its permissioned blockchain and utility settlement token solutions.
Utility Settlement Tokens as a Gateway to Crypto
With CBDCs firmly off the table under the Trump administration, it is increasingly likely that permissioned blockchains and Utility Settlement Tokens (UST) will become the dominant approach for financial institutions and central banks to gain the benefits of decentralised technologies while adhering to centralised controls. The adoption of permissioned blockchains, distributed ledger technologies, and USTs is poised to be a central focus. With CBDCs now explicitly blocked, permissioned blockchain solutions are the most likely candidates for banks eager to capitalise on the crypto boom and ensure they remain competitive as the financial landscape evolves.
The JPM Coin system represents what other banks might adopt as they embrace blockchain technology for greater efficiency. At its core, the system relies on Blockchain Deposit Accounts (BDAs) that transact in JPM Coin, J.P. Morgan’s native “Utility Settlement Token”, operating within their permissioned blockchain. It facilitates transfers to Demand Deposit Accounts (DDAs) at lower costs and with greater ease, enabling seamless payments between BDAs.
Utility Settlement Tokens as a Way into Crypto
With CBDCs being firmly taken off the table by the Trump administration, it’s likely permissioned blockchains and Utility Settlement Tokens (UST) will be the approach taken by financial institutions and centralised banks to ensure they are realising the benefits and playing by the rules of the decentralised world. Pre-Trump administration signs have looked promising for this, with J.P. Morgan Chase anticipating that J.P.M Coin could facilitate up to $10 billion in daily transactions.
The adoption and potential of permissioned blockchains, distributed ledger technologies, and Utility Settlement Tokens (UST) are significant. With recent announcements forbidding CBDCs in the U.S., it is more likely than ever that we will see them become central to the strategies of banks seeking to ride the crypto hype wave and ensure that, when the dust settles, they have an evolved offering and aren’t left in the history books.
Early Adopters and the Future of Borderless Transactions
Potential early adopter banks of permissioned blockchain technologies could have an edge. These include J.P. Morgan, Citigroup, HSBC, Barclays, Goldman Sachs, Deutsche Bank, and UBS. They are all actively exploring or offering blockchain-based solutions at various stages in their development cycle.
The future is undoubtedly bright for borderless transactions and banks going all in on permissioned blockchains may very well be how they play to the decentralised world rules of the road.