According to a report by “DL News,” Umar Farooq, CEO of J.P. Morgan’s asset tokenization platform Onyx, believes that public ledgers like Ethereum or Bitcoin are currently “not suitable” for large-scale transactions.
Farooq stated that while Ethereum and other public chains support millions of transactions daily, they are not secure enough for high-value transactions between banks and financial institutions. He believes that a platform must allow people to conduct trusted transactions between financial institutions and have some form of accountability within the system.
The Bank for International Settlements (BIS) advocates for the establishment of a “new type of financial market infrastructure” called Unified Ledger, which connects central bank digital currencies (CBDCs), digital assets, and tokenized bank deposits. Farooq believes that a so-called Unified Ledger, which connects central banks and other large financial institutions, is almost essential for handling transactions worth millions or billions of dollars.
Farooq’s concerns come as multiple Wall Street giants are flocking to cryptocurrencies, governments worldwide are competing to issue CBDCs, and financial institutions are vying for a share in the growing tokenization of financial assets. During this reshaping of the financial system, the global ecosystem and its liquidity may become disjointed without interoperability. Farooq believes that a Unified Ledger should be the “global layer” for global fund flow.
Tokenization refers to the process of converting physical assets into blockchain-based digital tokens. J.P. Morgan’s Onyx tokenizes cash and collateral using smart contracts to expedite short-term lending transactions. In October last year, J.P. Morgan executives revealed in an interview that they were transferring $1 billion in funds daily for many large corporations through JPM Coin.
However, Unified Ledger and similar concepts may not have taken into account the obstacles brought about by international relations and conflicts. Dante Disparte, Chief Strategy Officer and Global Policy Head of Circle, the issuer of stablecoin USDC, stated at the same conference, “Discussions about Unified Ledger have almost completely overlooked geopolitics.”
Disparte said that, for example, after the outbreak of the Russo-Ukrainian conflict in 2022, the European Union banned several Russian banks from using the international banking payment network Swift. Disparte stated, “The geopolitical reality in cross-border payment integration often goes beyond national security interests, and that is the unfortunate part of the problem.”
Research on Unified Ledger is still ongoing internationally. Last month, the Innovation Centre of the Bank for International Settlements and seven central banks announced a project called “Project Agorá,” which aims to explore how tokenization can enhance the functioning of monetary systems through collaboration with the private sector. Project Agorá is based on the concept of Unified Ledger and investigates how to seamlessly integrate tokenized commercial bank deposits and tokenized wholesale central bank currencies in a public-private programmable core financial platform.
In November last year, the Monetary Authority of Singapore (MAS) announced in a statement that it was collaborating with international policymakers and financial institutions, including BNY Mellon, DBS Bank, J.P. Morgan, and Mitsubishi UFJ Financial Group, to explore the design of an open digital infrastructure for carrying tokenized financial assets and applications. This new initiative, called “Global Layer One” (GL1), will facilitate seamless cross-border transactions and enable tokenized assets to be traded in a global liquidity pool while meeting relevant regulatory requirements and guidelines.
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