Tokenized deposit

With a tokenized deposit, the money never leaves the banking system. A customer's balance at a commercial bank is recorded as tokens on a ledger, often a permissioned blockchain, so it can move between clients instantly, settle trades atomically or run programmed payments. Legally it remains a liability of the bank, just like the balance shown in an online banking app.

Large banks see tokenized deposits as their answer to stablecoins. JPMorgan has run its deposit token system for institutional clients for years, and banks in Europe, Singapore and Switzerland are testing similar models for treasury management, cross-border transfers and the settlement of tokenized securities.

The key difference from a stablecoin is what backs it. A stablecoin is a claim on a separate pool of reserves held by its issuer; a tokenized deposit is part of a bank's balance sheet, lent out under fractional reserve rules but protected by banking supervision and, where it applies, deposit insurance. They are usually limited to the bank's own customers, which makes them less useful on open public networks.