One of the world’s biggest investment banks, JPMorgan has just announced that it is pursuing a patented distribution system that utilises blockchain technology. This platform will issue virtual depository receipts that bear an uncanny resemblance to ICO tokens.
The patent filed in January
The patent was filed by JPMorgan back in January and was published the by the US Patent and Trademark Office. It outlines a model where users on a distributed network such as a blockchain, are able to tokenise assets and then trade these virtual depository receipts.
To create a security token, either an asset owner or broker entrusts the asset to a custodian who then issues a virtual receipt for the assets that have been deposited.
A security token by another name
For all intents and purposes, what JPMorgan is proposing is a security token that would be regulated under the US Securities and Exchange Commission (SEC) or any other relevant and competent authority.
Depending on what kind of asset is held, the owner of the token would also be able to redeem it for the underlying asset by trading it to the asset custodian who would then invalidate the tokens and hand over the asset.
JPMorgan believes that this could allow a company to hold IPOs over the blockchain, essentially fulfilling the ultimate promise of an ICO. Whilst it is doubtful that JPMorgan would admit that this system is essentially an ICO.
The patent filed by JPMorgan also adds that a token could be backed by an obligation backed virtual receipt, otherwise known as debt equity.
Blockchain enterprise solutions
This isn’t the first time that JPMorgan has considered creating a blockchain-based debt platform. At the start of 2018, the firm teamed up with the National Bank of Canada and other stakeholder firms to simulate the issuance of a $150million Yankee Certificate of Deposit (CD) on Quorom. Quorum is the Ethereum based enterprise blockchain platform that JPMorgan is already using. This issuance of a CD was then compared with an actual CD that was issued in the traditional manner.
“One of the mandates of the J.P. Morgan blockchain program is to identify how blockchain technology can create value, efficiency, and a better experience for our clients across the financial markets value chain,” said Christine Moy, JPMorgan’s blockchain program lead, at the time. “We look forward to exploring blockchain-enabled capital markets applications, how these types of transformative opportunities can benefit our clients and counterparts.”
JPMorgan has always been rather unfriendly towards the concept of cryptocurrencies – in fact, its CEO referred to them as “a fraud” but this has not stopped them making developments in the world of enterprise blockchain solutions. These applications seek to capitalise on the various benefits of DLT in a fully secure and permission environment.