Yesterday JP Morgan executed its first crypto transaction in DeFi in real-time and on a public blockchain using tokenized deposits, with Aave, and verifiable credentials thanks to Polygon.
This was revealed in an official statement from the Monetary Authority of Singapore (MAS) saying it is a pilot project under MAS’s own Project Guardian. The aim is to explore potential applications of decentralized finance (DeFi) in wholesale finance markets.
Aave founder and CEO Stani Kulechov later revealed that JP Morgan used a modified Arc on Aave and verified credentials on Polygon.
J.P. Morgan executed its first live DeFi transaction using modified @AaveAave Arc and Verified Credentials on Polygon 🥳 Huge step forward on getting tokenized deposits and high tier institutions into DeFi 🚀 Congrats @TyLobban & everyone involved! 👏 https://t.co/Xha3uP6VsS
— Stani^ (@StaniKulechov) November 2, 2022
The transactions occurred between JP Morgan, DBS Bank and SBI Digital Asset Holdings, and involved foreign currency and government bonds within a liquidity pool comprising tokenized Singapore government bonds, Japanese government bonds, Japanese yen (JPY) and Singapore dollar (SGD).
Summary
JP Morgan and the crypto world: tokenization with Aave and Polygon
The interesting thing about this transaction, besides the use of Aave and Polygon, is the fact that real Singapore government bonds were used in a tokenized version.
In other words, tokens were created that seamlessly represent on blockchain the ownership of government bonds, and were then exchanged in such a way as to represent for all intents and purposes the exchange of ownership of the same bonds.
Indeed, decentralized blockchains do not directly support external assets, such as fiat currencies or government bonds. However, with the technique of tokenization, it is possible to integrate tokens representing external assets within decentralized blockchains.
The most famous tokens of this type are stablecoins, which are tokens on blockchains that represent 1:1 ownership of fiat currencies. Their success is due precisely to the fact that they actually allow fiat currency to be exchanged on decentralized blockchains, even if these do not directly support them.
The same thing can be done with government bonds, for example, as happened in the case of the MAS pilot project, but it can also be done with many other assets. The important thing is that the custodian of the assets, and the manager of the tokens, behave honestly while maintaining parity and convertibility at all times.
AAVE and the crypto MATIC
The price of the AAVE token in the crypto markets was not affected by this news.
It actually lost 0.4% over the course of the day yesterday, though still doing better than most of the other major cryptocurrencies that lost more due to the Fed’s statements.
It is worth adding that it has still recovered 10% over the past 30 days, although it is still 87% below its May 2021 highs.
In contrast, MATIC, or Polygon’s crypto, has jumped 10%.
However, it is possible that this jump is not only due to this news, but to a whole series of similar news regarding the increasing adoption of this second-layer chain for Ethereum.
It is worth noting that in the past 30 days, the price of MATIC has risen 19%, but still remains 67% below the all-time highs of December 2021.
When comparing the price performance of AAVE and MATIC, it is quite clear that it is the latter token that has been performing better in recent times, precisely because of the many reports about the increase in its adoption.
zkSync
Yesterday, Aave’s DAO members voted to accept the implementation of the protocol on the zkSync 2.0 testnet.
zkSync 2.0 is a second-layer network created to scale the Ethereum blockchain. It works by pooling transactions and relaying them to the top-level Ethereum blockchain. This way on the Ethereum blockchain they are processed in a single transaction greatly reducing the cost of individual transactions on zkSync.
Aave has been launched on other second-tier platforms before, but with zkSync it is the first time it has been launched on a zero-knowledge rollup.
The goal is to improve liquidity on Aave’s decentralized exchange, although for now zkSync 2.0 is still only in the testing phase.
Uniswap’s DAO made a similar decision last month, indicating rather clearly that many are banking on solutions like zkSync 2.0 to reduce transaction costs on Ethereum.
AAVE price predictions
Despite this, some analysts fear that in the short term the price of AAVE may fall.
The 2022 low was reached in June when for a very short period the price fell below $50.
Since then, it has recovered well, to the point where the current price is above $80, but by mid-August it had risen to $115. A downward trend has since been triggered that ended in mid-October at $70, but without a following strong rebound.
Moreover, currently the selling pressure on AAVE has returned, causing the short-term trend to remain bearish. The good news regarding adoption does not seem to have been able to turn the trend around.
After the rebound following the mid-October peak low, which ended on the 24th of the same month, AAVE’s price has not been able to show any more signs of strength. Indeed, it has now been swinging on a downward lateralization trend for two weeks.
In such a scenario, the bearish players might be able to gain the upper hand again.
It is important not to forget that the current price is in line with that of mid-May, which is the price after the implosion of the Terra ecosystem, so it may still have downward momentum.
Nonetheless, there is on-chain data that would seem to show a different scenario.
📈 Address activity and & address creation rises are generally key components for an asset's price rise. #Aave has been seeing sharp spikes in both, hitting milestones not seen since mid-July. Check out our short take on $AAVE's key #onchain metrics! 😎 https://t.co/L6zP7cjZqI pic.twitter.com/0XCabzexDz
— Santiment (@santimentfeed) November 1, 2022
These concerns address activity and the number of new addresses created using AAVE.
Recently these two on-chain metrics for AAVE have seen strong spikes, reaching milestones not seen since mid-July. This could suggest an increase in usage, which could counter sales pressure.
However, it is not necessarily the case that an increase in on-chain activity is necessarily followed by an increase in the market value of the token.
So while there are financial analysts noting strong selling pressure in the markets, there is also on-chain data that may suggest increased buying pressure.
