Big banks are increasingly experimenting with tokenized deposits as a way to plug legacy balance sheets into blockchain rails for more efficient settlement.
In a recent example, Raymond Chun, the CEO of TD Bank, one of Canada’s “Big Five” lenders, described the technology as real innovation with “terrific opportunities.” Speaking at the RBC conference earlier this month, Chun said tokenized deposits represent “the highest opportunity” for the bank and that TD is focused on them more than on crypto trading or stablecoins.
“I think there’s huge benefits. It’s regulated. The benefits to — from a P&L perspective, from a client perspective, it’s an on-us transaction. So I think tokenized deposits is certainly real and it has terrific opportunities,” Chun said.
Tokenized deposits, in plain terms, are digital book entries that mirror a client’s existing deposit claim while also existing as a token on a blockchain network, in most cases a permissioned or private one. And while for many in the crypto community that model may run counter to blockchain’s original decentralized ethos, banks see significant operational upside in this hybrid approach.
A Growing Trend
BNY Mellon, one of the world’s oldest financial institutions, is also experimenting with tokenized deposits. In early January, the bank extended its digital cash capabilities by launching tokenized deposit representations for institutional clients, initially targeting collateral and margin workflows using its permissioned blockchain technology.
JPMorgan was the first major U.S. bank to experiment with the product type, offering tokenized deposit accounts via its permissioned blockchain platform Kinexys, formerly known as Onyx, as early as 2019. The banking giant first piloted its “deposit token” JPM Coin (JPMD) on Coinbase’s Layer 2 Base last June — though it remains in a permissioned framework. More recently, the bank issued JPMD natively on the Canton Network, and extended its tokenized product offerings into money market funds.
Other large banks are exploring similar initiatives. In May last year, HSBC, one of Europe’s largest banking groups, launched tokenized deposit services for corporate cash management in Hong Kong, with Ant International as the first client to use the service for real-time HKD and USD payments.
More broadly, the growth of real-world asset tokenization is supported by a number of recent studies expecting rapid growth of the sector. McKinsey forecasts that total tokenized market capitalization across major financial asset classes could reach roughly $2 trillion by 2030 as a base case, with a potential upside to about $4 trillion in a bullish scenario.