Today JP Morgan’s Onyx division unveiled its Tokenized Collateral Network (TCN) with BlackRock and Barclays going live on the Onyx Digital Assets platform. The first transaction involved BlackRock tokenizing shares in a BlackRock Money Market Fund and pledging them as collateral with Barclays for a derivatives contract.
BlackRock and JP Morgan have been working together on this for more than a year.
One of the challenges with collateral is the transfer of ownership of assets takes time to settle. In contrast, using blockchain and tokenization it’s possible to settle instantly.
From BlackRock’s perspective this sort of solution would encourage institutions to hold on to their money market fund (MMF) shares rather than redeeming them in order to post collateral.
“The tokenization of money market fund shares as collateral in clearing and margining transactions would dramatically reduce the operational friction in meeting margin calls when segments of the market face acute margin pressures,” said Tom McGrath, Deputy Global COO of the Cash Management Group at BlackRock.
With the rise in interest rates, intraday transactions become increasingly important because liquidity is more expensive. Beyond collateral, the benefits of intraday transactions apply to repo. Onyx has a blockchain repo solution that racked up $300 billion in transactions by mid-year.
Other blockchain collateral solutions
Meanwhile, JP Morgan is involved in other blockchain collateral solutions. HQLAᵡ enables banks to lock assets with a custodian and trade tokenized versions with other banks in real time. Thus it avoids the need to wait for two day settlement. Apart from JP Morgan, other banks using the solution include Goldman Sachs, Citi, BNP Paribas, BNY Mellon, ING, Commerzbank, UBS and Credit Suisse.
JP Morgan was one of the first users of Baton Systems collateral management system for derivatives. It uses smart contracts but not blockchain or tokenization.
There are several other DLT-based collateral and securities lending projects, including from the Tel Aviv stock exchange, OCC securities, and the Spanish stock exchange, BME. Major securities lending platform EquiLend is piloting its blockchain solution, and Pirum is exploring it.