Tokenized deposits break down barriers

Author: Bai LiangSource: Lingyi Think Tank

Tokenized deposits have officially "gone mainstream".

It's not a new concept, but in the past it only operated internally within banks, solving customers' financial management and settlement problems. This time, JPMorgan Chase has brought it out of the banking circle.

There are two main things: First, JPMorgan Chase is launching a deposit token, JPMCoin (ticker symbol JPMD), on its Base public blockchain to achieve 24/7 clearing efficiency through banking credit and compliance systems. The Base public blockchain is an Ethereum Layer 2 (L2) scaling network developed in collaboration with Coinbase and Optimism, designed for mass adoption and widespread application. The issuance of JPMD on the Base public blockchain signifies its transition from a closed banking system to an open public blockchain network. Secondly, Zhang Kuo, president of Alibaba.com, told CNBC that Alibaba's global B2B platform is simplifying cross-border payments by using tokenized versions of major currencies. It plans to use tokenized deposits backed by fiat currencies such as the US dollar and the euro, and will adopt JPMorgan Chase's blockchain-based tokenized deposit infrastructure, JPMD. Furthermore, JPMorgan Chase plans to further expand its deposit token program; it has registered the JPME trademark for a potential euro-denominated deposit token. The emergence of stablecoins in 2014 inspired commercial banks. Although stablecoins are not issued by commercial banks, Tether was an early practice of "tokenizing" the US dollar and circulating it on a public blockchain, demonstrating 1:1 redemption commitments and reserve management issues, and had a significant impact on the later concept of "putting fiat currency or deposits on-chain." UBS's USC (Utility Settlement Coin) project, promoted in 2015–2016, aimed to create a blockchain "settlement coin" backed by fiat currency for interbank settlements. This was an early attempt at wholesale settlement at the level of "on-chain cash/instantly settleable tokens issued by banks or banking alliances." USC later attracted the attention and participation of many large banks. Subsequently, discussions and experiments related to "on-chain cash/settlement coins" by several global banks and clearing participants emphasized the potential for atomic settlement, reduced settlement cycles, and improved capital efficiency. The related discussions subsequently extended to "commercial bank currency tokenization." JPMorgan launched an internal on-chain token for institutional clients in 2019. In 2020, Signature Bank launched Signet, a blockchain-based instant USD clearing platform that allows its commercial clients to make USD payments 24/7 on-chain. "Inter-account payments" on the platform are settled in real time and eliminate traditional ACH/wire transfer fees. Signet's design directly maps bank deposits to on-chain payment flows. Subsequently, several institutions in Europe and Switzerland (such as some digital asset-friendly Swiss banks, German banks, and British and French banks) began to experiment with "deposits being represented on-chain for bond issuance or asset settlement." Meanwhile, regulators began systematically studying the impact of tokenization (including tokenized deposits) on financial stability, regulation, and payment systems. The European Banking Authority (EBA) published a report on tokenized deposits in 2024, clarifying the differences and regulatory boundaries between banks issuing tokenized deposits and electronic money/regulated stablecoins. Some large banks (HSBC, Barclays, etc.) are pushing forward with industry-wide tokenized deposit solutions after 2025. In an environment where regulators favor bank tokenization over non-bank stablecoins, the UK financial sector is advancing pilot and commercialization plans for tokenized deposits targeting market payments, on-chain mortgage/mortgage applications, and digital asset settlement. Switzerland launched its "Deposit Token" white paper in 2023, and subsequently, several Swiss banks conducted proof-of-concept tests of interbank deposit tokens in 2025, completing legally binding interbank payment tests on a public blockchain. JPMorgan's tokenization efforts did not begin in 2019, but as early as 2016. Around 2016, J.P. Morgan developed and internally used Quorum, an "enterprise-grade Ethereum" for financial institutions, laying the technological foundation for subsequent token issuance and settlement on permissioned blockchains. Quorum was used in projects such as interbank information networks, becoming one of the initial underlying platforms on which JPM Coin operated. In February 2019, JPMorgan publicly introduced JPM Coin—a dollar-denominated "token" with a 1:1 counterparty to bank deposits, targeting institutional clients and operating on a permissioned blockchain (Quorum), with the aim of enabling instant settlement and fund transfers between institutional clients. JPMorgan clearly distinguished it from publicly available decentralized cryptocurrencies, primarily as a regulated, redeemable on-chain unit. Initially, JPM Coin was not open to retail investors but rather represented JPMorgan's deposits or accounts payable to institutional clients—i.e., on-chain representations of bank liabilities—and circulated within a bank-controlled permissioned blockchain network. In August 2020, JPMorgan sold its Quorum platform to ConsenSys, but continued to use the technology internally and with partners, while retaining the corresponding product strategy externally. It also modularized its blockchain/tokenization business into Onyx (Onyx Digital Assets), centrally managing JPM Coin, security tokenization, settlement, and institutional-grade DeFi experiments. Onyx is used for on-chain processing in scenarios such as short-term lending and treasury bills/repurchase agreements. JPM Coin has gradually been implemented in inter-institutional settlement, used for cross-account instant transfers and inter-institutional settlements for corporate/institutional clients; reports indicate that by 2023, its daily trading volume had reached hundreds of millions to billions of dollars; JPMorgan has also conducted on-chain experiments with custody, private equity settlement, short-term bonds, and repurchase transactions. In 2024, JPMorgan renamed its division Kinexys, stating that its next goal was to use blockchain capabilities to serve traditional finance more broadly. Kinexys would take on a wider range of "on-chain financial infrastructure" responsibilities. Starting in 2024, JPMorgan expressed plans to open Onyx/Kinexys technology to third parties, allowing them to build applications or interoperate assets on its foundation. For example, in 2024, media reports indicated that Onyx planned