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French banking giant BNP Paribas has joined U.S.-based J.P. Morgan’s blockchain platform Onyx Digital Assets for fixed income market trading, according to a Financial Times report. The digital tokens traded via Onyx Digital Assets represent U.S. treasury bonds.

The deal will enable BNP Paribas to lend tokenized U.S. government bonds for a few hours without the assets leaving their balance sheet. To put it simply, BNP Paribas will borrow cash against its bonds for a few hours and then repurchase those bonds at a slightly higher rate.

The length of the loan, settlement time, and other factors are part of a smart contract, a pact that ensures the cash is in the borrower’s account when it’s borrowed and is released at the end of the deal.

Banks can lend tokenized US Treasurys for a few days at a time without the assets leaving their balance sheets. This helps navigate liquidity demands imposed on institutions in the wake of the 2008 financial crisis.

JPMorgan’s blockchain system, Onyx Digital Assets, launched in December 2020 and has so far processed more than $300 billion in government bond transactions, per the report. For now, Onyx deals specifically with the intraday repurchase (repo) market, which is valued at around $12 trillion.

BNP Paribas is among a consortium of French banks experimenting with a permissioned blockchain project of the French central bank, trading debt securities as part of research on central bank digital currencies (CBDCs).

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