JP Morgan, the Wall Street bank, has filed for trademarks for the “JP Morgan Wallet”. The wallet aims to essentially do what every crypto wallet on the market already does but with the backing of the JP Morgan brand.
The JP Morgan centralized wallet solution follows an announcement by Visa in late October where they also filed for trademarks regarding their own digital asset wallet. Though neither announcement is a huge boost for crypto, it signifies the furthering of crypto as a mainstream asset.
Old Trademark Filing
While the approval for the trademark filing is new, the original filing is over two years old now having been made in July 2020. As Emin Gün Sirer, founder and CEO of Ava Labs, pointed out, this was during a time when JP Morgan’s CEO Jamie Dimon was actively downplaying the potential of Bitcoin and other cryptocurrencies. It seems that the company either sees some sort of potential in them now, or they simply don’t want to be left behind and have no chance at getting any piece of the crypto pie.
JP Morgan Still Doubts Decentralized Options
Part of JP Morgan’s thesis is that decentralized exchange (DEX) options aren’t viable for consumers, citing reasons we’ll note in bullets below before debunking some of the information they posited:
- Price discovery takes place on centralized platforms and decentralized ones use that data for their prices.
- Smart contract and protocol hacks, platform vulnerabilities.
- Management and governance of DeFi platforms without compromising security or centralization.
- Automated liquidations can cascade.
- Over-collateralization on DeFi platforms that isn’t necessary on centralized ones.
- Front running (similar to insider trading, knowing a price is going up or down before someone else)
- Absence of stop-loss or limit order functions
- Risk/return tradeoff is hard to assess without above functions
- Liquidity pools could make institutional investors hesitant
While JP Morgan can state their reasons, it is quite easy to counter their arguments with some basic information.
Below are counterpoints to each of JP Morgan’s claims:
- This only applies to assets priced in fiat rather than crypto. For example, on Cardano, all assets are priced in ADA on its DEXs, removing the need for centralized exchange prices. Any DEX that uses crypto assets as a pair rather than fiat won’t have price discovery issues as price discovery takes place on the DEX.
- Centralized exchanges can be hacked and are vulnerable too, see FTX.
- The whole point of DeFi is that there is no central authority and that governance is done by users, with code being the law and stake in the platform giving weight to voting.
- Yes, liquidations are automated and can happen without you being able to do anything. That is why you’re supposed to over-collateralize.
- See above. Though also centralized exchanges like Crypto.com require over-collateralization for loans just like DeFi.
- Front running happens on both centralized and decentralized exchanges, there are trading bots you can use to do it on both types of platforms.
- Many DEXs have one if not both of these functions, including Uniswap, one of the largest DEXs on the market.
- See point 7.
- DeFi is meant to provide an opportunity for non-institutional investors to be able to get a piece of the profits. DeFi users are likely pleased that institutions aren’t currently diluting their pool share and therefore profits.
Is JP Morgan the First of Many?
JP Morgan is likely just the first of many centralized banking and financial authorities to foray into cryptocurrency, especially custodianship. While they will all cite some sort of security as the reason for their creation of a wallet, the reality is that they probably want a piece of the crypto pie as the industry continues to grow.
As crypto regulations become more clear, more and more traditional finance giants will likely jump in to secure their piece of the profit, whether that means taking transaction fees, spreads for trades, or commissions.
What’s interesting about the JP Morgan news is that it comes in the middle of a bear market. It would likely be an even bigger deal in the bull market.