JPMorgan and Goldman delve into cryptocurrencies and DeFi

Two major Wall Street banks revealed moves into crypto derivatives and decentralized finance (DeFi) over the weekend that could be seen as a vote of confidence just when the crypto industry needs it most.

Tyrone Lobban, head of Onyx Digital Assets at JP Morgan, said on Saturday (June 11) at the CoinDesk Consensus conference that the company is working on various ways to tokenize financial assets such as bonds and money market fund shares for use in both traditional markets as in DeFi. CoinDesk reported.

And on Monday (June 13), just as crypto lending firm Celsius’s announcement that it was halting withdrawals, meaning it was possibly insolvent, sparked a bloodbath in the already unstable crypto market, Goldman Sachs revealed which is offering clients a derivative, executing its first trade with financial services firm Marex Financial, Bloomberg reported.

It’s been a bad three days for the crypto industry with bitcoin falling 30% in just one week, and down 70% from its November all-time high of nearly $69,000, edging uncomfortably close to $20,000, a major psychological barrier.

See also: Crypto Crisis Evokes Memories of the 1998 Hedge Fund Crash That Crippled the Market

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JP Morgan’s tokenization plan targets traditional assets such as US Treasury bonds or money market fund shares.

Over time, Lobban said, the firm believes these assets “could potentially be used as collateral in DeFi pools.”

DeFi lending and staking products offer dazzling returns ranging from 2% to over 20%, and much higher for riskier offerings, to lend crypto assets. Although these yields are much higher than those offered by banks, there are growing doubts about the long-term or even medium-term viability of these products.

Also read: Latest Crypto Turbulence Could Signal the End of Soaring DeFi Returns

“The overall goal is to bring these trillions of dollars of assets into DeFi, so that we can use these new mechanisms to trade, borrow [and] loans, but on the scale of institutional assets,” Lobban said.

The DeFi institution is practically an oxymoron thanks to its lack of Know Your Customer (KYC) compliance, though a handful of platforms are now trying it out. Among other things, it will use the new collateral settlement system the company is building on its private Onyx blockchain, Bloomberg said in May.

That system was tested when two of the banks’ divisions transferred tokenized shares of the BlackRock money market fund as collateral into Onyx, with the aim of “allowing investors to pledge a broader range of assets as collateral and use them after hours.” market performance,” according to the report. .

However, it is not primarily aimed at cryptocurrency investments.

“What we have achieved is the instantaneous and frictionless transfer of collateral assets,” said Ben Challice, global director of trading services at JP Morgan.

Crypto derivatives

Goldman Sachs’ most recent crypto derivatives announcement was not its first foray into the market, but it marked its expansion into derivatives based on the No. 2 cryptocurrency, ether.

Bloomberg reported that the financial product was a non-deliverable future, offering institutional investors exposure to ETH without buying or holding it.

How desirable that will be remains to be seen when the ether is down 35% for the week and 70% since the year began, as of Wednesday (June 15).

And in March, Goldman became the first major bank to conduct over-the-counter cryptocurrency trading, working with crypto investment bank Galaxy Digital, Reuters reported in April.

Nor is it the only major financial institution (FI) in action. In May, Japanese investment bank Nomura began offering cryptocurrency derivative contracts as well as bitcoin futures and options trading, joining Goldman and JP Morgan, among others.

As of last year, Bank of America and Citigroup were considering at least crypto futures trading, Reuters added.

If those major FIs stay the course, it would amount to a vote of confidence in cryptocurrencies.



On: PYMNTS’ survey of 2,094 consumers for The Personalized Shopping Experience report, a collaboration with Elastic Path, shows where merchants are doing well and where they need to up their game to deliver a personalized shopping experience.

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