Regulators Prefer Tokenized Deposits Over Stablecoins For Stability

JPMorgan’s latest research indicates that international regulators are increasingly favoring tokenized bank deposits over stablecoins. This preference is driven by the desire to maintain the stability and regulatory safeguards of traditional fiat-based banking systems while integrating digital technologies. The research, led by JPMorgan’s Nikolaos Panigirtzoglou, highlights that central banks and regulators, including the Bank of England, are leaning towards digital instruments issued by commercial banks that remain fully integrated within the existing financial system.

Tokenized deposits operate on blockchain infrastructure while maintaining the foundational protections of traditional deposits, such as access to central bank liquidity, capital buffers, and compliance with anti-money laundering rules. The version of tokenized deposits attracting the most regulatory support is the non-transferable kind, also known as non-bearer deposits, which are settled between accounts at full face value. These instruments minimize the risk of price deviation and preserve uniformity across forms of money, a concept often referred to as the “singleness of money.”

In contrast, stablecoins and transferable (bearer-style) digital deposits can be subject to fluctuations in market value due to credit concerns or liquidity mismatches. Additionally, past market failures have raised red flags about the potential volatility of privately issued digital currencies. While stablecoins remain more widely used in crypto markets due to their ease of transfer and broad liquidity, they often keep their backing within the traditional banking system by investing in instruments like short-term government debt. As such, they do not represent a true exit from the regulated financial framework.

In regions like the UK, regulators have questioned the viability of allowing commercial banks to issue stablecoins, especially under frameworks that might require them to hold central bank reserves without generating yield. JPMorgan’s analysis suggested that such conditions would reduce incentives for banks to issue their own stablecoins. Meanwhile, U.S. policymakers are taking a different stance. The expected passage of the GENIUS Act, a legislative effort, would allow banks to issue stablecoins directly and promote their use in domestic payments. This signals a more open approach to integrating stablecoins within the broader financial ecosystem.

JPMorgan itself is exploring tokenized solutions through JPMD, a permissioned deposit coin currently being piloted on Base. The lender is also testing the waters with stablecoins behind closed doors. The bank filed a trademark for the deposit token product in June, pointing to potential applications in settlement, programmable finance, and cross-bank transfers. This move underscores the bank's commitment to exploring innovative financial technologies while adhering to regulatory standards.