Everything You Need To Know About JP Morgan’s Stablecoin
February 18, 2019 11:56 am
JP Morgan Chase had a special announcement to make on Valentine’s Day. The financial giant announced the launch of its own cryptocurrency. This is a landmark event as JP Morgan is the first major bank to enter the digital assets market.
This move was not expected by anyone as the CEO of JP Morgan, Jamie Dimon has been giving strong opinions against cryptocurrencies, specifically Bitcoin in the past.
Here is what we know about “JPM Coin” so far.
The digital currency is targeted towards increasing the settlement efficiency, starting with three of its operations.
The first application is with cross border payments for larger, corporate clients. Currently, the system heavily relies on the SWIFT network for payments. These transactions usually take multiple working days to be processed. The payments that will be made through JPM Coin can be instantly performed, regardless of the time of the day.
The SWIFT network is currently responsible for handling over half of all high-valued cross-border payments. The maintenance and updating of this remittance system pose a significant challenge. The Belgian-based system has been in operation for 46 years now and services such as Ripple (XRP) is slowly replacing SWIFT.
“What we are doing on a day-to-day basis is, in fact, taking over SWIFT.”
Ripple is quickly revolutionizing the way international payments are made. It allows savings on transaction costs ranging in 40-70 percent using its xRapid platform. Several major banking institutions have been added to RippleNet network.
On the other hand, SWIFT has started researching on the blockchain, in an attempt to provide faster payments. There has also been significant growth in SWIFT’s Global Payments Innovation (GPI) payments platform. The bank recently launched a proof-of-concept (PoC) gateway that enables R3’s blockchain software to connect to SWIFT’s GPI.
The second application of blockchain technology will be carried out for securities transactions. Back in April last year, the bank tested its Quorum Blockchain platform in conjunction with the National Bank of Canada and other leading institutions. This was done as a way to optimize the origination, settlement, interest rate payments and other financial processes.
Institutional investors can use JPM Coin to carry out instantaneous settlements instead of waiting for wire transfers to complete.
Quorum was created by JP Morgan back in 2016 as a part of the Ethereum Enterprise Alliance (EEA) in which JP Morgan is a founding partner. The platform is modeled after the Ethereum Go client and runs on Ethereum’s own blockchain. Quorum is currently utilized by pharmaceutical companies such as Pfizer and Genentech and tech giants that includes Microsoft Azure. JP Morgan Chase made an announcement back in March 2018 that it is considering turning Quorum into a standalone entity to attract for partners.
The third application would be used by giant corporations like Honeywell International and Facebook. It is speculated that they will use JP’s treasury services business as a means to replace fund holdings between multiple subsidiaries across the globe. In a report by CNBC, this business brought the lender an impressive $9 billion in revenue in 2018 alone.
Umar Farooq said
“Money sloshes back and forth all over the world in a large enterprise. Is there a way to ensure that a subsidiary can represent cash on a balance sheet without having to actually wire it to the unit? That way, they can consolidate their money and probably get better rates for it. Pretty much every big corporation is our client, and most of the major banks in the world are too. Even if this was limited to JPM clients at the institutional level, it shouldn’t hold us back.”
The trial for the JPM Coin is expected to start in the coming months. JP Morgan Chase moves assets ranging more than $6 trillion across the globe daily, making it the largest bank in the country. During the test phase, only a small amount of the total funds will be allocated in the three mentioned areas as a part of JPM Coin.
An enthusiastic JPM representative said
“So anything that currently exists in the world, as that moves onto the blockchain, this would be the payment leg for that transaction. The applications are frankly quite endless; anything, where you have a distributed ledger which involves corporations or institutions, can use this.”
According to the reports by CNBC, JPM Coin’s value is pegged to the US dollar, making it a stablecoin. These coins will be issued to clients after they deposit fiat currency at JP Morgan Chase. After the payment or security purchase has been completed on the blockchain, the lender will destroy the tokens and return the amount in fiat currency.