JPMorgan says regulators outside the US are leaning toward tokenized bank deposits over stablecoins, according to a recent report led by managing director Nikolaos Panigirtzoglou.Â
Bank of England Governor Andrew Baile recently noted that he would rather banks create a tokenized central bank deposit than a new private stablecoin. According to JPMorgan analysts, this is part of a larger breaking wave of regulation worldwide toward tokenized deposits, a more holistic and secure method, the authors claim, of modernizing finance.
Tokenized deposit, a digital analogue of a conventional bank deposit, is released within the blockchain executor, and information is reflected in it. They preserve the protections encoded in the existing financial system, such as deposit insurance, compliance with know-your-customer (KYC) and anti-money laundering (AML) rules, and access to central bank emergency funding.
On the other hand, tokenized deposits imply that some parts of the benefits of the blockchain are already in place, such as time-to-settlement, visibility, programmability, and the possibility to interact with smart contracts.
Authorities endorse non-bearer digital bank money
According to JPMorgan analysts, there are two tokenized deposit types: bearer and non-bearer.
A bearer tokenised deposit may be transferred and traded among parties. But as with anything else in the market, their value can go down, too, based on the interplay of supply and demand, or the risk of the issuer.
This volatility is a menace to financial calm. It violates the central value proposition of “singleness of money” — the belief that all money in circulation within a nation’s borders can safely be exchanged for a stable quantity of goods and services.
Non-bearer tokenized deposits, on the contrary, are non-transferable. They facilitate two-bank-to-two-bank, straight-through settlement of transactions, in central bank money, at one-to-one value. According to JPMorgan, the system helps protect the financial system’s integrity and prevents value differentials between the different forms of money.
The analysts pointed to a paper, “Stablecoins versus tokenized deposits: implications for the singleness of money,” released in 2023, by economists Rod Garratt and Hyun Song Shin. But more ominously, the paper warns that transferable tokens, whether stablecoins or bearer deposits, “tend towards pricing error.”
According to JPMorgan, non-bearer tokenized deposits offer greater certainty and interoperability within the banking sector. Their design ensures that when funds are transferred between banks, they retain their full face value—much like a standard electronic bank transfer—without any reduction or “haircut.”
Traders favor stablecoins for liquidity
Stablecoins have faced increasing regulatory scrutiny but remain powerful in the crypto economy. With high liquidity and universal availability on all markets, their simple movable nature attracts cryptos, Decentralized Exchange (DEX) traders, and remittances worldwide.
Tether (USDT) and USD Coin (USDC) remain the top stablecoins by market cap. They represent hundreds of billions of dollars daily across crypto exchanges, DeFi protocols, and remittance corridors.
However, JPMorgan analysts said stablecoins typically don’t take money away from the banking system. Their reserves, which they have lent domestically, typically in short-term government securities such as United States Treasury bills, stay within the traditional finance channels. It’s the money market fund model, in which deposits are collected and invested in low-risk, short-term instruments.
The JPMorgan analysts also asked if commercial banks would have cheaper issuance of stablecoins. A 2023 consultation paper from the Bank of England proposed that any bank issuing stablecoins could be held to back them with fully reserved deposits at the central bank, and these deposits might not pay interest. “All of that would put serious constraints on a bank’s ability to price to yield on customer deposits, as a stablecoin would be a very unappetizing business proposition under those rules.
In the United States, meanwhile, regulatory sentiment remains friendlier to stablecoins. It will be law shortly after President Donald Trump signs the new GENIUS Act. Under the Act, banks could create stablecoins and incorporate them into the existing payment system.
