Kinexys: the evolution of blockchain and the tokenized financial infrastructure

We recently discussed with Kara Kennedy and Naveen Mallela, Global Co-heads of Kinexys by J.P. Morgan, about the company’s vision, the obstacles of the mainstream adoption of blockchain assets, and the future of the tokenized financial infrastructure. 

What prompted J.P. Morgan’s decision to build and launch Kinexys as a dedicated blockchain division?

We have been in this space and leading innovation for institutional blockchain platforms since 2015, initially as the firm’s ‘blockchain centre of excellence.’ As a firm, we invest heavily in new technology and were amongst the first to believe that blockchain technology would have a significant, positive impact on our clients’ businesses. In 2019, we moved from conceptualisation to offering blockchain-based solutions, including our Blockchain Deposit Accounts, which our clients have been using ever since.

Kinexys by J.P. Morgan is the firm’s blockchain business unit comprising key areas transforming how information, money, and assets move around the world. The unit consists of Kinexys Digital Payments (KDP), a deposit ledger and payment rail, Kinexys Digital Assets (KDA), a multi-asset tokenization platform, and Kinexys Liink, the first bank-led, scalable, permissioned payments information network.

What are the primary objectives of Kinexys today, and how do you balance between building for digital payments, digital assets, cross-chain interoperability and innovation?

Our mandate for Kinexys by J.P. Morgan is to transform how information, money, and assets move around the world. Since inception, over USD 3 trillion in transaction volume has been processed on the Kinexys platform, and we process on average more than USD 5 billion daily in transaction volume.

We are relentlessly focused on driving innovation, led by what our clients need today and tomorrow. The launch of JPM Coin, J.P. Morgan’s deposit token was driven by seeing a significant increase in our clients looking to enter the digital finance space and needing to make payments on public blockchains, but wanting to use a bank product they already knew and trusted. Now, JPM Coin is available on Base, the Layer 2 Ethereum blockchain built within Coinbase, and we plan to roll it out to other public blockchains. 

Technology alone will not allow the firm, or indeed the industry as a whole, to scale tokenization. Strong organisational structures and cross-business collaboration are essential. While pursuing industry firsts and scaling innovation, Kinexys is also driving positive, disruptive change across the companu, supporting other business lines in the Commercial and Investment Bank (CIB), including Markets and Securities Services, as well as J.P. Morgan Asset Management and J.P. Morgan Private Bank.

We work closely with specialists across the firm who know their business and their clients, enabling them to adapt blockchain infrastructure with domain specificity. This model  will deepen as maturity and adoption increases.

In your opinion, what are the main obstacles to mainstream adoption of on-chain real-world assets, and how can Kinexys overcome them?

Adoption of new technologies and operating models is not easy within traditional financial services; there is a need to manage complex interdependencies, integrate with legacy infrastructure, and navigate legal and regulatory environments that have not yet adapted to these new innovations. While we are seeing increased acceptance of tokenized assets, notably tokenized Money Market Funds (MMFs),  institutions need to be able to identify an exact value from any initiative, through an increase in efficiencies or new investment opportunities.

With Kinexys Digital Assets, we aim to accelerate efforts around tokenized assets through partnerships with internal teams and clients, looking at the post-trade space and what that means in terms of the interaction between both digital assets and cash settlement. The focus moving forward is on joining the dots and evolving solutions that solve particular client pain points, adding value through new onchain functionalities.

We have begun this work for alternative investments with the launch of Kinexys Fund Flow. This solution collects, harmonises, and records investor register and transactional data for alternative investment funds on the Kinexys Digital Assets private, permissioned blockchain network. This provides granular transparency into investor funds and capital activity data, as well as facilitates the automation of funding capital calls and distributions using our scalable Blockchain Deposit Account network on Kinexys Digital Payments. Our goal is to use this technology to improve the experience and outcome for investors, as well as delivering efficiency benefits for service providers.

Looking ahead three-five years, how do you envision the evolution of blockchain and the tokenized financial infrastructure within the global financial ecosystem?

Tokenised financial infrastructure is no longer theoretical. It is restructuring liquidity, settlement, and digital asset workflows at increasing speed.

With JPM Coin now available to our institutional clients, we’re moving the industry forward in transacting on public blockchains. JPM Coin delivers the security of bank-backed deposits and settlement, combined with the speed and innovation of 24/7, near real-time transactions, increasing efficiency and unlocking liquidity. As a superior alternative to stablecoins for institutional clients, we expect to see volumes of JPM Coin growing exponentially over the next three to five years.

At the same time, parallel financial infrastructure will coexist for years to come. Even as public blockchain use increases, banks and other services providers will support integration of these new technologies with legacy infrastructure and services. The transformation of financial services is underway, but scalable, institutional grade capabilities will be the result of incremental adaptation over the years ahead, rather than overnight transformation.    

Finally, are global regulators moving fast enough to support widespread tokenization and how is Kinexys contributing to the shaping of emerging standards and compliance?

Institutional tokenization is progressing rapidly, but responsibly. Strong partnerships with regulators represent a critical part of the journey to ensure a robust and trusted ecosystem. As with all J.P. Morgan’s products, across jurisdictions we engage regulators both directly and through industry groups to ensure compliance with existing standards and regulations. We are actively involved in ongoing projects such as the Monetary Authority of Singapore’s Project BLOOM, to provide industry guidance and input on emerging standards.

Tokenized products shouldn’t all be the same, but there needs to be clarity and consistency about where they work together and where there are key differences. Where the activity is the same but different technologies are used, controls and oversight should remain aligned. This clarity will drive confidence in the user base and greater adoption overall.

 

About the authors

Kara Kennedy is Co-head of Kinexys, J.P. Morgan’s industry-leading blockchain business unit, with direct responsibility for the Kinexys Digital Assets and Kinexys Labs teams.  Kara previously served as Head of Digital Asset Product for J.P. Morgan’s Securities Services, where she led extension of the custody network to include internal and external blockchain platforms. Kara has over 15 years’ experience in financial services and has been focussed on digital assets for the past 7 years. Prior to joining J.P. Morgan in 2021, she led digital asset product management as part of the Global Custody team at BNY Mellon, following five years leading product innovation in the Depositary Receipts business.

 

Naveen Mallela is the global Co-head of Kinexys, one of the founding members of the business unit, and a builder of cornerstone products such as JPM Coin and Kinexys Digital Payments’ Programmable Payments. A keen enthusiast of all things digital currency, Naveen has authored white papers on CBDCs, shared ledgers and deposit tokens, and has been part of multiple industry initiatives shaping the landscape of digital money. Prior to founding Kinexys, Naveen held several roles at J.P. Morgan, including APAC Head of Digital, Payments.

 

About Kinexys by J.P. Morgan

A division of J.P. Morgan Payments, Kinexys by J.P. Morgan comprises key areas transforming how information, money and assets move around the world: Kinexys Digital Payments (KDP), a deposit ledger and payment rail; Kinexys Digital Assets (KDA), an asset tokenization platform; and Kinexys Liink, the first bank-led, scalable, permissioned payments information network. Since inception, over USD 3 trillion in transaction volume has been processed on the Kinexys platform, which processes on average more than USD 5 billion daily in transaction volume and payments transactions on the Kinexys platform have grown by 10x year-over-year. Now serving clients across five continents, including central and commercial banks in geographies including India and the Middle East, we are helping businesses around the world harness the speed and efficiency enabled by blockchain technology.