This month in crypto: JPMorgan is tokenising securities

This month, there have been a number of BIG things happening in crypto that have flown under the radar because of the never-ending FTX saga.

The FTX saga is being covered ad-nauseum in most of the world and crypto press… there’s even a Michael Lewis book out about it – Going Infinite – which has been getting very mixed reviews.

So, needless to say, I won’t be covering any SBF FTX drama. 

Especially when there are much more interesting things afoot…

JPMorgan is tokenising securities for Wall Street on its Onyx “blockchain”

I literally just saw this on Bloomberg today… “JPMorgan Debuts Blockchain Collateral Settlement in BlackRock-Barclays Trade” (non-paywalled link).

This is a big deal.

Basically, JPMorgan is fulfilling the promise of blockchain.

(Or at least, that’s what it looks like on the surface. More on that in a second...)

From Bloomberg:

JPMorgan’s Tokenized Collateral Network, or TCN, was used by BlackRock Inc. to turn shares in one of its money market funds into digital tokens, which were then transferred to Barclays Plc as collateral for an over-the-counter derivatives trade between the two institutions.

So, JPMorgan – the world’s biggest bank – has started tokenizing securities on its own blockchain. And the world’s biggest asset manager, BlackRock, is trading those tokenised securities with other banks.

The idea of tokenising real-world assets and securities on a blockchain has been kind of the holy grail of DeFi.

I wrote about this idea back in 2020: How Security Token Offerings (STOs) will forever change global finance.

However, this development leads to a number of questions…

Is JPMorgan’s Onyx blockchain really a proper blockchain? 

How does it work? 

Who controls the network? 

Is it even at all decentralised?

It’s certainly not a public network like Ethereum. It’s built and owned by JPMorgan. 

And if it is wholly controlled by JPMorgan, then it might as well just be a spreadsheet managed by JPMorgan.

It’s pretty hard to find information about how Onyx works. 

But given it’s now being used to tokenise and transfer securities between the world’s biggest financial institutions, the answers to the above questions are important.

And JPMorgan isn’t the only big bank getting into tokenising securities. Good ol’ Goldman Sachs is at it, too…

From Bloomberg:

Goldman Sachs Group Inc. unveiled its digital-asset platform in November, saying clients can use it to issue financial securities in the form of digital assets in areas such as real estate. The Wall Street firm, along with Banco Santander SA and Societe Generale SA, helped the European Investment Bank issue a digital bond last year using blockchain technology. 

This could be one of the biggest developments we’ve seen, well, ever.

So, I’m going to dedicate November’s premium issue to big banking blockchain… and its implications for both crypto and traditional finance. 

You can now buy NFTs on Ethereum with Central Bank Digital Currencies (CBDC) thanks to Mastercard

This month, another financial giant,  Mastercard, also announced a big first – the ability to wrap CBDCs and use them on other blockchains. 

From Mastercard:

Mastercard today announced that it has successfully demonstrated capabilities of a new solution that enables CBDCs to be tokenised (or “wrapped”) onto different blockchains, providing consumers with a new option to participate in commerce across multiple blockchains with increased security and ease. …

Mastercard demonstrated in a live environment how the solution could enable the holder of a pilot CBDC to purchase a NFT listed on the Ethereum public blockchain. The process “locked” the required amount of a pilot CBDC on the RBA’s pilot CBDC platform and minted an equivalent amount of wrapped pilot CBDC tokens on Ethereum.

A pre-requisite of the test transaction was that the Ethereum wallets of both the buyer and seller, as well as the NFT marketplace smart contract, were ‘allow-listed’ within the platform. With all other transfers of the wrapped pilot CBDC blocked, it successfully demonstrated the platform’s ability to implement controls – even on public blockchains.

SEC decides NFTs are also unregistered securities, fines NFT project $6m

Although, I hope someone told Mastercard that NFTs are unregistered securities now…

From CNBC:

For the first time, the Securities and Exchange Commission has levied enforcement action against a company’s sale of non-fungible tokens. …

The SEC fined Impact Theory, a Los Angeles-based entertainment company, $6.1 million, alleging the NFTs sold by the company were unregistered crypto asset securities.

Why does this matter? Well, up until now people thought NFTs were never unregistered securities. But now it’s clear the SEC takes a different view. 

As Tech Crunch points out:

The case is significant to the crypto industry, which has been hit with a flurry of regulatory clampdowns in the U.S., as it offers a clue for how NFTs could be regulated in the future. Many other NFT projects have used language that’s similar to how Impact Theory marketed its digital assets, that is, touting their blockchain-based identifiers representing digital asset ownership as investment opportunities.

So, is the SEC going to start crushing major NFT projects? Time will tell.

Imagine Sam Bankman-Fried getting an 11,196-year jail sentence

Okay, maybe I can’t resist mentioning Sam Bankman-Fried completely.

But he should be pretty happy he’s not on trial in Turkey…

Last month the CEO of a defunct Turkish crypto exchange was sentenced to a surreal 11,196 years, 10 months and 15 days in prison – and given a $5 million fine.

From CoinDesk:

Faruk Fatih Özer, the founder of the collapsed Turkish crypto exchange Thodex, his sister Serap Özer and his brother Güven Özer have been sentenced to 11,196 years, 10 months and 15 days in prison, according to local media. A judicial fine of 135 million liras ($5 million approx.) was also imposed.

Whatever happens to Sam in the current US trial, I can’t see him being sentenced to 11,196 years in prison. 

The Class-action lawsuit against Uniswap was “dismissed with prejudice” – and it had the same judge as the upcoming SEC vs Coinbase case

While centralised crypto exchanges are losing court cases left, right and centre, it seems DeFi exchanges are faring better.

Case in point, the class-action lawsuit against leading DeFi exchange, Uniswap.

From Decrypt:

A class action lawsuit brought against Uniswap was tossed out by a district judge on Tuesday, who found those associated with the decentralized exchange were not liable for so-called scam tokens that purportedly burned traders.

There are a few interesting things about this case. 

1 – Each side’s arguments.

From Axios:

In the plaintiffs' argument, they assert that Uniswap is like a self-driving car and that failure to hold it accountable would be like failure to sue a carmaker for making a faulty car that led to injury of a user.

The court, however, accepted Uniswap's counterargument: that holding it accountable would be more like suing Tesla because someone used one of its cars in the getaway for a bank robbery.

2 – the fact the judge accepted that the tokens traded on Uniswap were securities (but said that didn’t affect this case).

3 – the fact that this is the same judge that will preside over the upcoming SEC vs Coinbase case.

For more on the SEC vs Coinbase case, and its significance, see my article: High noon at the crypto corral

Okay, that’s all for today.

Thanks for reading.

Harry 

Full disclosure: At time of writing, I held the following cryptos: Ethereum, IOTA, Radix, Mina Protocol, Aleph Zero.

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