A JPMorgan Chase & Co. study discovered that deposit tokens issued by banks on blockchain may become more widely used than stablecoins.
According to a study co-published with consulting firm Oliver Wyman, commercial banks can play an important role in digital money by issuing tokens. Tokens represent the same deposit claims as bank balances, but they are recorded on a blockchain and can be used for cross-border payments or on decentralized finance platforms.
“We see this as a potential evolution of the product line,” said Naveen Mallela, global head of coin systems for JPMorgan’s Onyx blockchain unit, in an interview. “Deposit tokens are a way for well-regulated, well-supervised banks to provide a safe form of money for DeFi innovations including decentralized exchanges and lending protocols.”
For years, JPMorgan has been researching the use of blockchain. JPM Coin was launched in 2019 to move money within the bank on a private blockchain. It collaborated with Singapore’s Temasek Holdings Pte and DBS Group Holdings in 2021 to create Partior, which enabled payments between financial institutions.
Mallela stated that the bank is considering a next step that would involve deposit tokens, which are still in the conceptual stage. Asked which public blockchain may be used, he said JPMorgan would “want to stay close to Ethereum as possible, given that’s the chain of choice. We are open to different blockchains if we decide to launch this.”
Deposit tokens do not face the same constraints as stablecoins such as Tether and USD Coins, which must be backed 1:1 by high-quality, liquid assets, according to the study. Gokce Ozcan, a partner at Oliver Wyman, believes commercial and institutional banks will be interested in pushing for deposit tokens.
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