As soon as JP Morgan’s Umar Farooq uttered the words ‘most crypto is still junk’, the Monetary Authority of Singapore (MAS) event where he was speaking was guaranteed a clickbait headline. Just not the ones the panelists wanted. But Farooq, who heads the bank’s Onyx blockchain unit, said quite a bit more and was pretty balanced, despite the headline.
He started off with, “When you look at web3, when you look at what the framework and what the runway of this thing can be someday, it would be quite shortsighted for financial institutions not to be heavily involved with this technology.”
Farooq also revealed that the bank’s JPM Coin tokenized money infrastructure processes a billion dollars of delivery versus payment (DvP) settlement daily.
But he did utter those words about crypto: “Most of crypto is still junk actually, with the exception of a few dozen tokens. Everything else that has been mentioned is either noise or frankly is just going to go away. So in my mind, the use cases haven’t arisen fully and the regulations haven’t caught up,” said Farooq.
As context, his reference to use cases and regulation was about using tokenized money for settlement, which we’ll come back to.
But just to finish off his crypto bashing, he also stated, “Most of the money that’s being used in the web3 today in the current infrastructure is for speculative investments. As you can imagine, the banks have learned their lesson in 2008/9, that if you go down that path, it’s probably going to end badly.”
JP Morgan and tokenized money
JP Morgan has been working on various blockchain solutions, including a multicurrency payments network in Singapore, as part of its Partior joint venture. It also was the first bank to tokenize bank balances as JPM Coin. Plus, it is one of the first banks to embrace DeFi or, more specifically, automated market making to experiment with enabling 24/7 forex trading.
However, Farooq highlighted some of the uncertainties if tokenized money is a bearer instrument. For example, if a token touches a bad wallet, what happens? Does it get frozen at the point, or is it blocked when someone goes to convert it to a bank balance? It is these sorts of questions that Farooq believes need to be resolved from a regulatory perspective for tokenized money to take off beyond crypto use cases. And those use cases need to be established.
He also pushed back at the degree of efficiencies being claimed by blockchain. He wasn’t saying blockchain isn’t efficient, but his point was that “once regulatory arbitrage between the crypto industry and TradFi industry becomes smaller, the delta will not be that big.” He also speaks from a position of knowledge as JP Morgan processes $10 trillion a day in payments. A significant amount of friction comes from anti money laundering (AML) and counter-terrorist financing (CTF) compliance.
However, he believes banks will beat stablecoins. “The large institutions who catch up to this are going to be absolute winners in the market,” said Farooq.
The other speakers made some interesting points during the MAS Green Shoots event, but one cryptocurrency regulatory suggestion stood out. Alex Svanevik, the CEO of blockchain analytics firm Nansen suggested that all cryptocurrency exchanges and lending platforms that want to be licensed should be required to disclose all their wallet addresses. It’s a very simple but elegant solution to the lack of transparency witnessed during the crypto crash. However, it’s only a partial solution because it only covers assets, not whether the platform’s liabilities exceed the asset figure.