Onyx is JPMorgan’s permissioned blockchain system that leverages smart contracts to facilitate transaction orders on its network. It was launched in 2020 after the bank’s JPM Coin, and has since then served as an optimal permissioned blockchain banks and financial institutions use to move money, assets, and share information efficiently.
Onyx is a whole ecosystem, formally called Onyx Coin Systems. Since its launch, JP Morgan has reportedly processed around $300 billion worth of transactions in JPM Coin by multiple institutional and corporate clients as of October 2023.
What is Onyx?
Onyx is what is known as a private (permissioned) blockchain for wholesale purposes, providing a broad range of utility services for FinTech startups, financial institutions, banks, and wealthy individuals.
Onyx was built as a multi-purpose financial ecosystem that offers multiple features, this inclúde a tokenization platform, a payment rail, clearing and settling wholesale transactions, and custodial services for users.
Onyx main dashboard. Source: JP Morgan & Co.
In this case, Onyx creates a blockchain-based account in which deposits are treated as “deposit tokens,” which JPMorgan deems more appropriate than stablecoins as they’re issued by regulated banks across the US, making them a safer option for commercial banks and other parties involved in a transaction. The bank argues that stablecoins are unregulated and pose a risk in case of a stablecoin run or de-pegging.
In permissioned blockchains, the few users with access to it are high-profile enterprises or mid-size businesses that demand high-speed networks with state-of-the-art security and organization. These users act as network nodes and can communicate with each other to perform several tasks, such as validating transactions or reporting errors or status updates.
Further, JPMorgan became the first investment bank to pioneer a bank-based blockchain that provides a wide range of blockchain-based services, including deposit tokens, information storage, and tokenization of assets,
Onyx Blockchain Main Products
As we mentioned at the beginning of this article, Onyx is a whole ecosystem designed to provide banks and financial institutions a wide range of products and services. Let’s start with Liink, formerly known as Interbank Information Network (IIN).
Liink is a blockchain-based business-to-business (B2B) platform that allows banks and financial institutions to execute cross-border transactions and share information in a peer-to-peer fashion, that way they can organize a financial roadmap, share insights, and come up with an actionable plan for their businesses.
Liink has a key product called Confirm, which allows Liink clients to validate and approve new accounts for cross-border payments, this will help Liink to mitigate the risk of fraud by pre-validating accounts and prevent missing or returned payments (which adds to expenses and processing costs).
Currently, it serves over 70 clients, including clients in Europe, and has processed more than 60 million messages.
Onyx Digital Assets
Onyx Digital Assets is Onyx’s asset tokenization platform that allows clients to create tokenized versions of their products, successfully bringing applications of all kinds into the blockchain. It provides a robust infrastructure with a wide range of resources to bring tokenization projects to life and support web3 app development in all stages of the journey.
Clients can also use the platform’s set of financial applications to make better use of their financial assets, such as using their assets as collateral against intraday financing or posting them as collateral margin without making market moves.
Another product is JPM Coin, a stablecoin designed by JPMorgan in 2019 and is fully backed by US dollar reserves and by JPMorgan itself, meaning it enjoys insurance and other benefits. JPM Coin, like Onyx, is only available to specific clients in the US and just recently Europe, with multinational Siemens being the first client to use the Euro version of JPM Coin.
JPM Coin is not your typical stablecoin, however. Here are some key takeaways:
- JPM Coin was created on Quorum, a blockchain protocol specialized in the development of permissioned networks. It facilitates quick payment transfers and is pegged to the US dollar to provide stability.
- The main difference between regular stablecoins and JPM Coin is that the former can be used by decentralized finance (DeFi) protocols for staking in liquidity pools or yield farming, and many of them are not very transparent on their dollar reserves and other backings.
- Meanwhile, JPM Coin is mainly used by JP Morgan’s institutional and corporate clients for fast cross-border transactions and institutional settlements, while providing liquidity management. If two parties have an account in JP Morgan, they can start using JPM Coin for the transfer of value.
A key nuance that we need to highlight is that JPM Coin is technically not a typical cryptocurrency, however, but the bank’s own private digital version of the dollar.
Onyx vs FedNow: Are They Competitors?
A common belief is that FedNow competes against Onyx or other payment systems out there. However, despite being designed as payment rails, this is far from the truth, as both systems serve different target markets and use cases
While Onyx and FedNow share several similarities, such as clearing, settlements and exchange of information, there are key components in which both systems differ. First of all, FedNow is a payment rail that offers 24/7 availability for interbank transactions. It’s only available to banks and subsequently, banks will incorporate and offer this technology indirectly to their clients. FedNow uses the FedLine messaging system and other technologies to provide instant and low-cost transactions.
Meanwhile, Onyx is a multi-purpose ecosystem optimized for businesses and institutions globally. The platform has several blockchain-based products, something that FedNow doesn’t, and these products can be leveraged by Onyx clients to tokenize financial assets, transfer wholesale and digital assets, or store information in a single system.
How Does JPM Coin and Onyx Affect Bitcoin?
There’s no correlation between JPM Coin and Bitcoin, or other cryptocurrencies for that matter. What we can talk about is the double standards of financial institutions —especially most Wall Street banks— when they first criticized cryptocurrencies and their technology. Now they’re ironically building and capitalizing on this technology, offering blockchain-based services and tokenization of assets, something that the DeFi space was already doing years ago.
When we talk about advantages, we can only talk about institutional clients of JP Morgan. While you can technically apply to become a member of the network, you need to pass an extensive KYC process.
A centralized network means one or two nodes with sufficient capacity —this is, hardware power or capital— can take control of the network and modify state changes, fall to third-party pressure, or send malicious blocks with incorrect data. However, being built by JP Morgan, it’s highly unlikely those scenarios ever happen on Onyx.