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JPMorgan explores blockchain-based deposit token to speed up cross-border payments

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(Kitco News) - JPMorgan Chase & Co. is reportedly in the early stages of exploring the creation of a blockchain-based digital deposit token designed to speed up cross-border payments and settlement, raising optimism that more institutional adoption of blockchain technology is on the horizon.

According to a report from Bloomberg, the largest bank in the U.S. by assets has already developed most of the underlying infrastructure needed for the new payment vehicle to work, but is waiting on final approval from U.S. regulators before they actually create the token.

A source familiar with the matter who asked not to be identified said that once the bank receives approval, it will likely launch the product for use by corporate clients within a year.

A deposit token is a transferable digital coin that represents a deposit claim against a commercial bank, effectively serving as a digital version of the deposits that customers hold in their accounts. The fact that deposit tokens operate on blockchain networks makes them more accessible than traditional deposits as settlement is instantaneous and they have the potential to make transactions less expensive.

“Deposit tokens bring plenty of potential benefits, but we also appreciate that regulators would want to be thoughtful and diligent before any new product gets developed and used,” a JPMorgan spokesperson said in a statement. “Should that appetite develop, our blockchain infrastructure would be able to support the launch of deposit tokens relatively quickly.”

JPMorgan has been one of the most active global financial institutions when it comes to exploring use cases for blockchain technology and finding ways to integrate it into their business operations.

Last November, the bank took part in the Monetary Authority of Singapore’s Project Guardian, which saw JPMorgan, Singapore’s DBS Bank, and Japan’s SBI Digital Asset Holdings conduct foreign exchange and government bond transactions against liquidity pools made up of tokenized Singapore Government Securities Bonds, Japanese Government Bonds, Japanese Yen (JPY) and Singapore Dollars (SGD).

JPMorgan is now looking to expand its blockchain efforts even further amid an uptick in institutional adoption of blockchain and cryptocurrencies, as evidenced by the recent filings of multiple crypto-related exchange-traded fund (ETF) applications by some of the world's largest asset managers, including BlackRock and Fidelity.

While many firms remain hesitant to deal with crypto, it's becoming undeniable that blockchain has the capacity to simplify some of the more cumbersome processes in banking and bring a greater level of transparency and efficiency.

“It is another sign that large corporations continue to build their blockchain capabilities during this bear market,” said Markus Thielen, head of research and strategy at Matrixport.

JPMorgan partners with six Indian banks to trial blockchain-based U.S. dollar settlement

It’s worth noting that this new product is different from the bank’s JPM Coin, which was released in 2019 and is already being used by corporate clients to transfer dollars and euros within the financial institution. The main difference is that the new deposit token will allow transactions with other banks and is suitable for different forms of settlements on a blockchain, including trades of tokenized securities.

The bank said in June that JPM Coin has been used to process around $300 billion of transactions since its launch.

The new deposit token will likely be denominated in U.S. dollars to start with, but could later be offered in other fiat currencies if regulators approve, the source said. It is not intended to be used for purchasing cryptocurrency or as a replacement for stablecoins. Deposit tokens are strictly intended to be used within the traditional financial system, for payments, settlements, and similar functions.

“As digital transactions grow in scale and complexity, deposit tokens can become a strong foundation for digital money and an important part of a broader tokenized asset ecosystem,” JPMorgan said in their report on deposit tokens. “Their technical features, alignment with well-established bank regulatory frameworks, and their natural integration with financial services via the banking sector positions deposit tokens to be a stabilizing anchor within the digital money landscape, while ushering in a new era of enhancement for commercial bank money, the world’s most used form of money.”

“We believe deposit tokens will become a widely used form of money within the digital asset ecosystem, just as commercial bank money in the form of bank deposits makes up over 90% of circulating money today,” they said. “The token form will benefit from connectivity to traditional banking infrastructures and regulatory safeguards that already support commercial bank deposits.”

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