Banking Giants Test Blockchain Deposit Tokens Aiming to Provide Stablecoin Alternatives

Recently, a large financial institution announced that it will pilot a deposit token named JPMD on a public Blockchain. This move signifies that the traditional banking industry is accelerating its exploration of Blockchain technology in the payment sector.

It is reported that the agency plans to transfer a certain amount of JPMD from its digital wallet to a leading cryptocurrency exchange in the coming days. In the initial phase, JPMD will be available only to the institution's institutional clients, and in the future, the user base and supported coins will gradually expand depending on regulatory approval.

This project is not a spur-of-the-moment decision. The bank started researching the feasibility of deposit tokens as early as last year and recently applied for relevant trademarks. Although there was speculation that this might signal the bank's entry into the stablecoin market, in reality, the bank chose to launch "deposit tokens" as a more regulated and robust alternative.

The global co-head of the blockchain division at the bank stated that, from an institutional perspective, deposit tokens are superior to stablecoins. He explained: "Because deposit tokens are based on a fractional reserve banking system, we believe they are more scalable." He also pointed out that in the future, JPMD may have interest-bearing features and could incorporate deposit insurance, which are characteristics not currently possessed by mainstream stablecoins.

The pilot of JPMD also marks that the bank is expanding the application scope of digital asset products beyond its internal systems. The bank currently operates a Blockchain network that supports corporate clients in transferring US dollars, euros, and British pounds, with a daily transaction volume exceeding $2 billion, which is a tenfold increase compared to last year.

Although JPMD will operate on a public Blockchain, it will still be a permissioned Token, available only for the bank's institutional clients. This design aims to strike a balance between openness and security.

Meanwhile, another executive of the bank expressed a cautious attitude towards the "overcrowded" stablecoin market at a recent meeting. She believes the industry needs to consider whether it will lead to market fragmentation, as various companies tend to use their own stablecoins.

In fact, deposit tokens are fundamentally different from stablecoins. Deposit tokens are transferable tokens issued on the blockchain by licensed deposit-taking institutions, representing the holder's right to request deposits from the issuing institution. They naturally belong to the banking system and are subject to the existing banking regulatory framework. In contrast, stablecoins are typically backed by a basket of securities at a 1:1 ratio and are not directly linked to bank deposits.

Industry insiders believe that deposit tokens may become a widely used form of currency in the digital asset ecosystem, similar to the dominant position of current bank deposits in circulating currency. They will benefit from the connection with traditional banking infrastructure and existing regulatory protections, which have long supported the robust operation of commercial bank deposits.

With the passage of the U.S. GENIUS Act in the Senate, the regulatory framework for stablecoins and digital assets is gradually becoming clearer. This act requires stablecoins to maintain a one-to-one reserve, strengthen consumer protection, and enhance anti-money laundering mechanisms, which is expected to promote the widespread adoption of stablecoins.

Overall, the launch of JPMD is not only an important milestone in the bank's Blockchain strategy but also reflects that traditional financial institutions are actively exploring the future form of on-chain payments. Currently, several multinational financial and technology companies are also trying to utilize Blockchain technology to achieve more efficient and cost-effective payment settlement services.

As blockchain technology gradually integrates into mainstream financial systems, deposit tokens issued by commercial banks, protected by regulatory frameworks, and connected to existing account systems may become the standard form of "on-chain cash" in a new phase. The development in this field deserves continued attention.