A potential new form of digital money — deposit tokens issued by banks on blockchain — may become more widely used than stablecoins, a JPMorgan Chase study found.
Commercial banks can play a key role in digital money by issuing the tokens, according to the study co-published with consulting firm Oliver Wyman. The tokens represent the same deposit claims as balances held at a bank, but are recorded on a blockchain and can be used for cross-border payments or on decentralized-finance platforms.
"We see this as a possible evolution of product line," Naveen Mallela, global head of coin systems for JPMorgan's Onyx blockchain unit, said in an interview. "Deposit tokens is a way for well-regulated, well-supervised banks to provide a safe form of money for innovations in DeFi world, such as decentralized exchanges and lending protocols."
JPMorgan has been exploring the use of blockchain for years. In 2019, it launched JPM Coin to move money within the bank on a private blockchain. In 2021, it teamed up with Singapore's Temasek Holdings Pte and DBS Group Holdings to develop Partior, which enabled payments among financial institutions.
Mallela said the bank is exploring a next step involving deposit tokens, which are still in a conceptual stage. Asked which public blockchain may be used, he said JPMorgan would "want to stay close to Ethereum as possible, given that's the chain of choice. If we come to launch this, we are open to different blockchains."
Deposit tokens don't carry the same constraints as stablecoins, such as Tether and USD Coins, which need to be backed 1:1 by high-quality, liquid assets, the study found. Gokce Ozcan, a partner at Oliver Wyman, said commercial and institutional-facing banks are likely be interested in pushing for deposit tokens.
