The Digital Asset Dictionary: Tokenized Deposits for Payments and Treasury

Forget stablecoins. In the alphabet soup of digital assets, another term that has begun surfacing is tokenized deposits.

Federal Reserve Governor Michael Barr on Thursday (Oct. 16) called tokenized deposits “more robust” than stablecoins; ex-Consumer Financial Protection Bureau Director Rohit Chopra said the same in May; and big banks like BNY, Citi, HSBC, JPMorgan and more are experimenting with them.

But what are tokenized deposits? For finance teams and executives with whiplash from the cryptocurrency industry’s push into traditional and mainstream financial services, tokenized deposits are simple to understand. It’s in the name.

Tokenized deposits (or deposit tokens) are digital representations of a bank deposit, backed one-for-one by money on the bank’s balance sheet, and issued via distributed ledger technology (DLT), aka blockchain.

Unlike a stablecoin issued by a nonbank entity and held off-balance sheet, a tokenized deposit remains fully regulated, on-balance sheet and subject to the usual banking liquidity, capital and deposit insurance frameworks.

Because the funds remain in the bank’s liabilities, tokenized deposits do not weaken the money multiplier or deposit base in the way that transforming deposits into stablecoins might.

Read also: Stablecoins Aren’t Created Equal: Mapping the Issuer Marketplace for CFOs

The timing of tokenized deposits’ rise isn’t accidental. Corporate treasuries are demanding real-time liquidity. Multinationals want settlement systems that work 24/7. Cross-border commerce is still encumbered by days-long settlement lags and intermediary fees. Tokenized deposits promise a path forward and offer banks a new way to rebuild their relevance in the payments stack.

From a monetary architecture perspective, tokenized deposits may represent the most feasible route to digital cash without rewriting the banking system from scratch.

BNY is reportedly exploring tokenized deposits as a way to enable its clients to make payments using blockchain. The bank is considering this technology as it modernizes its infrastructure, including that of its treasury services business that handles $2.5 trillion worth of payments per day.

JPMorgan Chase said in June that it planned to launch a product called a deposit token that will serve as a digital representation of commercial bank money and will be available only to the bank’s institutional clients.

The tokens, known as JPMD, are minted by JPMorgan and transmitted to participating institutional clients via smart contract transactions on the Base public blockchain.

HSBC said in September that it expanded its tokenized deposit service to include cross-border transactions for corporate clients and that it conducted its first U.S. dollar cross-border transactions earlier that month between Hong Kong and Singapore.

Ultimately, banks will choose payment rails based on “the path of least resistance,” meaning the lowest barriers across risk, compliance, fraud prevention and technology migration, Himal Makwana, global head of corporate strategy at FIS, told PYMNTS in August.

See also: Stablecoins ‘Perform Poorly’ as Money and Could Face Uphill Payments Battle

Tokenized deposits are gaining steam in large part because they preserve the existing division of labor between central banks (which issue reserves) and commercial banks (which create deposits), yet they allow the payment infrastructure to catch up with the speed of the digital economy.

Payment rails determine who owns the customer relationship, who holds the data and who captures the economics of settlement. If stablecoins or FinTech rails dominate, banks risk disintermediation. If tokenized deposits gain traction, banks can reassert their role as the backbone of the financial system, not just as custodians of deposits but as issuers of digital, programmable value.

Because tokenized deposits sit on blockchain rails, they can move instantly between ledger-aware counterparties without waiting for batch clearing. This boosts treasuries, supply chains and global corporations that demand low-latency moves of large volumes.

In global trade finance, treasury networks and correspondent banking, tokenized deposits may allow banks to design rails that bypass the rigidity of legacy CLS systems or Swift-based correspondence, adding programmability and ledger transparency. For example, banks can nest token flows into trade finance smart contracts and automate settlement on the arrival of export documentation.

“Treasury has always been the last to modernize,” Trovata CEO Brett Turner told PYMNTS in July. “Everything around it is digital—supply chains, CRMs, ERP systems—but cash management is stuck in the past.”

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