EBA Analyzes Regulatory Aspects of Tokenized Deposits

According to Odaily, the European Banking Authority (EBA) has released a report on tokenized deposits, asserting that from a regulatory perspective, they are fundamentally similar to traditional deposits. The EBA plans to review existing regulations to determine their adequacy. The report highlights that due to the limited activity in tokenized deposits so far, there is no immediate need for regulatory action. A survey conducted in March identified only two projects, though specific names were not disclosed. One project is believed to be the Commerzbank Currency Token (CBMT), involving five banks and five enterprises, while the other might be Euroclear's D-FMI, used solely for securities settlement and utilizing R3's Corda enterprise blockchain. The EBA's investigation reveals that 17% of EU banks intend to explore tokenized deposits within the next two years. The report discusses the benefits of tokenized deposits, such as programmability, efficiency, and atomic settlement. It suggests that most banks are likely to adopt permissioned blockchains due to the need for customer identification and the Basel Committee's crypto rules, which complicate the use of permissionless blockchains. However, the EBA acknowledges the typical 51% attack risk associated with blockchains and potential third-party dependencies, while programmability might introduce additional liquidity risks. The report notes that it is premature to discuss the impact of tokenization on deposit stickiness. The EBA emphasizes the importance of distinguishing between electronic money tokens (EMTs or stablecoins) issued by banks and tokenized deposits under the European crypto MiCA regulations. Both utilize distributed ledger technology (DLT), are bank liabilities, and can be redeemed at face value. Deposits are linked to the account holder's identity, whereas stablecoins are bearer instruments, associated with token ownership. Due to their bearer nature, stablecoins can be transferred to others, unlike tokenized deposits. Payments using tokenized deposits can eliminate a liability at one bank and create a liability at another, necessitating interbank settlement. The EBA report also references several global tokenized deposit projects, including at least 25 purely tokenized deposit initiatives, over 20 bank stablecoins, and 30 projects covering cross-border payments and other applications.