Goldman Sachs Set to Use JPM Coin for Repo Transactions

Financial enterprise Goldman Sachs is all prepared to use JPM Coin for repo transactions as it is set to sign up for JP Morgan’s custom blockchain service. The move could be indicative of several broker-dealers attempting to leverage on cryptocurrencies for their repo functions. 

JP Morgan has already been utilizing blockchain for repo and has also recently announced that its Onyx blockchain unit has developed a repo transaction platform. Scott Lucas, head of blockchain markets at JP Morgan, said in an interview with Bloomberg that the investment bank was already using blockchain to carry out billions of dollars worth of repurchase agreements. 

The JPM Coin

The JPM coin is the native digital currency offered by JP Morgan. It is a dollar-backed stablecoin that the bank uses to swap digitized U.S. Treasury Bonds with greater efficiency. According to Bloomberg, JP Morgan carried out its initial live trades internally, making use of the Onyx blockchain infrastructure – and this caught the attention of Goldman Sachs which also intends to sign up on Onyx for repo trades early next year.

The Larger Impact

Scott Lucas believes that they are at a point where they can offer this product to their customers and that other banks and broker-dealers are also expected to join this service. He also said that it was “a question of gradually increasing risk appetite” if they wanted “market participants to put real money on the table”.

According to Christine Moy of Onyx, blockchain has enabled the repo market to be measured in ‘minutes and hours’ as opposed to ‘overnight or within days’. 

In September 2019, the repo market saw interest rates surge overnight to 4x the Federal Reserve’s benchmark rate. This triggered ‘emergency’ actions from the central bank to prevent a cash crisis. There have been worries surrounding the dearth of liquidity and lack of strength in financial markets.

Matthew McDermott, head of a cryptocurrency division operated by Goldman Sachs that JP Morgan’s repo market facility is evidence for the ability of enterprise-level blockchain to address “a real-world problem in the financial system…”

While the adoption of blockchain for repo transactions could be a step towards mainstream acceptance, it is yet to be seen if this is capable of solving these real-world issues.