Today, Ondo Finance has announced a significant milestone involving JP Morgan’s Kinexys Digital Payments, which was previously known as JPM Coin. This partnership facilitated a delivery versus payment transaction for Ondo’s OUSG tokenized money market fund on the Ondo blockchain. The integration involved creating a blockchain-based bank account on the permissioned Kinexys blockchain to process payments on a permissionless blockchain, leveraging Chainlink’s cross-chain orchestration technology. This first transaction occurred on Ondo’s testnet.
Blockchain transactions on public networks are typically settled using stablecoins or through off-chain payments. While cryptocurrency-focused companies often manage most of their assets on-chain and prefer stablecoins over traditional bank accounts, many other businesses maintain the bulk of their cash in banks. Consequently, the process of converting funds from a bank account to stablecoins for transaction settlements can introduce unnecessary complexities.
There is growing interest in using tokenized collateral for margin payments within traditional finance, especially in the derivatives market. Firms in conventional finance might find it more acceptable to utilize something like BlackRock’s BUIDL tokenized money market fund, which operates on permissionless blockchains, yet they may hesitate to hold stablecoins. Tokenization aims to eliminate silos, and for traditional finance institutions, maintaining assets in both stablecoins and bank accounts can lead to further fragmentation.
JP Morgan, which has an extensive client base that includes thousands of institutions and serves 90% of Fortune 500 companies, could influence the broader adoption of Kinexys Digital Payments for settlements on more permissionless chains. Nelli Zaltsman, Head of Platform Settlement Solutions at Kinexys Digital Payments, stated, “Kinexys Digital Payments is designed to support J.P. Morgan’s institutional clients by enhancing the current payment experience while anticipating clients’ evolving payment needs as they engage in transactions on emerging infrastructures, including public blockchain.” To date, transaction volumes on Kinexys have exceeded $1.5 trillion.
Exploring the possibility of issuing a deposit token directly on a permissionless blockchain could enable payments on those networks. JP Morgan has been contemplating this idea for several years and has recently suggested a path towards establishing standards. However, a Kinexys team member refrained from providing a specific timeline regarding this initiative.
In relation to Ondo Finance, this collaboration adds to its growing list of partnerships with traditional financial institutions. Last year, Ondo signed agreements with multiple mainstream asset managers. The OUSG fund is supported by various tokenized money market funds from notable firms like BlackRock, Fidelity, Franklin Templeton, Wellington, and WisdomTree. Thus, if an investor holds any of these tokenized funds, Ondo is prepared to purchase them to use as collateral, thereby enhancing liquidity for its other funds. Additionally, Ondo has formed a partnership with Mastercard’s Multi-Token Network.
Chainlink played a crucial role in this transaction by providing interoperability. It utilized the Chainlink Runtime Environment (CRE), which offers a secure off-chain computing environment that synchronizes operations across different blockchains and existing systems. Furthermore, it was integrated with the synchronized settlement workflow of Kinexys Digital Payments. Ledger Insights has released a report examining the adoption of stablecoins, tokenized deposits, and distributed ledger technology (DLT) payments by banks. This report includes insights from 70 projects and discusses design features aimed at avoiding potential pitfalls that could hinder long-term success.
