Tokenized Deposit

A tokenized deposit is a deposit held at a commercial bank that is recorded and transferred as a digital token on a programmable platform, such as a distributed ledger, instead of only in the bank's conventional core banking system. Legally, the token is still the bank's own liability to the holder and is treated exactly like a conventional deposit in every respect, including its place in the bank's balance sheet, its regulatory treatment and, where applicable, deposit insurance.

Tokenized deposits are a form of commercial bank money. They are intended to combine the safety and regulatory standing of bank deposits with features usually associated with crypto-assets, such as round-the-clock transfer, atomic settlement and programmability through smart contracts.

A customer with an account at a participating bank asks for part of its balance to be made available on the bank's token platform. The bank records the same liability in token form, and the customer can transfer the tokens to other customers of the bank, or, in multi-bank arrangements, to customers of other banks. When tokens move between banks, the banks must settle with each other, typically in central bank money or through a correspondent arrangement, just as they would for a conventional transfer.

Most current implementations run on permissioned blockchains operated by the bank or a consortium, where only identified participants can hold and transfer tokens. Transfers can be programmed, for example to release payment automatically when a tokenized security is delivered, achieving delivery versus payment, or to sweep balances between entities in a corporate group at set times.

• JPMorgan: launched JPM Coin in 2019 for wholesale clients to move dollars between their accounts on a blockchain; its blockchain business was renamed Kinexys in 2024.
• Citi Token Services: introduced in 2023 to provide tokenized deposits for cash management and trade finance among the bank's institutional clients.
• Project Agorá: launched in 2024 by the Bank for International Settlements with several central banks and private firms to explore how tokenized commercial bank deposits and tokenized central bank reserves could operate together on a shared platform for cross-border payments.

A stablecoin is a liability of a non-bank issuer, backed by a reserve of assets held separately, while a tokenized deposit is a liability of a bank backed by the bank's whole balance sheet, capital and access to central bank liquidity. Banks can lend against deposits, so tokenized deposits support maturity transformation; regulated stablecoin issuers generally may not. Stablecoins such as USDC and Tether (USDT) typically circulate on public blockchains and can be held by anyone with a wallet, whereas tokenized deposits are usually restricted to the bank's own customers. A deposit token can be covered by deposit insurance up to the usual limits; a stablecoin is not.

A central bank digital currency is a direct liability of the central bank. Tokenized deposits remain private money, with the credit risk of the issuing bank. Many central banks and the BIS have described a future system in which tokenized deposits for customers and tokenized central bank reserves for interbank settlement coexist on shared ledgers, sometimes called a unified ledger.

Because tokenized deposits are deposits, they are covered by existing banking law, capital and liquidity rules, and anti-money laundering obligations. The Basel Committee on Banking Supervision has stated in its standard on banks' crypto-asset exposures that tokenized traditional assets that confer the same rights as the underlying asset should be treated in the same way. Open questions include whether deposit tokens can circulate beyond a bank's own customers, how they interact with deposit insurance where they are held through intermediaries, and how operational and legal risks of the ledger itself are managed.

Proponents cite continuous availability, instant settlement among participants, reduced settlement risk through atomic exchange, and easier reconciliation. Critics note that single-bank platforms add little beyond existing internal transfers, that interoperability between banks is still limited, and that tokenized deposits do not by themselves solve the problems of cross-border money transfer, which still depend on correspondent relationships, compliance checks and foreign exchange.