Key Takeaways
- JPMorgan has launched its new deposit token, JPMD, on Base.
- JPMD succeeds the bank’s more limited tokenized deposit system, JPM coin.
- For banks, tokenized deposits present a more compelling business opportunity than stablecoins.
Following a successful pilot, JPMorgan is rolling out its deposit token, JPMD, to institutional clients.
Issued on Base, the new offering marks a significant milestone in the global race to tokenized commercial bank liabilities.
As banks around the world embrace on-chain finance, deposit tokens are viewed as an alternative to stablecoins.
But it isn’t yet clear whether different forms of digital money will compete with each other, or operate in separate domains.
JPMorgan’s Blockchain Journey
JPMorgan was one of the first major financial institutions to embrace blockchain technology beyond exploratory pilots.
The bank made its first foray into tokenized deposits in 2019.
Issued on JPMorgan’s private blockchain, Kinexys (then known as Onyx), JPM Coin powers instant, on-chain USD settlement between internal accounts.
While the older token functions as a backend technology for corporate treasury management, JPMD is much more ambitious.
Because it is issued on a public network, there are fewer restrictions on who can hold the token.
Unlike its predecessor, which can only be transferred between institutions onboarded to Kinexys, JPMD is designed to move more freely.
Announcing the initial pilot in June, JPMorgan said its institutional clients would be able to offer JPMD to their own clients.
However, this functionality will be introduced at a later stage of the rollout, Kinexys chief Naveen Mallela said in an interview with Bloomberg.
Tokenized Deposits vs. Stablecoins
While stablecoins have a head start in retail adoption, tokenized deposits are far more compelling for banks.
Under the fractional reserve banking model, JPMorgan counts customer deposits of $2.5 trillion, but only holds around $400 billion in central-bank reserves, per the latest reported figures.
If it were to launch a stablecoin, the bank would have to withdraw money from a highly profitable system to fund its Treasury reserves.
For every dollar converted to stablecoins, JPMorgan stands to lose more than four dollars in deposit value.
While stablecoins may not be ideal for banks, they offer distinct advantages over tokenized deposits, particularly in the realm of decentralized finance (DeFi).
Even though it is issued on a public network, JPMD still operates within a walled garden.
To remain compliant with financial regulations, banks can’t open deposit tokens to anonymous wallets.
Stablecoins, on the other hand, are much less restricted.
Although the most popular centralized coins aren’t fully permissionless, issuers aren’t required to connect every single address with a real person.
The burden of identifying users falls on fiat on- and off-ramp providers instead.
Currently, stablecoins also have the advantage of greater interoperability.
Banks, including JPMorgan, are experimenting with new frameworks that will enable tokens to flow between institutions.
But even these moves toward interbank payments still fall well short of the open, plug-and-play protocols familiar to the DeFi ecosystem.
Toward Regulated, Permissioned DeFi
Although JPMD won’t be arriving on decentralized exchanges like Uniswap anytime soon, tokenized deposits may still play a role in the burgeoning field of permissioned DeFi.
New platforms like Aave Horizon borrow DeFi mechanics, but restrict access to verified wallets and qualified participants.
Emerging, regulated DeFi markets are less focused on memecoins and 100x leverage, and more on tokenized real-world assets, and institutional trading and investment strategies.
In this world, it’s easy to envisage tokenized deposits replacing stablecoins as the preferred mode of on-chain value transfer.
Once institutional money arrives, risk tolerance shrinks. Stablecoins simply can’t compete with the trust guarantees of government deposit insurance and a 225-year track record.
Risk-aversion also explains why banks have been comparatively slow to adopt the new technology.
In comments to CCN, Mitchell Amador, CEO of the crypto security platform Immunefi, explained the need for caution:
“When banks start transacting on public networks, they’re not inheriting new risks from the blockchain; they’re inheriting both sets of risks—the operational fragility of legacy systems and the code-level exposure of crypto.”
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James Morales is CCN’s blockchain and crypto policy reporter. He has been working in the news media since 2020, writing about topics such as payments, banking and financial technology. These days, he likes to explore the latest blockchain innovations and the evolving landscape of global crypto regulation.
With an educational background in social anthropology and media studies, James uses his platform as a journalist to explore how new technologies work, why they matter and how they might shape our future.
