- Key insights: JPMorganChase is expanding its deposit token to a public blockchain.
- What's at stake: Banks are looking for an alternative to stablecoins, which could pressure bank deposits.
- Forward look: The bank will need to recruit other large institutions to support the digital asset.
JPMorganChase is stepping up efforts to bring the bank's deposit token to a wider audience, adding it to a public blockchain and collaborating with partners such as Mastercard and Coinbase to create a network effect.
"We're taking it outside of our four walls," Basak Toprak, product head for deposits tokens and EMEA head of the bank's blockchain unit, Kinexys, told American Banker.
JPMorganChase recently made its JPM Coin deposit token, or JPMD, available for the bank's institutional clients on Base, a Coinbase-affiliated public blockchain. Banks are seeking an alternative to stablecoins, concerned about a potential stablecoin-driven drain on deposits and the dominance of fintechs among stablecoin issuers. It's here where JPMorganChase hopes to find demand.
"The benefits of stablecoins may be high for retail users, but questionable for large institutions," Toprak said. "When you look at the sale that institutions move on a daily basis, a stablecoin can't cope with the volume, given the amount that the issuer would need to hold in reserve."
A 'public option'
JPMD's expansion to a public blockchain follows a test between Coinbase, cryptocurrency firm B2D2 and Mastercard to use JPMD for a series of transactions that settle in "near real-time" with instant liquidity and availability at all times.
Public blockchains are open and decentralized, which makes them available to more participants than a private blockchain, which is restricted to a large organization or a group of parties that manage the protocol and rules for transactions. In a public blockchain, an individual organization or consortium does not manage the protocols.
"This brings more transparency to our work," Toprak said. "It's using an infrastructure that's not controlled by JPMorgan."
JPMorganChase has for years offered deposit accounts on the bank's private blockchain. Adding a public blockchain option makes it easier for a wider range of institutional users to transfer large amounts of funds in less than a second, faster than would be possible in a closed private blockchain. The bank argues that JPMD offers the security of bank-backed deposits and settlement, combined with the "speed and innovation" of blockchain transactions.
"It's a sign that the bank is really stepping in. This isn't a permissioned chain, it's real balance sheet money," Joseph Lau, president of Alechemy, a payments technology company that sold some of the processing technology to JPMorgan, told American Banker. "This enables 'regulated dollars' to move instantly and integrate into tokenized markets while offering traditional compliance."
In a statement, Mastercard said the JPMD collaboration, which will make the bank's digital asset available on Mastercard's token network, can help the card brand's quest to support an open market for digital assets and bank deposits.
"It's very similar to a demand deposit account, but just recorded on a blockchain," Toprak said, adding that JPMD has "all of the protections" for deposits that costumers are used to, Toprak said. "They're already leaving their deposits with us."
Chase's alternative
A deposit token is a digital asset that is a claim on a deposit at a licensed depository institution, such as a bank, rather than a stablecoin, which is backed by reserves that usually include U.S. dollars or Treasuries.
"JPMorgan's expanded use of JPMD confirms a reality the industry can no longer ignore: Stable-value digital assets are becoming the new clearing layer of global commerce," Monica Eaton, founder and CEO of Chargebacks 911, told American Banker. "This is not a crypto experiment. It is an efficiency strategy," Eaton said.
Writing for American Banker, Igor Pejic, author of "Big Tech in Finance," said that unlike fintech-issued stablecoins, "deposit tokens are not simply created by any private company, yet directly tied to deposits held at licensed banks. By utilizing existing banking infrastructure, deposit tokens benefit from a unified risk management framework and can even be eligible for deposit insurance.
"JPMD is not necessarily a counter to stablecoins, but it does highlight the differences, Aaron Press, research director of worldwide payment strategies at IDC, told American Banker. "There are advantages to both, depending on the use case. From JPMC's perspective, however, in most cases a tokenized deposit makes more sense than a stablecoin as it remains on the balance sheet."
JPMC has been focused on using the tokens to move money between its global entities and between its institutional clients, Press said. "It has put significant time, money and effort into understanding how blockchains, public and private, can be used to further the interests of the bank and its customers," Press said. "Making JPMD available to public chains potentially expands the system allowing other institutions to participate in the ecosystem, although it's unclear if any will."
