Onyx: J.P. Morgan’s New Blockchain Moon-Shot Division
In late October this year, J.P. Morgan announced the formation of its blockchain business, dubbed Onyx. With around 100 employees, this new business unit serves as a testament to J.P Morgan’s continued status as a top innovator in the banking world. Similar to some of Alphabet Inc.’s constituent divisions (e.g. X, Verily, etc.), Onyx would probably be considered a “moon-shot” division that might not drive real revenue growth until years later as the nascent technology matures.
However, if J.P. Morgan is able to position itself as the trusted platform for blockchain in the financial services industry, it could be capturing disruption in trillion dollar markets such as cross-border payments. In this article we will explore Onyx’s different projects as well as its implications on not only J.P. Morgan, but also the future of the financial services industry as a whole.
Liink: a digital information confirmation platform
Liink is a blockchain platform that centers around information transfer, namely compliance resolutions, account pre-validation, and information digitization. Current information sharing between different transactional parties is slow and clunky, so Liink hopes to bridge those gaps and speed up multiple business processes. Liink is really just the rebranded name of the original Interbank Information Network, which sought to address the issue of problem payments taking a long time to resolve and process. The network currently boasts 400+ leading institutions, 25+ of the world’s top 50 banks, across 78 countries.
JPM Coin: a institutional transaction platform
Whereas Liink tackled information, JPM Coin targets transactions. The platform is designed to make transactions between institutional clients seamless and instantaneous. When one client wants to transfer funds to another, their funds are first converted to JPM Coins on the blockchain, which have a 1:1 value to USDs, and then converted back to fiat at the receiving account. The use of a blockchain greatly reduces the settlement time typically experienced in institutional transactions.
This might remind you of so-called “stablecoins” like USDC and Tether, but there are two major differences. The first is that the fiat reserves of stablecoins are sketchy at best, while JPM Coins are backed by J.P’s unrivaled balance sheet. The second is that stablecoins are primarily retail in nature, while JPM Coins are only available to institutional clients as of now. With that being said, it’s not hard to imagine that expanding this technology to retail customers is in Onyx’s roadmap for the future.
Dromaius Project: a capital markets transaction prototype
The Dromaius Project is currently a prototype DLT (distributed ledger technology)¹ network that simulates capital market transactions. This system attempts to streamline the multi-party settlement process and also generate interest calculations on the ledger. If successful, it would greatly improve the currently siloed and complex system of parties and processes within capital markets.
Fun fact, Dromaius is greek for “runner”, and is also the scientific genus for the Emu bird. J.P. Morgan is probably alluding to the speed potential of this new system, and not trying to strike fear into the heart of Australians.
¹ The difference between blockchains and DLTs are a little like the difference between squares and rectangles. Blockchains are a type of DLT that is characterized by a chain of signed “blocks,” whereas DLTs can include any ledger technology that is consensus-driven and distributed.
Project Ubin: a central bank backed, multi-currency payment PoC
Project Ubin is a project started by the Monetary Authority of Singapore to explore the applications of DLT to central bank activities and assets. Spanning 5 phases and 6 project reports, the end result was a pilot of a multi-currency payment system, where J.P and Temasek were key development partners. Many central banks are starting to examine the future of currency; Singapore is not the only country exploring the implications of a digitally enabled future.
ConsenSys Quorum: an enterprise grade Ethereum protocol
Quorum was actually arguably J.P.’s first visible blockchain project, before it was recently acquired by ConsenSys. Quorum was (and still is) an open-source enterprise blockchain protocol based on Ethereum. Quorum enables businesses to build enterprise-ready public or private blockchains, now with a slew of other ConsenSys products available on top.
When building out Quorum, J.P. Morgan also built out the EEA (Enterprise Ethereum Alliance), which as the name implies, seeks to further development around the enterprise use of Ethereum technologies (like Quorum), and includes collaborating industry giants such as Intel, Microsoft, and BNY Mellon. EEA competes with Hyperledger and R3 as the most popular enterprise DLT protocol groups existing today.
Implications
As mentioned earlier, whether Onyx ultimately proves to be one of J.P. Morgan’s champion offerings has yet to be seen. The global blockchain technology market size is estimated to be only about $3B in 2020, but could grow to $40B by 2025, with financial services driving much of the initial adoption in this space.
One challenge is that J.P. obviously isn’t the only enterprise to recognize the potential of DLT in finance. Ripple is another company who is leveraging blockchain technology to tackle cross-border transactions through their payments network RippleNet, growing with 300+ institutional partners across 40+ countries. SWIFT, as the current international payment network incumbent, is acutely aware of the disruption a mature DLT network might bring to their business, and has thus worked tirelessly to roll out new capabilities like SWIFT gpi to address issues such as transparency, security, and speed that parties have with the status quo.
The question of protocol may also affect Onyx’s battle for supremacy. Most of Onyx’s platforms are currently built on Quorum, which suffers from an Ethereum technical limitation where all transactions have to be stored in every node, which may cause concern for parties involved in sensitive transactions, despite all the advertising around encryption. R3 Corda on the other hand, addresses this concern by having a much more permissioned structure, where only the participating parties in a transaction store the data. To Onyx’s credit, it is supposedly building out its products to be generally platform agnostic, which means clients may either have a choice of platforms, or maybe Onyx will go with whatever the future standard may be.
However, against these challenges, J.P. Morgan does have some unique advantages. J.P. Morgan is already a leader in institutional sales and trading, and is therefore well-positioned to foster adoption of new financial technologies through its partner ecosystems. Ripple, on the other hand, has to fight an uphill battle in terms of reputation and budget, and may not be able to build out a network as quickly as Onyx. J.P. is also markedly ahead of its bulge-bracket peers in the exploration of blockchain technology, although there are early signs that others are starting to pay attention to this space as well. The announcement of Onyx itself might be a sign that J.P. Morgan is starting to become more confident in blockchain’s future potential, raising it out of the shadows of pure R&D.
Still, J.P. should tread cautiously going forward and avoid another Quorum situation where large developments/assets are forced to be sold off due to lack of adoption. As with any product, the usefulness and quality of the product itself will be a prime factor in eventual adoption, but until that is proven, J.P should continue to aggressively build out its partnership network to set up the environment needed for eventual product maturity. If played correctly, Onyx could become a leading fin-tech company and a keystone of the global financial system in the coming decade.
