Decentralized Finance, or DeFi, as it is called, is considered a boon not just within the crypto community, but outside as well. But, the tokens that exist within this market have not been able to gain a lot of exposure due to a lack of resources and some restrictions. However, now the DeFi community actually has cause to celebrate because one of the biggest banks on Wall Street has taken an interest in this space. JPMorgan recently announced that they will be adding tokenized assets worth trillions of dollars to the DeFi ecosystem.
DeFi Can be Useful for Institutional Assets
The head of Onyx Digital Assets, which belongs to JPMorgan, Tyrone Lobbantalked about the future of DeFi. He said that there would come a time when DeFi pools would get their liquidity from shares of money market funds and US Treasuries. He added that it would provide a method of lending and borrowing where institutional assets are concerned.
Therefore, the company has decided to take the first step and is adding tokenized assets valued in trillions to the DeFi space. Nonetheless, it should be noted that institutional assets cannot be trustless, which means that things are going to change in a bit. The world of decentralized finance is known for not following the regulatory norms, as lending pools do not comply with any KYC (Know-Your-Customer) policies.
This will have to change where JPMorgan’s plan is concerned. With that said, it should be noted that there are some DeFi protocols that are already introducing regulatory procedures, such as AaveArc, along with the project of Siam Commercial Bank and Compound Treasury.
DeFi will Get Bigger and Stricter
It is important to note that JPMorgan’s decision of adding institutional assets worth trillions is on a different scale altogether. According to Onyx Digital Asset’s head, they want to transform the existing DeFi into bank-grade decentralized finance. There will be two components that will be used for accomplishing this goal. The First will be the blockchain-based collateral settlement system that JPMorgan will introduce and the second will be the Project Guardian.
This is an initiative that was launched by Marketnode, JPMorgan, the Monetary Authority of Singapore (MAS), and DBS Bank. The purpose of the program is to use permission liquidity pools that comprise of tokenized bonds and deposits for testing the institutional-friendly nature of decentralized finance.
As far as the Collateral Settlement System is concerned, it would comprise of the tokenized version of shares of the money market fund launched by BlackRock. It would also provide a huge flow of assets to the liquidity pool for sustaining the DeFi.
It is important to note that only those who fulfill the KYC requirements will be able to access the new systems because they will be permissioned structures. This KYC would be the responsibility of financial institutions. This would certainly be a big move for the world of decentralized finance and goes to show just how much interest it is generating to have attracted the attention of one of the top banks in the world.