Tokenization of deposits breaks barriers

Author: Bai Liang Source: Zero One Think Tank

Tokenized deposits officially “go mainstream.”

It is no longer a new concept, but it has only operated within banks in the past, addressing clients' financial management and settlement issues. This time, JPMorgan has brought it out of the banking circle. Mainly two things:

First, JPMorgan Chase launched the deposit token JPM Coin (code JPMD) on the Base public chain, achieving 24/7 settlement efficiency through bank credit and compliance systems. The Base public chain is an Ethereum Layer 2 scaling network developed in collaboration between Coinbase and Optimism, aimed at mass-market, large-scale applications. The issuance of JPMD on the Base public chain marks its transition from a closed banking system to an open public chain network.

Secondly, Zhang Kuo, president of Alibaba International Station, stated to CNBC that Alibaba's global B2B platform is streamlining cross-border payments by using tokenized versions of major currencies, planning to utilize tokenized deposits backed by fiat currencies such as the US dollar and the euro, and will adopt JPMD infrastructure, a blockchain-based tokenized deposit system by JPMorgan Chase.

In addition, JPMorgan Chase plans to further expand its deposit token program, having registered the JPME trademark for a potential euro-denominated deposit token.

tokenized deposit

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 the 1:1 redemption commitment and reserve management issues, which had a significant impact on the later concept of “putting fiat currency or deposits on-chain.”

The USC ( Utility Settlement Coin ) project promoted by UBS in 2015-2016 aimed to create a blockchain “settlement coin” backed by fiat currency for interbank settlements. This was an early attempt at the wholesale settlement level for “on-chain cash/token that can be settled instantly issued by banks or banking alliances.” The USC later attracted the attention and participation of several large banks.

Since then, several global banks and settlement participants have engaged in discussions and experiments related to “on-chain cash/settlement coins,” emphasizing the potential for atomic settlement, reducing settlement cycles, and improving capital efficiency. The related discussions have gradually extended to “commercial bank currency tokenization.”

JPMorgan launched an internal blockchain token for institutional clients in 2019.

In 2020, Signature Bank launched Signet, a blockchain-based instant settlement platform for US dollars, allowing the bank's commercial clients to make dollar payments on-chain 24/7. Payments made on the platform are settled in real-time between accounts and eliminate traditional ACH/wire transfer fees. The design of Signet 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 incorporate “deposits can be represented on-chain for bond issuance or asset settlement” into their experiments. At the same time, regulatory agencies began to systematically study the impact of tokenization (including tokenized deposits) on financial stability, regulation, and payment systems. The EBA (European Banking Authority) will release a report on tokenized deposits in 2024, clarifying the distinctions and regulatory boundaries between banks issuing tokenized deposits and electronic money/regulatory stablecoins.

Some large banks (HSBC, Barclays, etc.) are promoting industry-level tokenized deposit schemes after 2025. In an environment where the UK financial sector leans towards bank tokenization rather than non-bank stablecoins, it is advancing pilot and commercialization plans for tokenized deposits aimed at market payments, on-chain applications for mortgages/collateral, and digital asset settlements.

Switzerland launched the “Deposit Token” white paper in 2023, and subsequently, several Swiss banks conducted a cross-bank proof of concept for deposit tokens in 2025, completing legally binding cross-bank payment tests on a public blockchain.

JPMD Ten-Year Breakthrough

JPMorgan's tokenization efforts did not begin in 2019, but as early as 2016. J.P. Morgan developed and internally used Quorum around 2016, an “enterprise-grade Ethereum” aimed at financial institutions, laying the technical foundation for the subsequent issuance and settlement of tokens on permissioned blockchains. Quorum was used for projects such as interbank information networks, becoming one of the underlying platforms for the initial operation of JPM Coin.

In February 2019, JPMorgan publicly introduced JPM Coin—a “token” valued in U.S. dollars and corresponding 1:1 with bank deposits, aimed at institutional clients and operating on a permissioned blockchain (Quorum). JPMorgan clearly distinguished it from publicly decentralized cryptocurrencies, emphasizing that it is primarily a regulated and redeemable on-chain unit.

JPM Coin was not initially open to retail investors, but rather represented JPMorgan's deposits or payables for institutional clients—i.e., an on-chain representation of bank liabilities—and circulated within a permissioned blockchain network controlled by the bank.

In August 2020, JPMorgan sold the Quorum platform to ConsenSys but continued to use the technology internally with partners while retaining the corresponding product strategy for external purposes. It modularized its blockchain/tokenization business into Onyx (Onyx Digital Assets), centralizing the management of JPM Coin, security tokenization, settlement, and institutional-level DeFi experiments. Onyx is used for on-chain processing in scenarios such as short-term lending, treasury bills/repo, etc.

JPM Coin is gradually being implemented for inter-institutional settlements, used for instant transfers between enterprise/institutional clients and inter-institutional settlements; reports indicate that by 2023, its daily trading volume has reached hundreds of millions to billions of dollars; Morgan has also conducted on-chain experiments involving custody, private equity fund settlements, short-term bonds, and repurchase transactions.

JPMorgan will rename its division to Kinexys in 2024, stating that its next phase goal is to more broadly serve traditional finance with blockchain capabilities. Kinexys will take on a larger scope of “on-chain financial infrastructure” tasks.

