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J.P. Morgan Onyx wants to “liberate the bank account”

Onyx’s Naveen Mallela aspires to evolve from using an internal JPM Coin to public blockchain-based rails.



Naveen Mallela, J.P. Morgan

J.P. Morgan is piloting a blockchain-based project with Siemens that the bank believes is paving the way to widespread adoption of programmable money and payments.

By doing so, the bank hopes to prove the importance of commercial banks to the new era of blockchain-powered finance.

Commercial banks are being challenged from two sides. First, the rise of stablecoins has shown the possibilities of privately issued means of providing payment facilities in crypto. Second, central banks are considering issuing their own digital currencies – potentially disrupting the ability of commercial banks to retain deposits.

The Siemens pilot is modest, using JPM Coin to move money among its own accounts to enable supplier purchases of items that have been traditionally of low value and a paperwork headache for the finance department. Moving payments to a Web3 stack allows the corporation to trust data events and data sources of third parties, and enable micro-sized streaming payments.

Moving to the heart of Web3

It’s also an early step in a more ambitious approach to blockchain.

“We are looking to actively build an ecosystem that enables settlements 24/7 – that is, settlement for both cryptocurrencies and tokenized securities, involving exchanges, brokers, and asset managers,” said Naveen Mallela, Singapore-based global head of coin systems at Onyx by J.P. Morgan.

Down the road, J.P. Morgan would like to combine its payments expertise with Siemens’ Internet of Things – its factories brimming with sensors – to create pay-to-use systems, from maintaining supplies to dynamically adjust cash requirements. It would give the treasurer far more advanced tools, predictability, and the ability to transact with all manner of counterparties.

And it would position J.P. Morgan at the heart of Web3 finance – as a necessary intermediary within the world of public blockchains such as Ethereum.

This would represent a dramatic progression from its current tokenization projects, which rely on the safety of club-like permissioned blockchains. Such a leap would help corporate clients be able to transact with any counterparty active on public chains, taking advantage of the near-instant, transparent potential of blockchain-based infrastructure.

First steps

Naveen Mallela led the bank’s involvement in Singapore’s Project Ubin, the creation of JPM Coin, and the creation of Partior, in partnership with Temasek and DBS.

He’s now leading the charge for making payments programmable using smart contracts.

These various initiatives are still small-scale to begin with – but they are transitioning from pilots to deployment. JPM Coin, for example, now facilitates nearly $300 million of cross-border payments daily within the bank’s own network. 

It will take time to achieve the vision of a vast, 24/7 network of tokenized assets and transactions. A critical starting point, Mallela argues, is for the industry to move past stablecoins and embrace regulated tokenized deposits.

Beyond stablecoins

He spoke with DigFin two weeks before the algorithmic stablecoin Terra lost its peg to the U.S. dollar and collapsed.

He cited research being conducted by the Federal Reserve Bank, as well as draft legislation by U.S. Senator Patrick Toomey that would provide a framework for the issuance of payment stablecoins.

Stablecoins are meant to be fully reserved but this can also fragment liquidity, meaning they could tie up vast amounts of capital that can’t be used for lending or other commercial banking activities.

Stablecoins also emerged out of the world of unregulated, decentralized transactions, which creates compliance problems for financial institutions.

Tokenized deposits

The alternative that J.P. Morgan is focused on is tokenized deposits. Instead of creating stablecoins that are meant to be fully reserved – but which operate outside of banking regulation – Mallela says it makes more sense to use blockchain tech to tokenize deposits, regulate them as banking activities, and use them as part of the mainstream financial system of fractional reserved banking.

“Stablecoins aren’t fungible,” Mallela said. “But one U.S. dollar equals one U.S. dollar, whether it’s issued by a central bank or by a commercial bank. We need tokenized deposits to scale.”

Tokenized deposits will play a critical role in realizing the potential of smart contracts to create securities tokens, representing stocks, bonds, or other liability instruments. Buying and selling securities usually involves a cash leg in the settlement process – a role that stablecoins currently play, but which tokenized deposits should fulfill.

