Large banks are increasingly experimenting with tokenized deposits as a way to incorporate traditional balance sheets into blockchain rails to enable more efficient payments.
In a recent example, Raymond Chun, CEO of TD Bank, one of Canada's “big five” financial institutions, described the technology as a true innovation with “tremendous opportunities.” Chun said at the RBC conference earlier this month that tokenized deposits are the “biggest opportunity” for banks, and that TD is focusing more on tokenized deposits than crypto trading or stablecoins.
“I think there are huge benefits. It's regulated. From a P&L perspective and from a customer perspective, this is a transaction that we pay for. So I think tokenized deposits are certainly viable and there's a great opportunity,” Chun said.
In layman's terms, a tokenized deposit is a digital ledger entry that reflects a client's existing deposit claim and also exists on a blockchain network (most often as a permissioned or private token). And while for many in the cryptocurrency community that model may go against the inherently decentralized philosophy of blockchain, banks see significant operational benefits to this hybrid approach.
growth trend
BNY Mellon, one of the world's oldest financial institutions, is also experimenting with tokenized deposits. In early January, the bank expanded its digital cash capabilities by launching a tokenized deposit agent for institutional customers, initially targeting collateral and margin workflows using licensed blockchain technology.
JPMorgan was the first major US bank to experiment with this product type, already offering tokenized deposit accounts via permissioned blockchain platform Kinexys (formerly known as Onyx) in 2019. Major banks first piloted a “deposit token” JPM Coin (JPMD) on Coinbase’s Layer 2 base in June last year, but it remains a permissioned framework. Most recently, the bank launched JPMD natively on the Canton Network and expanded its tokenized product offering to money market funds.
Other major banks are considering similar initiatives. Last May, HSBC, one of Europe's largest banking groups, launched a tokenized deposit service in Hong Kong for corporate cash management, with Ant International becoming the first customer to use the service for real-time Hong Kong dollar and US dollar payments.
More broadly, the growth of real-world asset tokenization is supported by a number of recent studies that predict rapid growth for this sector. McKinsey predicts that the tokenized market capitalization across major financial asset classes could reach around $2 trillion by 2030 in a base case, and could rise to around $4 trillion in a bullish scenario.
