JPMorgan sees deposit token advantages over stablecoin for commercial bank blockchains

JPMorgan Chase and consultant Oliver Wyman looked at blockchain technology in commercial banking in a report published Feb. 9. So far, this space has been dominated by stablecoins and central bank digital currencies (CBDCs), but the authors have pointed to the benefits offered by deposit. coins for stability and reliability.

Deposit tokens are issued on the blockchain by a depository institution to submit a deposit application. This is in contrast to stablecoins, typically issued by non-bank individuals, and CBDCs. This difference in issuer is a key advantage:

“Given that deposit tokens are the money of commercial banks embodied in a new technical form, they are conveniently located as part of the banking ecosystem, subject to the regulation and supervision applicable to commercial banks today.”

Regulation, the authors of the report note, promotes trust and reduces the risk of withdrawal of deposit tokens, and also ensures reliability.

Stablecoins do not compare well in this regard due to the lack of standards for reserves and the lack of clarity regarding redemption rights. In addition, there is a risk of contagion in the event of a stablecoin run, while deposit coins, as “extensions to traditional deposits”, can withstand this stress:

“Historical analysis of traditional deposits shows that deposits have been a stable and reliable source of funding for commercial banks throughout economic cycles.”

The electronic form of deposit tokens offers advantages over cash, such as programmability and atomic (simultaneous) settlement, which can “accelerate transactions and automate complex payment transactions,” the report says.

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Although the technology of deposit tokens is relatively undeveloped, it can still be used in the nascent CBDC technology, the report says, and serve as “a natural bridge for the integration of CBDC into the banking system.”

JPMorgan Chase introduced its Onyx blockchain platform along with its own JPM Coin in 2020. The company has tested numerous use cases for this technology, including collateral settlement, repo transactions, and cross-border transactions.

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