Starting in 2024, Morgan has expressed plans to open the Onyx/Kinexys technology to third parties, allowing them to build applications or interoperate assets on its foundation. For example, a media report in 2024 stated that the Onyx plan would allow third parties to access and test broader interoperability.

As of this November, JPM Coin has gradually evolved from an early permissioned network internal settlement tool into a deposit token form aimed at institutional clients that can represent bank deposits on selected public chains.

Hong Kong promotes tokenized deposit settlement

Hong Kong, China has also been promoting tokenized deposits in recent years.

The Hong Kong Monetary Authority launched the “Digital Hong Kong Dollar Pilot Program” in November 2022, with the first phase officially starting in May 2023. It conducted in-depth research on potential local retail use cases in six areas, including comprehensive payments, programmable payments, offline payments, tokenized deposits, third-generation internet (Web3) transaction settlement, and tokenized asset settlement. Sixteen institutions from the finance, payment, and technology sectors were selected to participate in the program.

The second phase of the “Digital Hong Kong Dollar Pilot Program” will be launched in March 2024 and officially rolled out in September. The primary goal is to assess the commercial viability and scalability of new digital currencies (including the digital Hong Kong dollar and tokenized deposits) for individual and business use in various innovative use cases. Eleven industry trials cover three main themes: tokenized asset settlement, programmability, and offline payments.

The Hong Kong Monetary Authority released the “Digital Hong Kong Dollar Pilot Scheme Phase Two Report” in October 2025, indicating that the digital Hong Kong dollar and tokenized deposits can promote 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 level of trust in the robustness of the Hong Kong banking system, and therefore, the level of acceptance of the digital Hong Kong dollar and tokenized deposits is similar.

In addition, the Hong Kong Monetary Authority is also testing the application of tokenized deposits in the “Ensemble Project Sandbox.”

The Hong Kong Monetary Authority will hold the Ensemble launch ceremony in August 2024 and announce that the first phase of the trial will cover four major tokenized asset use case themes, aiming to facilitate interbank settlement using experimental tokenized currencies and focusing on the study of tokenized asset trading. The participating banks in the Ensemble project architecture working group have connected their tokenized deposit platforms to the sandbox, preparing for future experiments in synchronized cross-bank payment and delivery versus payment settlement.

In November this year, the Hong Kong Monetary Authority announced the launch of EnsembleTX, marking the official entry of the Ensemble project into the trial phase. This milestone signifies an important step for Hong Kong in conducting real transactions with tokenized deposits and digital assets in a controlled trial environment.

The Monetary Authority stated that since the launch of the Ensemble project sandbox in August 2024, industry pioneers have been able to conduct end-to-end testing of digital asset trading settlement use cases using experimental tokenized deposits. During the pilot phase, the Monetary Authority, tokenized deposit banks, and other industry pioneers aim to achieve faster, more transparent, and efficient real tokenized trading settlements. 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 to operate in 2026, laying a solid foundation for the next phase of innovation. Cross-bank settlement of tokenized deposit transactions will first be conducted through the Hong Kong dollar Real-Time Gross Settlement system (RTGS). The trial environment will be gradually upgraded and optimized to support 24/7 settlement of tokenized central bank currencies, promoting the continuous development of a broader tokenized ecosystem in Hong Kong.

Can digital yuan be combined with tokenized deposits?

Tokenized deposits share similarities with stablecoins and central bank digital currencies, as they are anchored to fiat currency assets and exhibit good stability. However, tokenized deposits and central bank digital currencies tend to have stronger compliance than stablecoins in the current regulatory environment, particularly in most regions (excluding the United States). They represent innovations within the existing financial system and fall within the current financial regulatory framework.

The pilot program for the digital Hong Kong dollar and the Ensemble project sandbox both experiment with the digital Hong Kong dollar (which is a central bank digital currency) and tokenized deposits.

This may inspire further innovation of the digital RMB, for example:

1. To address the issue of digital renminbi not bearing interest. The lack of interest on digital renminbi is one of the challenges encountered when promoting it to retail users, and the original intention of not bearing interest is to prevent the migration of deposits from commercial banks, which would lead to financial disintermediation. If digital renminbi is combined with tokenized deposits (or uses its principles), it has the opportunity to solve both problems simultaneously, allowing users to earn deposit income while still ensuring that the deposits are included in the commercial banks' balance sheets through certain mechanisms.

2. Used to reduce the cost of trading and settlement for institutional components, and to improve efficiency. The trading experiments of tokenized deposits between institutions are already quite mature. Although the digital yuan initially focused on retail currency, many pilot areas have begun to conduct experiments between institutions. The digital yuan system can combine the functionality of tokenized deposits, which will quickly expand the usage scenarios for B-end and G-end customers.

3. For the development of digital assets. The international operation center for digital renminbi established by the central bank has launched a digital asset platform and stated that it will “explore asset digitization innovations that are conducive to enhancing regulatory efficiency and transparency, as well as improving settlement transparency and the intelligence of value circulation.” If the blockchain service system of digital renminbi is used for deposit tokenization, it will not only be an important part of asset digitization, but also tokenized deposits, as a special type of digital asset, can enrich the tool system for transaction settlement and empower the digitization of other assets.

Of course, tokenized deposits and central bank digital currencies are not the same thing; their integration still needs to address technical issues, business model issues, as well as regulatory issues and interest coordination problems. The above associations are just some insights brought by the development of tokenized deposits.