Blockchain-based digital deposit token
According to a source familiar with the matter, JPMorgan Chase & Co. is investigating the feasibility of a blockchain-based digital deposit token to expedite international payments and settlement.
According to the source, who asked not to be identified because the topic is private, the largest bank in the United States by assets has constructed most of the underlying technology needed to run the new payment system, but would not produce the token unless the initiative is approved by US regulators.
Less than a year after getting the green light, the bank may roll out the product for usage by corporate clients, the source added.
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Tokenized deposits are digital coins that may be traded like currency and reflect claims on deposits held at commercial banks. They are the equivalent of clients’ bank account balances in digital form. Proponents of the novel form of money argue that it might make transactions cheaper and that settlement is quick due to the use of blockchain rails to process transactions.
Multiple blockchain-based products
JPMorgan has created multiple blockchain-based products. Some of JPMorgan’s business clients can now use a system introduced this year called JPM Coin to transfer US dollars, Euros, and other currencies between their accounts at the bank.
Since its inception, the bank reported in June that it had processed approximately $300 billion in transactions using the system. JPMorgan Chase processes only about $600 billion in daily transactions, but that’s still a lot of money.
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Unlike JPM Coin, the deposit token would allow users to quickly transfer funds to non-JPMorgan Chase customers, according to the source. Trades of tokenized securities, or other financial instruments created on a blockchain, can also be settled with ease using this method. Its architecture would be similar to that of JPM Coin in that it would integrate with the bank’s existing compliance systems, allowing transactions to be subjected to know-your-customer, anti-fraud, and other required checks and to be included in the company’s regulatory reporting.
Other fiat currencies
Initially, the deposit token would be denominated in US dollars, but if the process is approved by the appropriate regulators, it might be made accessible in other fiat currencies as well. It wouldn’t be designed to be a substitute for stablecoins like Tether’s USDT or for buying cryptocurrencies.
Traders utilize stablecoins, which are pegged at a 1:1 ratio to fiat currency, to enter and exit the cryptocurrency market or to move digital assets from one exchange to another. Tokens issued as deposits are intended for usage in the existing monetary system, such as for making transactions and settling accounts.
Vanguard of Wall Street’s efforts
This would be a major step forward for JPMorgan, which has been in the vanguard of Wall Street’s efforts to leverage blockchain technology, the underlying technology of cryptocurrencies, to streamline some of the more onerous aspects of the banking industry.
Despite nearly a decade of experimentation, the industry as a whole has not yet seen significant benefits from the technology. Because of this, some people have begun to doubt blockchain’s practicality in the financial sector.
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