Realizing this vision – that one crypto dollar equals another – will eventually require tools like JPM Coin to interact equally with other instruments, including another bank’s coin.


Mallela says the aspiration for JPM Coin is to allow it to operate on public, permissionless blockchains. This represents a major leap out of its current walled garden.

“Interoperability goes along with public blockchain infrastructure, which means we need to develop standards,” Mallela said.

The public blockchain world has already developed standards of its own, such as the ERC20 rules that define how to create and issue smart contracts on Ethereum – a standard followed by the likes of Tether, so the stablecoin can be sent to any address on the Ethereum blockchain.

But ERC20’s design is not suitable for tokenized deposits, so Mallela says a new type of standard must be invented. While banks may be jealous of their own internal coins, Mallela says the only path to mainstream adoption is to work out shared formats.

J.P. Morgan hopes to use its early-mover status to ensure these formats meet its own needs. But that doesn’t preclude other major institutions or fintechs from competing with their own versions. Nor is this without precedent: banks in any market use electronic mediation services such as Fedwire (in the case of the U.S.) to create fungibility among the money they create. The Monetary Authority of Singapore could carry out a similar function via backing Partior, for example – or a private fintech such as Ripple could advance its own models.

Somewhere in the middle, these models need to agree on communication terms, or they risk being locked in proprietary ecosystems – and ultimately fail.

“We’re not trying to create walled gardens,” Mallela said. “The lack of interoperability means lack of adoption. Reachability is important, and that can only work if there’s interoperability.”


That same desire for “reachability” – facilitating payments to and from almost any client – is likely to lead J.P. Morgan to public chains like Ethereum.

As a Layer-1 blockchain (the base protocol), Ethereum has problems, such as high and volatile transaction fees. Layer-2 solutions exist trying to mitigate these problems; and Ethereum is also meant to transition to a new consensus mechanism.

Nonetheless, Ethereum is widely used, and it is open to all, which makes it attractive as a place to issue deposit coins. It could meet requirements being formulated by regulators such as the Office of the Comptroller of the Currency (OCC), the U.S. Treasury’s bank supervisory arm.

Finally, Mallela says the bank wants to see Ethereum complete its transition from Proof of Work consensus to Proof of Stake to a point where a new ecosystem can be built on top, leading to the kind of standards that would support tokenized deposits.

Building a new bank

Building from new foundations gives banks like J.P. Morgan a means of gradually migrating away from the limitations of their mainframe-based core banking systems. “The ledger has shifted,” Mallela said.

Putting new services on Ethereum or other public blockchains would allow the bank to build new digital apps and services with the agility of a fintech. It would put the bank in the position of a “payments orchestrator”, connecting all manner of corporate clients, merchants, and fintechs – and even SMEs or individuals.

“We can build the entire banking payments stack on Web3 rails,” he said. “This is the foundation for always-on money.”

The bank is making substantial investments to reach that goal, including in streaming payments, delivery-versus-payments using tokenized deposits, and use cases for micropayments.

It is also looking at making sure compliance practices are embedded in new infrastructure, so it can put a bank account on top.

“The next step is to begin liberating the bank account,” Mallela said. This is where the Siemens example comes into view. Right now JPM Coin just moves money among J.P. Morgan bank accounts, including those of Siemens.

Stablecoins showed the promise of using blockchain infrastructure to reach new counterparties – even unknown parties – and rely on smart contracts to trigger a payment.

But stablecoins are compliance nightmares and too capital-intensive to make economic sense. And if Siemens wants to rely on stablecoins, it has no need of J.P. Morgan.

Companies like Partior are building networks that could provide a complete, peer-to-peer means of clearing and settling all manner of trades, atomically. Mallela notes however that it takes a long time for such initiatives to attract enough banks to gain critical mass. J.P. Morgan is a key backer of Partior but it is pursuing its own initiatives as well.

There’s too much to gain in the Web3 world – and too much for banks like J.P. Morgan to lose by standing on the sidelines.

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