Multinational banking firm J.P. Morgan has laid the foundation towards the adoption of decentralized finance (DeFi) for institutions by conducting the first on-chain transaction on blockchain scaling platform Polygon.

This milestone was made possible with Onyx, J.P. Morgan’s blockchain platform created in 2020 to securely facilitate the exchange of digital assets.

In May of 2020, J.P. Morgan partnered with the Monetary Authority of Singapore (MAS) for a pilot program called Project Guardian, which also involved Tokyo-based banking firm SBI and Singapore’s largest bank DBS.

During the pilot, J.P Morgan was able to conduct secure and cost-effective transactions on a public blockchain. This validates the potential of DeFi and tokenized assets for the world’s largest and most trusted financial institutions.   

In this article, we’ll discuss how J.P. Morgan was able to successfully conduct a seamless and low-cost transaction for the historic Project Guardian pilot.

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Project Guardian: The first institutional DeFi transaction

The objective for Project Guardian was to execute the first cross-border transaction on Polygon, a public blockchain.

The transaction comprised tokenized Singapore Government Securities Bonds, Japanese Government Bonds, Japanese Yen (JPY), and Singapore Dollar (SGD).

On November 2nd 2022, J.P. Morgan successfully carried out the pilot involving a foreign exchange of the tokenized transactions on Polygon amounting to over 10 million Japanese Yen (JPY).

The pilot utilized permissioned Aave pools to deploy a modified version of Aave Arc and set parameters such as interest and FX rates in order to comply with regulations.

The J.P. Morgan team utilized Biconomy’s Gasless relayers, which allowed them to leverage the power of DeFi without the added complexities of traditional crypto transactions such as gas fees (more on this below). 

The simulated exercise also involved the buying and selling of tokenized government bonds, yet another industry first. The pilot’s success demonstrates how DeFi protocols have proven use-cases within existing capital markets for large institutions.

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Umar Farooq, the CEO of Onyx by J.P. Morgan told Bloomberg on Nov. 2 that the on-chain transaction “was the first time that a major bank, possibly any bank, had tokenized deposits on a public blockchain.”

Removing transaction complexities

Possessing chain native tokens is critical to users who wish to interact with a dApp or conduct an on-chain transaction. Anyone completing a transaction on Ethereum for example, is typically required to pay the subsequent gas fees in ETH, which are paid to network validators (in this case on Ethereum) to complete the requested transaction.

This represents a major hurdle in user onboarding, particularly for institutions new to Web3, who may not hold or wish to purchase cryptocurrency in order to complete a transaction. To help overcome this onboarding complexity, we created Gasless, which allows users to interact with dApps and protocols on a blockchain via meta transactions.

Meta transactions are transactions whose data is created and signed by one person and executed by another trusted party (relayer) who pays the gas fees. Relayers are responsible for signing valid transactions with this information and sending them to the network, and thus paying for the gas cost on behalf of the end-user.

Here’s a familiar example to illustrate:

Let’s assume users had to pay server fees every time they tried to watch their favourite show on Netflix. The user-experience would become both costly and complicated, with multiple steps and transactions required before they could watch their show. To remove (or abstract)  these complexities, Netflix simply internalizes and covers the server fees on behalf of their users, instead of complicating the UX itself. 

While different in application, like server fees, gas fees create a complicated and costly experience for Web3 users. 

Therefore by removing them from the user-flow, dApps and institutions such as Netflix, can grant end-users a seamless experience, while paying up to 14% less in gas fees on behalf of users thanks to price optimization conducted through Biconomy relayers.

In the case of J.P. Morgan and Project Guardian, one of the largest hurdles to overcome was facilitating an on-chain transaction while ensuring regulatory compliance, which meant they did not have custody of cryptocurrency and needed to pay gas fees in fiat. Additionally, the J.P. Morgan team needed to maximize efficiency and ensure a swift and successful completion of the transaction — also known as ‘uptime’.

Thus, J.P. Morgan began working with Biconomy in the spring of 2022 as an infrastructure solution via Gasless, with the goal of removing the aforementioned complexities related to gas fees, and creating a frictionless on-chain DeFi transaction under Project Guardian on Polygon. 

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Powering a seamless DeFi pilot with Gasless

Gasless allowed for a seamless transaction experience, by executing a meta transaction through Biconomy’s non-custodial relayer network. In doing so, J.P. Morgan was able to pay for the associated gas fees in fiat, which allowed them to simplify the transaction process while still complying with regulatory requirements. 

The diagram below demonstrates how the trusted forwarder verifies signatures before calling the smart contract with the original user address data appended. This is the same process that was used under Project Guardian to simplify the transaction process for the J.P. Morgan team using the Biconomy relayer. 

The end result of using the relayer for Project Guardian was an abstracted and compliant transaction experience, without the complexities of typical crypto transactions thanks in part to Biconomy.

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Scratching the Surface of Institutional DeFi

As we continue into 2023, our goal is to power web3 adoption for dApps and institutions through integrations with the Biconomy SDK.

We also look forward to building upon our relationship with J.P. Morgan and the Onyx team, and providing additional modules from Biconomy to support institutional DeFi in the global banking and financial market. 

With new features such as batch transactions and social login, we’re confident that our SDK can be utilized to support seamless, secure, and cost-effective blockchain transactions. 

To learn more about Project Guardian, visit: First Industry Pilot for Digital Asset and Decentralised Finance Goes Live

To learn more about the Biconomy SDK

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