JPMorgan Announces First Transaction on TCN Network

Asset Tokenization | Oct 15, 2023

Image: Unsplash/Ries Bosch

JP Morgan’s Onyx division Unveils its Tokenized Collateral Network (TCN) Announces First Live Client Transaction

On October 10, 2023, JPMorgan Chase announced a significant milestone for its TCN. The banking giant revealed that the network had facilitated its first collateral settlement for a live client over-the-counter (OTC) derivative transaction.

The first transaction involved BlackRock tokenizing shares in a BlackRock Money Market Fund and pledging them as collateral with Barclays for a derivatives contract.

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Using blockchain and tokenization the settlement is instantaneous, thus overcoming the time-intensive process currently required to settle and transfer asset ownership.  From BlackRock’s viewpoint, such a solution would incentivize institutions to retain their money market fund (MMF) shares instead of redeeming them for the purpose of posting collateral.

As quoted on BNN Bloomberg, “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.

What is the Tokenized Collateral Network (TCN)?

The TCN is an application that enables investors to use their assets as collateral without the need to physically move them in underlying ledgers. This means investors can transfer collateral ownership while still remaining invested, initially focusing on money market funds.

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The TCN is not just a tool for investors.

• Portfolio Management Leaders can continue to earn returns on assets while using them as collateral for new investments.
• Credit & Collateral Risk Leaders can use financial assets as collateral, eliminating operational burdens and the risk of settlement failure.
• Product Management Leaders can leverage this enterprise-grade blockchain-based platform that integrates seamlessly with legacy infrastructure.

There are many benefits:

1. Enhanced Capabilities: Assets that were previously inaccessible for use as collateral can now be seamlessly integrated.
2. Transparency: The entire lifecycle of asset transfers is transparent, ensuring clarity in collateral ownership.
3. Automation: The system reduces manual processing through automated reconciliation.
4. Cost Efficiency: The enhanced mobility of collateral eradicates the need for market moves, subsequently reducing costs and settlement timelines.
5. Real-time Transfers: Collateral ownership can be transferred in real-time.
6. Integration with Onyx: The TCN can be used in conjunction with other applications within the Onyx Digital Assets ecosystem.

The Future of Tokenization

JPMorgan’s commitment to tokenization is evident. Earlier in the year, the bank processed close to $700 billion in short-term loan transactions via Onyx, a permissioned version of the Ethereum blockchain. Tyrone Lobban, the Onyx program head, believes that tokenization is a game-changer for traditional finance, especially considering the vast potential in private markets.

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In conclusion, the integration of blockchain technology in traditional finance is starting to pick up steam and the future of asset collateralization looks promising, efficient, and secure.

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