- What’s at stake: Tokenization choices could reshape market access, privacy, and competitive distribution.
- Supporting data: Solana processes over 25,000 transactions per second.
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Forward look: Expect banks to adopt multi-chain strategies to expand investor reach and interoperability.
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Source: Bullets generated by AI with editorial review
When J.P. Morgan arranged for commercial paper to be issued by Galaxy Digital Holdings and purchased by Franklin Templeton and Coinbase in December, it did so using the public Solana blockchain.
“That would have been unthinkable a couple years ago,” Marc Hochstein, vice president of research at Galaxy and a former editor-in-chief of American Banker, said at the On-Chain Executive Summit in New York last week. In the past, banks have mostly used private, permissioned blockchains that can only be accessed by highly trusted counterparties and partners, in part due to concerns about the security and privacy of their customer and transaction data.
J.P Morgan’s parent company, JPMorganChase, is a case in point. Its first foray into on-chain finance was its development of Quorum, a private, permissioned blockchain based on Ethereum technology, in 2016. To this day, it uses a private, permissioned version of Ethereum for some things, according to Kara Kennedy, global co-head of the bank’s blockchain business unit Kinexys, including a digital financing application and a fund flow application for alternative investments.
“But last year was really exciting for us, because it allowed us to explore expanding to public blockchain infrastructure,” Kennedy said.
The bank launched its deposit token on Base, Coinbase’s Ethereum Layer 2 chain, which is decentralized and permissionless. JP Morgan Asset Management launched a tokenized money market fund on the public Ethereum blockchain. Then the bank turned to public Solana for the Galaxy commercial paper issuance.
“Each of those is a demonstration of where there is an appetite to explore the use of public blockchain infrastructure,” Kennedy said.
Blockchain options
The benefits of using a public blockchain such as Solana include composability and programmability across the ecosystem, Kennedy said. Composability on blockchains is the ability of different decentralized applications and smart contracts to interact, combine and build on one another like digital Lego blocks. It enables developers to reuse existing, open-source code to create new services.
Another advantage of Solana is that it can process more than 25,000 transactions per second, according to Miller Whitehouse-Levine, CEO of the Solana Policy Institute.
“Solana operates like a multi-lane highway versus a single lane road,” said Whitehouse-Levine, who will be the guest on the March 31 American Banker podcast. “On blockchains like Bitcoin and Ethereum, everyone queues up and goes down the same road in order, through one lane, because everyone participating in the network’s consensus process has to argue about when transactions occurred and in what order. Solana says, ‘Let’s bake the order of operations into the base of the transaction, into the network itself, so we don’t have to argue about ordering and when things happened, because we all have a shared cryptographic clock and know what time it is when a specific transaction occurred.'” This technology is also used in the U.S. Global Positioning System and in telecommunications.
Ethereum aficionados point out the advantages of the “OG smart contract blockchain,” as Paul Brody, chairman of the Enterprise Ethereum Alliance, put it in a recent
“People want regular currencies, but they want to make them programmable and transactable,” Brody said. “They want to be able to do things like borrow against the value of their assets or send payments easily and quickly. And this completely open, decentralized, smart contract system allows people to define money and start building applications on top of it with a speed and flexibility that just isn’t possible in the traditional financial system.”
Stablecoins can run on Ethereum, and any type of business agreement can be layered over those stablecoins, he said: inventory tracking, procurement, structured lending, perpetual futures and more. “Any kind of financial transaction that you can do in a traditional exchange, you can turn into a piece of software and run it on Ethereum.”
Yuval Rooz, CEO of Digital Asset Holdings, said that for many use cases within a bank, such as internal funds transfers, “it makes no commercial sense or rational sense logically to hand over your customers to a different ecosystem,” meaning a public blockchain. “It makes rational sense to say there are a lot of things that I can internalize inside of my four walls.” Public blockchains are the “most expensive databases in the world,” he said.
His company’s Canton Network is a private, permissioned blockchain blockchain network used by some life insurance companies. Canton has an interoperability layer that can connect multiple networks, he said. “By doing that, you could maximize your own internal network as much as you want, but not lose optionality.”
Yes to all of the above
JPMorganChase, Citi and other banks pioneering crypto projects are not sticking to one type of distributed ledger.
“From an asset issuer perspective, the distribution potential and the opportunity to target a net new investor base is also very important,” JPMorgan’s Kennedy said. “We certainly see it as part of our role to navigate a multitude of chains.”
As a service provider to the global securities markets, “part of the proposition is to take away the complexity of accessing assets in different geographic markets or across asset classes,” Kennedy said. “If you take that analogy and apply it in this space, there is a role for service providers to enable access to different chains, different assets.”
Kathleen Wrynn, global head of digital assets at Invesco, said she sees benefits of both private, permissioned blockchains and public blockchains, depending on the use case.
For private markets, operational efficiencies can be gained “by having a kind of contained, maybe private, permissioned network.” But public networks are “critical right now for getting more demand and money on chain,” she said.
