A blockchain and crypto CEO cuts through the hype

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Umar Farooq (NYO, STA 00-05) has a poster of the TARDIS on his office wall.

For those who are unfamiliar, the TARDIS is the UK police-box-shaped spaceship that the fictional character Doctor Who travels through time and space in. The thing about the TARDIS is that while on the outside it’s the size of a phone booth, inside it’s enormous. “It’s bigger on the inside," as a catch phrase from the show goes.

Umar, who is CEO of Onyx – JPMorgan’s in-house blockchain business – considers that the work he does is a demonstration of that idea.

“The inside of JPMorgan is much bigger than people think,” he says. “Sometimes people confuse ‘innovation’ with ‘innovation at scale.’ Can you build lots of little things really fast outside a bank? Yes. Can you build really large financial products outside of a bank? Most likely no. Because ultimately as you grow, you are going to get back to the same issues that we try to solve up front.”

Umar says that JPMorgan began working in the blockchain space around 2014. At that time, his team had a handful of people. Now, he says, there are more than 200 full-time people on the team working on blockchain, and in 2020 it became a dedicated business unit.

“We thought we could create platforms that could have a meaningful effect on how our businesses evolve in the areas of payments, securities, and more," he says. That became Onyx.

We sat down with Umar to ask him about what he does at Onyx, the state of crypto and blockchain, and his career at McKinsey.

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Tell us what you do at Onyx.

I view my primary job as making it easy for my colleagues to innovate inside JPMorgan. How do you drive true innovation inside one of the most heavily regulated, and one of the largest financial institutions in the world?

Onyx has four verticals. One is an information network, which actually is one of the biggest networks with banks involved in blockchain anywhere in the world.

Second, we have a money movement network, which operates JPM Coin. We move hundreds of millions a day. Which, compared to the $10 trillion we move every day at JPMorgan, is a small number, but it's pretty big by most other standards.

The third is a securities vertical, where we do things like repo transactions. We usually trade nominally on average a billion to two billion dollars a day.

Fourth, we do lots of R&D, which involves NFTs, the Metaverse and other Web3 initiatives.

My official title is CEO, but I think the “E” stands more for “enabler” than “executive.”

What are three things that you think everyone should know about crypto?

Outside of the hype of what the value of crypto is, the really interesting thing about it is the technology. Being able to do trustless transactions without a central authority is a very innovative way of thinking about things. We might not know each other or ever have interacted, but I can give you a token [for payment] and we don’t have to appeal to a central party. We just appeal to the algorithm and the network itself.

The second thing I would say is that most of the rationale that's out there – especially in the Twitter-verse, which seems to be the primary marketing channel for this – hasn't really come true. This includes predictions like "This is the next-generation currency," "This is digital gold," or "This is an inflation hedge." Many of those things just patently haven't been proven right. I'm not saying that they have been definitively proven wrong forever. But for now, those use cases don't hold a lot of water. And crypto still, at the core, is speculative investment.

The third one is connected with timing. There’s a long way to go on this technology. Trying to predict where crypto will end up is, frankly, a fool's errand. In my mind, there's lots more to come.

How has crypto changed in the past couple of years?

I would break the question into two parts: a longer cycle of the last four or five years and a shorter cycle of the last six months.

The longer cycle shows an arc of rapid innovation. There was a boom of what used to be called "initial coin offerings," which was people offering tokens to fund their companies until it became clear they were securities, and then that boom died. We saw a continuous rise of stablecoins. We saw an explosion in DeFi [decentralized finance].

Certain factors came together to make that happen. The technology is open source, so you read the white papers and code, and for now, most of it is outside regulatory control, which means you can build whatever you want. That ends up crowdsourcing and accelerating the innovation.

The more recent developments, the crypto winter specifically, is more sobering. We saw the collapse of [the stablecoin] Terra; we've seen the collapse or significant reduction in the presence of many other companies, like Celsius.

With a lack of regulatory oversight, the same factors driving an arc of almost explosive cycles of new innovative concepts also make this quite dangerous for certain participants. Since late last year, we've seen the evaporation of market cap from about $3 trillion to $1 trillion, and that has come out of people's pockets.

How would you say recent economic uncertainty has affected crypto gaining widespread acceptance as a payment and investment vehicle?

If you look at the publicly available data being produced by large exchanges like Coinbase, you can see how many accounts have been opened. So a good portion of the investing public is clearly active in crypto.

How much they were investing differs by demographic, by income, etc. And I imagine most knew it was speculative investment – it's almost like rolling the dice.

As a payment vehicle, frankly, I don't think crypto has been affected by economic uncertainty. Frankly, it never took off as a payment vehicle. Are people using it to buy coffee, or groceries? Not really. The real case in point is El Salvador. Here's a country that declared Bitcoin as an official currency. That's been going on for a couple of years now.

And according to most observers pretty much no one wants to accept Bitcoin in El Salvador, and no one's paying in Bitcoin, because of the inherent volatility and the de-linking from the currencies that are the core of world trade.

What is your advice for someone who's interested in using crypto, but isn't quite sure where to start?

For people who are technically savvy, my recommendation would be to read the white papers that underlie some of these protocols because they are actually very interesting, and they show you a different way of doing things.

The beauty of this tech is it's all open-source: the white papers and the code are online. You might not be able to read the code itself, but you can go and read the white paper.

The other thing is to get balanced views. You can go to Twitter, and you'll see lots of very interesting tweets from lots of people who love crypto. And then I think you have to go and read the skeptics. Some of the skeptics are academics, some of the skeptics are central bankers, some of the skeptics are big tech people.

Then you have to make a decision for yourself.

What is your best "only at McKinsey" moment?

I was a few months in as an Associate, and we were working on a board presentation for the CEO of a pretty large business. I spent two hours with him late at night prepping for the presentation. Even now I look back and think, "Where else is that actually possible?" I was seven or eight months into my working life, my first real job, and I was sitting with one of the best-known CEOs prepping a deck that he was going to present the next day.

There are things he said that evening that I still quote to people (not with his name, of course). It was a quintessentially McKinsey moment which I don't think can be repeated in many places in the world.

What's the best piece of advice you ever got from a mentor at McKinsey?

It was to listen and put myself in the shoes of the person who may disagree with me. Someone from McKinsey actually pulled me out of a meeting to give me that advice, by the way. It's something that I constantly work on. As you work in real life, unfortunately you can default to an adversarial mindset when someone doesn't agree.

It has really helped me because at Onyx – where we are doing things that are pushing the boundaries – when you think of an issue from the point of view of the person you are dealing with, you think about things differently and you understand where they're coming from, and you try to find the right solution.

Have you found the alumni network to be helpful to you?

It's incredibly helpful. When I left McKinsey, I went to a commercial lending company that did very well until 2008, and then it blew up spectacularly. In that moment of blowup, the alumni network was extremely helpful to me in networking and finding the next place I was going to go.

To this day, people who were my mentors, especially the Partners, the APs, and the EMs I worked under, many of whom are now alumni, are a network I rely on when I need career advice. Many times when I face a challenge my first call is to a small subset of those people.