As 2023 is heralded – the year of crypto regulations – JP Morgan Onyx Division is betting big on deposit tokens. This comes as the real world asset (RWA) narrative gains traction in crypto markets.
RWA digital assets are crypto tokens that embody digital equivalents of the underlying real asset used to mint them.
These can take various forms, including stablecoins, security tokens, CBDCs and now deposit tokens.
A deposit token is a blockchain-based cash equivalent used to represent commercial bank deposits.
JP Morgan believes this provides a strong foundation for digital money.
This week publishing a whitepaper for their new Polygon-based Deposit token offering.
In a recent report released in conjunction with Oliver Wyman (an analytics firm). JP Morgan highlighted the growing narrative in traditional financial about the need these cash equivalents.
With ever increasing size and complexity of on-chain transactions. For adoption to be unlocked digital money needs to be compliant.
Deposit tokens bring financial stability needed by TradFi
The report argues deposit tokens enable financial stability by complying with monetary policy. This stability provides opportunities for credit intermediation. Alongside conventional uses within traditional financial services (TradFi).
Deposit tokens represent the same deposit claims as the balances held at licensed depository institutions (commercial banks).
This adds the layer of security and transparency afforded by indelible blockchain. Embodying a new technical form that works to follow the regulatory supervision requirements necessary within the commercial banking ecosystem.
More benefits include 24/7 liquidty, and direct transactional flows between counter-parties.
Commenting on the report. Ugur Koyluoglu, a Partner and the Global Head of Digital Assets at Oliver Wyman. Explained how TradFi institutions wanted a TradFi-made blockchain vehicle before connecting their infrastructure.
“Deposit tokens enable programmability, instant and atomic settlement, and can effectively support domestic and cross-border payments, trading and settlement,” said Koyluoglu.
“Unlike stablecoins, deposit tokens also benefit from connectivity to traditional banking infrastructures and regulatory safeguards that already support bank deposits.”
Indeed, with viable utility for TradFi payments, trading, settlement, and provision of cash collateral. Deposit tokens have a compelling use case and this could gain traction.
JP Morgan also suggested that deposit tokens would become a stabilising force in the digital money ecosystems. With deposits backed by issuer’s safety and soundness regulations, capital reserves, consumer protections and central bank report.
JP Morgan Onyx Division jumps from strength to strength
Deposit tokens are just the latest product of JP Morgan’s 3 year old Onyx Division. Set-up to advance the development of blockchain technology in the financial system.
Other projects launched include JPM coin – a wholesale payment currency pegged 1:! with the US dollar. This project has been targeted at the Asian market due to the large-scale remittances and multi-currency environment.
In fact, the Onyx team have focused extensively on Asian markets, a growing marketplace for real world assets with the likes of Fusang (Asia’s first fully regulated security token exchange).
For example, since 2020 JP’s Onyx have worked in collaboration with the Monetary Authority of Signapore to develop multi-currency payment networks on blockchain.
And in another instance, launched an open information network for banks called Liink as a blockchain-based rival to SWIFT. Currently there are 400 banks using this system.
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