Tokenized Bank Gain Favor Over Stablecoins, Says JPMorgan

JPMorgan believes that tokenized bank deposits are becoming preferred by global regulators more than stablecoins

ContentsRegulators Prefer Safer, Controlled Digital MoneyNon-Bearer Tokenized Deposits Gain Institutional BackingStablecoins Remain Key to Crypto LiquidityA new report by managing director Nikolaos Panigirtzoglou emphasizes this trend, indicating a rise in international support for a tokenized financial system that aligns with entrenched financial regulations safeguarding traditional banking institutions.

Regulators Prefer Safer, Controlled Digital Money

Those in charge outside the United States are leaning towards tokenized deposits, which work within the structure of the banking system. Andrew Bailey, the Governor of the Bank of England, said that he would prefer the banks to tokenize central bank deposits rather than create their stablecoins. JPMorgan analysts believe that this is an indicator of a larger trend towards secure and controlled digital money that echoes conventional deposit guarantees, such as coverage and access to the central bank.

Digital tokens represent traditional deposits (digital versions of conventional deposits) based on blockchain infrastructures. This is achieved through instruments that are compliant with KYC and AML regulations and combine the advantages of blockchain (e.g., quick settlement and programmability).

Non-Bearer Tokenized Deposits Gain Institutional Backing

JPMorgan clarifies that the two types of tokenized deposits include bearer and non-bearer. Bearer deposits are tradable, and they can decline in value because of the market’s variability or the issuer’s risk. This fluctuation in price may wreak havoc on financial stability and unequal types of money.

Non-bearer-focused tokenized deposits, on the other hand, are non-transferable but settle directly among banks utilizing central bank money. They have a definite fixed value of one to one, which facilitates the integrity of the financial system. The non-bearer forms also work well with the banking infrastructure without discrepancies in prices.

The bank cited a 2023 paper by economists Rod Garratt and Hyun Song Shin, who cautioned that transferable tokens such as stablecoins can experience valuation errors. JPMorgan asserts that non-bearer deposits inject more predictability and integrity into the financial system.

Stablecoins Remain Key to Crypto Liquidity

Even with the enhanced regulation, stablecoins continue to take the lion’s share of the digital asset market because of their liquidity and convenience benefits. Tether and USD coin have a considerable percentage of the exchange, the DeFi sector, and remittance across international borders.

To JPMorgan, stablecoins do not drain funds within the banking system because their reserves are held in safe or short-term investments, particularly in US Treasury bills. Nevertheless, the prospect of issuing stablecoins might not attract the banks in the relevant regulatory plans, including the serious plans of the Bank of England, which will restrict interest yields and flexibility.

In comparison, legislators in the US are pioneering the legislation of stablecoins. President Trump will sign the GENIUS Act, which could enable banks to issue stablecoins through the existing payments faculty.