JPMorgan Is Exploring Blockchain-Based Deposit Token

JPMorgan Chase & Co. is in the early stages of exploring a blockchain-based digital deposit token for speeding up cross-border payments and settlement, according to a person familiar with the work.

The U.S.’s biggest bank by assets has developed most of the underlying infrastructure needed to run the new form of payment but won’t actually create the token unless the project is approved by U.S. regulators, according to the person, who asked not to be named because the matter is private. The bank may launch the product for use by corporate clients less than a year after it receives the go-ahead, the person said.

Deposit tokens are transferable digital coins that represent a deposit claim against a commercial bank. Essentially, they are a digital version of the deposits that customers hold in their accounts. Because transactions using these coins are processed on blockchain rails, settlement is instantaneous, and proponents of the novel form of money suggest it may make transactions cheaper as well.

“Deposit tokens bring plenty of potential benefits, but we also appreciate that regulators would want to be thoughtful and diligent before any new product gets developed and used,” a JPMorgan spokesperson said in a statement. “Should that appetite develop, our blockchain infrastructure would be able to support the launch of deposit tokens relatively quickly.”

The bank has already piloted issuing deposit tokens in a single transaction last year, as a part of the Monetary Authority of Singapore’s Project Guardian, and highlighted the potential of this form of money in a recent study.

The move would mark an expansion of JPMorgan’s blockchain efforts, which have been at the forefront of Wall Street’s attempt to use crypto’s underlying technology to simplify some of the cumbersome processes in banking. While the industry has been experimenting for almost a decade, overall it has yet to reap any large benefits from the technology. That has driven some skeptics to question blockchain’s actual utility in finance.

Beyond JPM Coin

JPMorgan has developed several applications using blockchain. The bank runs a system called JPM Coin, which was announced in 2019 and allows some JPMorgan corporate clients to move dollars and euros from their various accounts within the financial institution. The bank said in June that it had used the system to process about $300 billion of transactions since its launch. By comparison, JPMorgan overall moves $10 trillion in U.S. dollar transactions ]on a daily basis.

The deposit token would function differently from JPM Coin, as it could be used to easily send money to clients of another bank, the person familiar with the work said. It is also well-suited for settlement of trades of tokenized securities, or for financial instruments issued on a blockchain. Similar to JPM Coin, its infrastructure would connect to the bank’s existing compliance systems so that transactions could go through know-your-customer (KYC), anti-fraud, and other necessary checks, and could be part of the company’s regulatory reporting.

The deposit token would likely first be denominated in U.S. dollars, but could later become available in other fiat currencies if greenlighted by relevant regulators, a person familiar with the potential process said. It would not be intended to be used for purchases of cryptocurrencies or as a replacement for so-called “stablecoins” like Tether’s USDT. Stablecoins, which are supposed to keep their 1:1 value to hard currency, are used by traders to go in and out of the crypto market or to move digital assets between exchanges.

Deposit tokens are designed to be used within the traditional financial system for payments, settlements, and similar functions.

“We believe deposit tokens will become a widely used form of money within the digital asset ecosystem, just as commercial bank money in the form of bank deposits makes up over 90 percent of circulating money today,” JPMorgan said in the recent study.

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