Since the inception of Tether in 2014, several stablecoin projects have been launched to address the volatility inherent to crypto assets. Most existing projects were either established directly (Gemini Dollar) and indirectly (USD Coin, Tether) by cryptocurrency exchanges, or by dedicated companies and foundations (TrueUSD, NuBits). In that regard, JPM Coin represents the first prototype of a stablecoin created by a traditional financial institution.
The primary function of existing stablecoins is to transfer value worldwide efficiently and at minimal cost without the price volatility inherent to Bitcoin or other digital assets.
Additionally, stablecoins provide convenience in conducting arbitrage between trading venues. Before stablecoins were massively adopted by exchanges, it was a complicated process to arbitrage BTC among exchanges as fiat transfers were slow to process (taking up to several days).
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Stablecoin market structure
The stablecoin market continues to evolve as new models emerge, with a particular division between collateralized vs. non-collateralized approaches for maintaining a consistent price peg. Within collateralized models, both fiat and crypto backed models exist as a way to minimize volatility.
For non-collateralized models, many leverage algorithmic techniques to maintain price stability. While we acknowledge the existence of a variety of price stability models, this overview will focus primarily on the fiat-collateralized stablecoins. Many projects have issued and will continue to issue stablecoins backed by a variety of fiat currencies beyond the US dollar, such as EURS presented in the table below.
How to get jpm coin
JPM Coin is a prototype of a stablecoin that aims at “reducing clients’ counterparty and settlement risk, decreasing capital requirements and enabling instant value transfer”based on innovations in distributed ledger and blockchain technology.
JPM Coin will be backed by fiat reserves from J.P. Morgan client accounts, and will likely initially be limited with US dollars but could theoretically be expanded to any currency on their balance sheet. If the pilot is successful, JPM Coin could conceivably exist in various forms, including JPMUSD (US-dollar backed), JPMJPY (Yen backed) or JPMEUR (Euro backed).
How does jpm coin work
Stablecoins are used by both retail and institutional investors as an initial on-ramp for entering the crypto asset markets through a fiat-to-crypto exchange. Institutional investors in crypto markets are typically comprised of asset management firms, venture capital funds and proprietary trading firms investing in digital assets who need a way to exchange fiat currencies for crypto assets, or the other way around.
Large banks and financial institutions such as J.P. Morgan have a distinct set of advantages in issuing fiat-collateralized stablecoins, but these offerings will not displace liquid, publicly traded stablecoins in the near-term given their closed ecosystems built on private blockchains.
While JPM Coin does have the potential to materially impact traditional financial services (particularly in institutional client use cases such as clearing and settlement),it will have minimal impact on public stablecoins used by investors as a gateway to trade and interface with crypto assets. Until JPM Coin’s availability extends to a larger set of commercial institutions beyond J.P. Morgan's own clients and, more importantly, expands the offering to public blockchains and trades on liquid exchanges (which could provide access to retail investors), it will have limited impact on crypto asset markets.
Nevertheless, over the long term it is possible for JPM Coin (along with similar projects created by other banks) to have a disruptive impact on the entire stablecoin industry as they continue to expand its access and use cases.
Stablecoins and private blockchains: an illustration of the industry change
Should JPM Coin turn into a successful experiment, corporations might consider private blockchains as a viable and attractive solution for their transactional needs. This could result in a shift of institutional investments from public digital tokens & currencies to technology providers of enterprise white label solutions (such as a Quorum-tailored blockchain for their uses).
It is worth mentioning that today, it is unlikely that companies would rely solely on a public blockchain to manage their sensitive internal data. Hence pitting public and private blockchains head-to-head is somewhat of an artificial matchup that is less relevant than the broader discussion on whether centralized IT systems are to be replaced by private blockchain solutions within companies & industries.
The rise of this third generation of stablecoins may only be an intermediate stepping stone for cryptocurrency mass adoption. Stablecoins running on private blockchains will contribute to increasing awareness of the rest of the blockchain and cryptoasset industry in the long run.
Bitcoin was created to allow “online payments to be sent directly from one party to another without going through a financial institution.“32Ten years later, the landscape of the cryptocurrency industry has undoubtedly changed dramatically and financial institutions have become one of the key prominent players in the future of blockchain - be it private or public.
Closing thoughts
It is very unlikely that JPM Coin will disrupt the existing stablecoin industry in the near term owing to its permissioned, private nature. Currently, stablecoins issued by banks are designated to serve a specific purpose and as a result, do not directly compete with the existing stablecoins.
While JPM Coin will be built on a private blockchain and initially restricted to use within the J.P. Morgan network, the initiative could cause other financial institutions to follow suit by creating their own stablecoin running on a proprietary blockchain. However, if banks were to work together to align their interests in the development of interbank settlement solutions, Ripple may suffer from increasing competition as these banks come up with their own syndicated blockchain solutions.
In conclusion, banks already are a main component of the fiat-collateralized stablecoin model as these financial institutions provide custody for the funds of stablecoin issuers. Given their size, scope and strategic network, large banks such as J.P. Morgan could potentially leverage both their large asset bases and partnerships to broaden the influence and impact of their stablecoin offerings.
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