Over the last two years, a new form of bank money has been emerging in the background: tokenized bank deposits. These instruments can look like stablecoins in a block explorer, but from a legal and economic point of view they behave much more like a standard bank account than like USDC or USDT.
Concrete projects make this visible. JPMorgan’s JPMD deposit token on Coinbase’s Base network, built on its Kinexys (formerly Onyx) infrastructure, is a clear example of a large bank putting deposits on public blockchain rails in a controlled way. Citi and other global institutions have been testing similar DLT-based cash instruments for institutional clients, signaling that traditional banks see tokenized deposits as a cornerstone of their on-chain strategy rather than a side experiment.
What a tokenized deposit actually is
A tokenized deposit is, in essence, a traditional bank deposit that is recorded and transferable on a distributed ledger instead of only inside the bank’s core systems. The underlying claim does not change: the customer still has a deposit claim on a regulated credit institution, subject to the same banking law, capital and liquidity rules, and typically the same deposit protection schemes as any other account.
JPMorgan, working with Oliver Wyman, describes deposit tokens as the equivalent of existing bank deposits represented on a blockchain, interoperable with traditional banking infrastructure and protected by the same safeguards that apply to commercial bank money. The European Banking Authority (EBA), in its dedicated report on tokenized deposits, reaches a similar conclusion. It stresses that simply recording the depositor’s claim on DLT does not in itself alter the fundamental nature of that claim or its qualification as a deposit.
In practical terms, the lifecycle is straightforward. A customer holds a deposit at a bank. The bank mints a corresponding token on its chosen DLT that represents that deposit one-for-one. That token can then move on the ledger, be pledged as collateral or interact with smart contracts. When the holder wants to exit back into the conventional account system, the bank burns the token and credits the regular deposit balance again.
The most visible live example today is JPMD, the tokenized deposit JPMorgan has piloted on Base. JPMD represents U.S. dollar deposits at JPMorgan held by institutional clients. The token runs on a public layer 2 but within a permissioned framework, with whitelisted addresses and full KYC. It is interest-bearing because it represents a deposit rather than a non-interest-bearing stablecoin, and it benefits from the protections and oversight that apply to bank deposits rather than from a separate crypto-asset regime. Under the hood, JPMD is integrated into the Kinexys payments and collateral infrastructure, which already processes significant volumes in blockchain-based institutional flows.
The novelty, therefore, is not a new form of money. It is the ability to move and program an existing form of commercial bank money on new rails, without changing its legal or prudential nature.
Why banks and regulators care
For banks, tokenizing deposits is not about launching a new coin. It is about upgrading their payment, treasury and settlement stack while keeping client money inside a familiar regulatory and balance sheet framework. Instead of pushing activity into non-bank stablecoins, they can bring on-chain capabilities into the existing deposit model.
On the efficiency side, both industry analyses and supervisory reports highlight programmability and automation as key benefits. Tokenized deposits make it possible to embed complex logic directly into payment flows: conditional settlement, intraday liquidity triggers, automatic sweeps across entities or jurisdictions, and atomic delivery-versus-payment with tokenized securities or collateral. Instead of reconciling multiple ledgers at the end of the day, firms can settle transactions in near real time with cash and assets moving together.
These benefits are already visible in early production deployments. Kinexys enables intraday repo and collateral movements that previously depended on market opening hours, manual reconciliation and cut-off times. Corporate use cases include programmable treasury structures in which deposit-like tokens move automatically when balances cross predefined thresholds, foreign exchange rates move beyond certain bands or risk metrics call for reallocations. In all of these cases, the institution keeps its relationship with a regulated bank and does not have to hold a separate pool of third-party stablecoins.
On the regulatory side, the main attraction is precisely that tokenized deposits are not a new category of money. The EBA’s report makes it clear that, when designed correctly, tokenized deposits remain deposits and are already covered by the existing Capital Requirements framework. At the same time, the report underlines how early the market still is: at the time of publication, the EBA identified only a single live tokenized deposit implementation in the European Economic Area, albeit alongside a growing pipeline of pilots and proof-of-concepts.
The underlying message to banks and supervisors is simple: you can use DLT for deposits, but we will treat them as deposits, not as lightly regulated crypto assets.