to allow third parties to access and test broader interoperability. Until November of this year, JPM Coin has gradually evolved from an early internal settlement tool for permissioned networks into a deposit token for institutional clients, representing bank deposits on selected public blockchains. Hong Kong is also promoting tokenized deposits in recent years. The Hong Kong Monetary Authority (HKMA) launched the Digital Hong Kong Dollar Pilot Scheme in November 2022. Phase one officially commenced in May 2023, conducting in-depth research on potential local retail use cases across six categories: comprehensive payments, programmable payments, offline payments, tokenized deposits, Web3 transaction settlement, and tokenized asset settlement. Sixteen institutions from the financial, payments, and technology sectors were selected to participate in the scheme. Phase two of the Digital Hong Kong Dollar Pilot Scheme was launched in March 2024 and officially commenced in September. Its primary objective was to assess the commercial viability and scalability of new digital currencies (including digital Hong Kong dollars and tokenized deposits) for personal and corporate use across various innovative use cases. Eleven industry trials covered three main themes: tokenized asset settlement, programmability, and offline payments. The Hong Kong Monetary Authority (HKMA) released its "Phase II Report on the Digital Hong Kong Dollar Pilot Scheme" in October 2025, indicating that digital Hong Kong dollars and tokenized deposits can facilitate cost-effective, programmable, and robust transactions, bringing benefits to users. Given Hong Kong's sound banking regulatory system and comprehensive consumer protection, the public has a high degree of trust in the stability of Hong Kong's banking system; therefore, public acceptance of digital Hong Kong dollars and tokenized deposits is similar. Furthermore, the HKMA is also testing the application of tokenized deposits in the "Ensemble Project Sandbox." In August 2024, the Hong Kong Monetary Authority (HKMA) held the Ensemble launch ceremony and announced that the first phase of the trial would cover four major use cases for tokenized assets, aiming to facilitate interbank settlement using experimental tokenized currencies and to focus on the study of tokenized asset trading. Participating banks in the Ensemble project architecture working group have connected their tokenized deposit platforms to the sandbox, preparing for future experiments on interbank payment synchronous settlement and cash-and-carry settlement. In November of this year, the HKMA announced the launch of EnsembleTX, officially marking the start of the Ensemble project's pilot phase. This milestone signifies a significant step forward for Hong Kong in using tokenized deposits and digital assets for real-world transactions in a controlled pilot environment. The Hong Kong Monetary Authority (HKMA) stated that since its launch in August 2024, the Ensemble project sandbox has allowed industry pioneers to conduct end-to-end testing of digital asset transaction settlement use cases using experimental tokenized deposits. During the pilot phase, the HKMA, tokenized deposit banks, and other industry pioneers aimed to achieve faster, more transparent, and more efficient settlement of real-world tokenized transactions. EnsembleTX will initially focus on encouraging market participants to use tokenized deposits in tokenized money market fund transactions to manage liquidity and funding needs in real time. EnsembleTX will continue operating until 2026, laying a solid foundation for the next phase of innovation. Interbank settlement of tokenized deposit transactions will initially be conducted through the Hong Kong Dollar Real-Time Payments Settlement System (RTGS). The pilot environment will be gradually upgraded and optimized to support 24/7 settlement of tokenized central bank currency, promoting the continued development of a broader tokenized ecosystem in Hong Kong. Can the digital yuan be combined with tokenized deposits? Tokenized deposits share similarities with stablecoins and central bank digital currencies (CBDCs). They are pegged to fiat currency assets and have good stability. However, under the current regulatory environment, tokenized deposits and CBDCs are more compliant than stablecoins in most regions (except the United States). They are innovations within the existing financial system and are within the existing financial regulatory framework. Hong Kong's Digital Hong Kong Dollar Pilot Scheme and Ensemble Project Sandbox both experiment with combining the Digital Hong Kong Dollar (a type of central bank digital currency) with tokenized deposits. This could inspire further innovation in the digital yuan, for example: 1. It could address the issue of the digital yuan not accruing interest. The lack of interest on the digital yuan is one of the difficulties encountered when promoting it to retail users. The initial intention behind this was to prevent the migration of commercial bank deposits, leading to financial disintermediation. If the digital yuan is combined with tokenized deposits (or adopts its principles), it has the potential to solve both problems simultaneously. Users holding digital yuan can earn deposit returns, and through certain mechanisms, the deposits will still be included in the commercial bank's balance sheet. 2. To reduce the cost and improve efficiency of institutional transaction settlement. Tokenized deposits have already matured in inter-institutional transaction experiments. Although the digital yuan initially focused on retail currency, many pilot areas have begun inter-institutional trials. The digital yuan system, combined with tokenized deposit functionality, will rapidly expand the usage scenarios for B-end and G-end customers. 3. To develop digital assets. The Digital Yuan International Operation Center established by the People's Bank of China has launched a digital asset platform, stating that it will "explore asset digitization innovations that are conducive to improving regulatory efficiency and transparency, and enhancing settlement transparency and the intelligence of value transfer." If the blockchain service system of the digital yuan is used for deposit tokenization, it will not only be an important part of asset digitization, but tokenized deposits, as a special type of digital asset, can also enrich the transaction settlement tool system and empower the digitization of other assets. Of course, tokenized deposits and central bank digital currencies are not the same thing. Their integration will face challenges related to technology, business models, regulation, and the coordination of interests. These reflections are merely some insights gained from the development of tokenized deposits.