According to an all-new report released earlier this week, banking giant JP Morgan is currently in the process of facilitating a merger of its in-house blockchain unit called Quorum with Ethereum-based software developer ConsenSys. The deal is currently under negotiation and is likely to be finalized by the end of Q3 2020.
Quorum is a blockchain-based network that has been built atop the Ethereum ecosystem. It currently serves as the foundation for JP Morgan’s Interbank Information Network, a decentralized network that connects more than 300 banks and financial institutions, allowing them to exchange a host of information related to payments. The project currently counts 25 employees.
Additionally, JPM Coin — a digital asset created by JP Morgan to facilitate its native monetary transactions — has been built on Quorum’s digital infrastructure. In this regard, a recently published Reuters article claims that by merging with ConsenSys, JP Morgan is not only looking to tackle a host of real-world financial issues but also to expand the reach of its Quorum platform.
Providing his thoughts on the alleged merger, Gregory Klumov, CEO of Stasis — a euro-backed stablecoin issuer — told Cointelegraph that such news should not come as a shock to anyone, since deals of this magnitude routinely take place when a bear market is coming to a close:
“At the end of a bear cycle, consolidation is usually the most organic way out for a lot of businesses. This is an overdue indicator for the start of a new market cycle.”
The merger is a smart move on JP Morgan’s part
To better understand the implications put forth by this latest deal, Cointelegraph reached out to Michael Poutre, CEO of Terraform Capital LLC. In his view, the move to acquire Consensys shows that JP Morgan is trying to buy a credible brain trust headed by Ethereum co-founder Joseph Lubin, which has so far been hard for big banks and governments to come by.
He further added that taking up to six months to close the deal is a smart move on JP Morgan’s part, since it allows the banking giant to “try the milk for free before buying the cow.” He further pointed out:
“I suspect that JPM’s internal effort, Quorum, wasn’t living up to the expectations laid out at inception. For what is tantamount to a rounding error for JPM, they are getting top-tier industry veterans that will afford them the opportunity to develop and launch a successful token. Consensys had cashflow problems, which JPM can solve immediately; in turn, JPM gets the world-class team that they sorely needed.”
Additionally, Poutre told Cointelegraph that he has worked under Jamie Dimon, the CEO of JP Morgan Chase, in the past. He is certain that the decision to go through with this deal would have only been made after a lot of careful deliberation and meticulous planning. He also added that, “If Quorum wasn’t producing what he wanted, Dimon does not need to wait, hope, and pray that his team gets it right — he saw an opportunity to fix an issue, and he seized it.”
A similar outlook is shared by Anti Danilevski, CEO and founder of Kick Ecosystem and KickEX exchange, who also believes that the deal works in the best interest of both companies. In his opinion, even though Ethereum’s underlying technology has become fairly outdated now — referring to the platform’s various scalability issues — it is still one of the world’s most popular development systems for decentralized applications, or DApps.
With Quorum already utilizing the Ethereum network, JP Morgan will most likely push many of its existing clients to start making use of its blockchain system once the deal is finalized — something that Danilevski believes prompted Joseph Lubin to push for this deal in the first place. He further added that, “This deal could also potentially bring more validity to the JPM Coin and increase the overall use of bank-backed stablecoins.”
Consensys’ recent layoffs may have had nothing to do with the potential merger
According to a couple of reports released last week, it has come to light that Consensys was moving to cut its employee base down by roughly 14% as part of a restructuring plan. This new development drew the attention of a number of media houses, prompting them to believe that something larger may be going on behind the scenes.
In this regard, Alex Axelrod, the CEO and founder of Aximetria, a crypto-centric mobile finance app, told Cointelegraph that he believes news of the recent downsizing should not be associated with the alleged merger. In his view, both companies already enjoy a significant market following and would not be forced into a deal because of financial reasons.
A similar point of view is also shared by Danilevski, who pointed out that the recent layoffs aren’t a first for ConsenSys, and thus they are unlikely to be related to a potential partnership at hand. He added:
“Cryptocurrency and blockchain-related companies, such as Bitmain, are constantly letting staff go based on how the market is doing. While we’re in a bullish market as of now, it’s worth noting that the recent layoffs were in the HR, finance, and marketing departments, while the development team was unaffected.”
However, Herbrecht believes that the layoffs could have been done because of JP Morgan wanting to integrate its Quorum team with Consensys’ core developer staff — so as to make its internal work-related operations more streamlined. He also believes that if JPM Coin is built as envisioned, the banking consortium that JP Morgan is looking to establish with its Interbank Information Network could very well be the most serious attempt to bridge the gap that currently exists between the traditional financial system and the crypto industry. Herbrecht added:
“With this possible partnership, we can imagine all kinds of possible scenarios, with one such being the introduction of crypto technology to a whole new audience.”
Impact on the market and sector?
Even though the price of Ether seems to be on the rise following this latest development, it is quite difficult to predict how this deal will affect the market at large. For example, Klumov is of the opinion that a partnership between a leading financial institution such as JP Morgan and one of the world’s most recognized and reputable blockchain service providers is bound to help the industry in one way or the other.
As far as historical precedents go, very few projects have had a major monetary impact on the industry as a whole. Even this latest partnership seems to be focused more on enhancing JPMorgan’s personal blockchain adoption efforts rather than improving the state of the Ethereum project as a whole.
Lastly, over the course of the past few years, more and more banks have entered the crypto market with varying degrees of success. For example, firms like Ripple have been able to rope in a number of traditional finance players to use its native technological offerings such as xRapid and xCurrent.
Through the sector’s regulation, an increasing number of opportunities for banks to utilize crypto and blockchain have opened up, thereby allowing for mergers of crypto service providers to take place and thus create greater value for the market at large.
Since the details surrounding this alleged partnership are still quite limited at this point, it is hard to assess the overall impact it may have. In Danilevski’s opinion, this merger will most likely have no major financial implication on this burgeoning sector — especially since JP Morgan’s JPM coin has not received the kind of attention that the company initially expected. He further added:
“Considering Ethereum is the most popular blockchain for decentralized finance applications, ConsenSys is probably the best company JP Morgan could merge with to further pursue its goals. It’s just hard to see anything major happening in the market in the short term.”
Lastly, Herbrecht pointed out that global interest in decentralized finance, or DeFi, applications has been on the rise in recent months, with Ethereum being increasingly used by developers for the creation of novel DeFi-related DApps as a result. Thus, it seems to be a good idea for JPMorgan to get closer to Ethereum’s core development team and promote the use of the platform on a global scale.