How tokenized deposits differ from stablecoins
From the perspective of a wallet or an explorer, a stablecoin and a deposit token can look similar: they are both digital units intended to track a dollar or euro on-chain. Under the surface, however, they are different instruments. A useful one-line contrast is that a fiat stablecoin is a claim on a segregated reserve pool, whereas a tokenized deposit is a claim on a bank balance sheet.
The first difference is the source of the claim. In a typical fiat-backed stablecoin, the holder has a claim on a non-bank issuer that promises to redeem the token for fiat and holds reserves in cash and short-term government paper. In a tokenized deposit, the holder has a claim on a commercial bank deposit that happens to be recorded on DLT. The balance sheet, prudential oversight and, where applicable, the deposit guarantee scheme are the same as for any other corporate account.
The second difference is the regulatory regime and risk profile. Stablecoins now sit under bespoke frameworks in major jurisdictions: MiCAR in the European Union, the GENIUS Act in the United States once fully implemented, and emerging regimes in the United Kingdom and elsewhere. These frameworks focus on reserve quality, segregation, disclosure, redemption mechanics and governance, but they do not turn a stablecoin into a deposit with deposit insurance. Tokenized deposits remain within banking law. They are subject to the same supervisory oversight, capital and liquidity requirements and, in many cases, the same guarantee schemes as conventional deposits.
The third difference is macroeconomic. Fully reserved stablecoins tend to pull funding out of the fractional-reserve banking system into segregated pools of safe assets. Central banks and banking associations have warned that large-scale migration of deposits into non-bank stablecoins could affect credit supply and the structure of bank funding. Tokenized deposits do not have this effect. They keep funding inside the banking system. A corporate that moves a large balance into deposit tokens is still a depositor at the bank, and that base can still support lending, subject to the usual prudential constraints.
Finally, there is the question of access and use. Stablecoins are mostly public and permissionless: anyone with a compatible wallet can hold and move them, which makes them natural tools for crypto trading, DeFi liquidity and retail cross-border payments. Tokenized deposits, at least in their current form, are permissioned instruments aimed at institutional clients. Access is controlled at the wallet level, and the tokens are used for settlement, treasury and collateral operations rather than as a general-purpose retail means of payment.
Challenges
Despite the attention and the first live projects, tokenized deposits are still at an early stage. The EBA emphasizes that live cases remain scarce, even as banks and market infrastructures explore the concept in multiple pilots. Several challenges need to be addressed before tokenized deposits can scale beyond a small group of institutions.
The most serious challenge is interoperability. If each global bank issues its own form of deposit token on its own infrastructure, the result could be a patchwork of walled gardens rather than a unified improvement in settlement. JPMD on Base, Citi’s token services on a separate stack and various European and Asian pilots all point to potential fragmentation if no common standards emerge. Projects such as the BIS’s “unified ledger” work and multi-bank experiments like Project Agorá explicitly aim to explore architectures in which tokenized commercial bank deposits and central bank money coexist on common rails with atomic settlement, precisely to avoid this outcome.
Privacy is another hard problem, particularly when public chains are involved. A public layer like Base offers liquidity, developer tooling and composability, but banks cannot expose detailed client positions and flows on a public explorer. The JPMD pilot therefore relies on strict address whitelisting and permissioned access. Technical solutions under development include zero-knowledge proof schemes that allow validation without revealing transaction details and hybrid architectures that keep sensitive information off-chain while still leveraging public settlement layers. Any such design must satisfy prudential supervisors and data-protection authorities simultaneously.
There is also the question of legal characterization across jurisdictions. The EBA is clear that a compliant design remains a deposit and therefore falls under existing banking law, but it also notes gray areas, particularly in distinguishing tokenized deposits from electronic money tokens under MiCAR when a credit institution might issue both. Outside the EU and US, some supervisors are considering whether to treat tokenized deposits as standard deposits on new rails or as a distinct class of commercial bank money tokens with additional requirements, and those decisions will influence cross-border deployment.
Finally, there are operational and AML/CFT issues that are not unique to tokenized deposits but are sharpened by them. Always-on, programmable payments raise expectations around resilience, monitoring and incident response. Supervisors point to customer understanding, IT governance and AML implementation on DLT rails as areas that need close attention before large-scale use can be considered safe.
