JP Morgan's Kinexys Digital Payments (formerly JPM Coin) Was Used to Settle a Delivery Versus Payment Transaction

Today Ondo Finance announced that JP Morgan’s Kinexys Digital Payments (formerly JPM Coin) was used to settle a delivery versus payment transaction

Today Ondo Finance announced that JP Morgan’s Kinexys Digital Payments (formerly JPM Coin) was used to settle a delivery versus payment transaction for its OUSG tokenized money market fund on the Ondo blockchain. Hence, a blockchain-based bank account on the permissioned Kinexys blockchain was integrated for payments on a permissionless blockchain using Chainlink’s cross chain orchestration infrastructure. This inaugural transaction took place on Ondo’s testnet.

On chain transactions on public blockchain are usually settled either using stablecoins or with off chain payments. While crypto native firms might prefer to keep most of their assets on chain and prefer stablecoins to bank accounts, other companies will have the majority of their cash at a bank. So transferring from a bank account to a stablecoin in order to settle a transaction adds a layer of friction.

Momentum is building for tokenized collateral to be used for margin payments in traditional finance, particularly for derivatives. While a traditional finance firm might be comfortable using something like BlackRock’s BUIDL tokenized money market fund, which is issued on permissionless blockchains, they may be less happy about holding stablecoins. One of the benefits of tokenization is to break down silos. For traditional finance firms, keeping money in both stablecoins and a bank account creates additional fragmentation.

Plus, JP Morgan serves thousands of institutions and does business with 90% of Fortune 500 firms, according to its annual report. If something like Kinexys Digital Payments was available for settlement on more permissionless chains, some institutions may choose to side step stablecoins.

“Kinexys Digital Payments is designed to support J.P. Morgan’s institutional clients by enhancing the current payment experience while anticipating clients’ evolving payment needs as they engage in transactions on emerging infrastructures, including public blockchain,” said Nelli Zaltsman, Head of Platform Settlement Solutions, Kinexys Digital Payments. To date transaction volumes on Kinexys have surpassed $1.5 trillion.

Bank tokens on permissionless chains?

One way of enabling payments on permissionless chains would be to issue a deposit token directly on a permissionless blockchain. This is something JP Morgan has been discussing for years, and recently proposed a path towards standards. However, when asked by Ledger Insights a member of the Kinexys team would not be drawn on a possible timeline.

Turning to Ondo Finance, this is the latest collaboration with a long list of traditional financial (TradFi) institutions. Last year it announced a deal with several mainstream asset managers. OUSG is backed by other tokenized money market funds including from BlackRock, Fidelity, Franklin Templeton, Wellington and WisdomTree. Hence, if someone holds one of those tokenized funds, Ondo stands willing to buy them because it can use them as collateral, helping to create liquidity for the other funds. Ondo also inked a collaboration with Mastercard’s Multi-Token Network.

Chainlink’s role in the transaction was to provide interoperability. It used the Chainlink Runtime Environment (CRE) which provides a secure offchain computing environment that coordinates activities across blockchains and existing systems. It was also integrated with the Kinexys Digital Payments’ synchronized settlement workflow.

Ledger Insights has published a report on the bank adoption of stablecoins, tokenized deposits and DLT payments. In addition to 70 projects, it explores design features, such as how to avoid pitfalls that could limit their longer term potential.