Tokenized cash deposits from JPMorgan have been traded on the Polygon blockchain, marking the latest example of a major bank entering the DeFi market.
The transaction was executed as part of Project Guardian, a trial program launched in May by the Monetary Authority of Singapore (MAS). Using the crypto lending protocol Aave and the decentralized exchange (DEX) Uniswap, the tokenization project successfully concluded testing for FX and the trading of government bonds.
Participating in the pilot program were the Singaporean DBS Bank, the Japanese SBI Digital, the Singapore Exchange’s digital asset platform Marketnode, and Temasek, in addition to JPMorgan’s Onyx, the bank’s blockchain business for wholesale payments.
Onyx successfully tokenized Singapore Dollar (SGD) deposits, while SBI Digital Assets tokenized Japanese Yen (JPY) assets, both of which may be used in foreign exchange operations.
There are three private blockchains that JPMorgan’s companies and customers utilize on a daily basis, so this public transaction is a big deal for the bank.
Through its Liink network of banks, the bank distributes transaction data and associated insights. Through its Coin Systems network, the bank allows the transfer of the dollar and other fiat currencies over a blockchain. Through its Onyx Digital Assets platform, conventional assets like US Treasuries and money market products may be tokenized.
The blockchain deal was hailed as a tremendous step forward for DeFi by Aave Companies’ CEO, Stani Kulechov.
According to Kulechov, the world has witnessed its first real-world use case for institutional-grade DeFi protocols with the deployment of a liquidity market on the Polygon mainnet for providing and borrowing tokenized foreign exchange transactions using the Aave protocol.
Polygon was selected for the deal, according to a tweet by Lobban. It was because the company needs affordable gas expenses to run on Ethereum.
The group used a permissioned version of the famous DeFi lending protocol that complies with AML standards and created their own version, which they then distributed to the Polygon network. As a result, financial institutions were given the freedom to establish their unique standards for conducting transactions.
JPMorgan has developed on-chain verification of verifiable credentials (VC) to enable regulation-compliant use of Aave and other DeFi protocols. The goal was to get rid of the necessity for DeFi entry points to perform KYC checks.