JPMorgan's foray into DeFi with JPMD on Base raises a critical question: Are we witnessing genuine innovation, or a calculated maneuver to colonize decentralized finance with centralized power? In both examples, institutional adoption is hailed as a euphoric victory for crypto. We need to look beneath the surface, especially when it comes to assessing the effects of a behemoth like JPMorgan.
Is Centralization Inevitable In DeFi?
Let’s be blunt. The crypto community’s lifeblood is the disruption of traditional finance. It allows people to manage their own resources without needing third parties. Well now, JPMorgan, the very financial firm that personifies Old Finance, is planting its flag. Have we become so greedy that we are willing to sell out the most important aspects of what decentralization stands for at the mere temptation of institutional money?
JPMD is permissioned. That's the crux of the issue. It's not open to everyone. It's designed for JPMorgan's institutional clients. This immediately creates a two-tiered system within DeFi: those who have access to JPMD and those who don't. This cuts against an important feature of DeFi—its permissionless nature—which is a foundation of its value proposition.
Think about it like this: JPMD is like a VIP entrance to a club that was supposed to be open to everyone. It furthers exclusivity and privilege, the very thing that DeFi was created to overthrow.
Control Over Transactions A Real Threat?
However, because JPMD is entirely controlled by JPMorgan, this raises chilling censorship and transaction control concerns. Can JPMorgan freeze or block transactions? Can they favor certain clients over others? The answer, unfortunately, is probably yes.
While Base offers "fast (sub-second), inexpensive (sub-cent), and 24/7 settlement capabilities," these benefits come with a catch. The infrastructure is still being built with a fundamental dependence on centralized chokepoints. First, JPMorgan might, in practice, gain undue leverage over the distribution of JPMD, harming or even suppressing innovation and coordinating cartel behavior.
This isn't just hypothetical. We’ve witnessed an endless number of financial institution power grabs in the centralized finance space. So why should we expect anything different in DeFi?
Consider the implications for DeFi composability. Should JPMD prove the most attractive stablecoin substitute, then protocols DeFi will probably be compelled to observe its lead. This move would give JPMorgan even greater control over the whole ecosystem. In that case, JPMorgan would have the power to determine what the rules of the game are. This would in practice turn DeFi into a centralized oligopoly.
The Trojan Horse Is Already Inside?
And while we don’t make that comparison lightly, that “Trojan Horse” metaphor isn’t just clickbait — it truly captures the threat. JPMD, meanwhile framed as enabling tool to facilitate institutional adoption, may actually serve as a vehicle for that centralized control.
The timing is suspect. As such, banks and large enterprises have been rushing into the stablecoin space ahead of these regulations being finalized. Are these regulations really in the interests of consumer protection? Or are they inadvertently paving the way for the centralized institutions—such as JPMorgan—to seize control of the market. It seems like the latter. If sufficient decentralized alternatives do not exist, by meeting these requirements, JPMorgan can build a walled garden, preventing other decentralized stablecoins from being competitive.
JPMorgan’s earlier launch of its stablecoin, JPM Coin, on its private blockchain should be a cautionary tale. Though JPM Coin never gained any traction, the pilot program provided JPMorgan with extensive experience in the digital asset space. JPMD is the next step in their plan: to establish themselves as a major player in the digital economy, even if it means compromising the principles of decentralization.
Jesse Pollak's statement about the credibility and potential of the partnership is understandable, given Coinbase's position as a J.P. Morgan institutional client. We should be careful to avoid the narrative that institutional money is an unqualified positive for crypto. Sometimes, it comes with strings attached.
What can you do? Educate yourself. See CBDC 101, Get smart on the risks and rewards of centralized stablecoins Support truly decentralized projects. Hold institutions that are diving into DeFi to the highest standards of transparency and accountability.
We hope JPMorgan’s JPMD won’t be the Trojan Horse that kills the decentralized dream. The future of DeFi depends on it.
