What are tokenized deposits?

Crypto for Advisors: What are tokenized deposits?

Happy Thursday, advisors!

In today’s newsletter, Laurie Rosini, partner at McDermott Will & Schulte, explains why banks are moving deposits on-chain

Then, in “Ask an Expert,” Morva Rohani breaks down the differences between stablecoins and tokenized deposits.

Happy reading.

Tokenized deposits are going on-chain — but they won’t be permissionless

Blockchain may be reshaping the walled gardens of banking, but the walls are not coming down soon. Even on the same rails, deposits and stablecoins play by different rules: deposits remain more private, more permissioned and more anchored to traditional banking.

Why tokenized deposits are different

Banks are increasingly putting deposits on blockchain rails, but within permissioned environments. Citi and BNY are using private blockchain infrastructure, while JPMorgan has recently launched JPMD (JPMorgan Deposit Token), a permissioned deposit token on the public Base blockchain. Whatever the infrastructure, tokenized deposits remain permissioned because they are deposit liabilities of regulated banks.

This is a fundamental difference between tokenized deposits and stablecoins. Stablecoins are bearer-like instruments designed to circulate in secondary markets. The issuer’s liability travels with the token, with no customer relationship formed with each successive holder. The GENIUS Act adds Bank Secrecy Act (BSA) and Anti-Money Laundering (AML) obligations for permitted issuers but does not change this basic point. It instead creates a regulated payment product built to circulate, backed at least one-for-one by specified liquid reserves.

Bank deposits, by contrast, are not backed dollar-for-dollar by a dedicated pool of cash or Treasuries. A deposit is instead a claim against the bank itself, whose assets include loans, securities, cash and other investments and whose condition is subject to prudential requirements. A deposit token therefore represents an ongoing relationship with a particular bank, not a fully reserved instrument that circulates independently of it, and that relationship shapes how the token can be transferred.

Why the walls aren’t going away

A bank’s BSA/AML and sanctions compliance obligations place practical limits on how broadly a tokenized deposit can circulate. Banks must know their customers, screen for sanctions, monitor for suspicious activity and meet recordkeeping and Travel Rule requirements. A deposit token cannot simply move to an unidentified wallet, through a decentralized exchange and on to unknown holders. The bank must retain enough control over who can hold and transfer it to satisfy these obligations.

– Morva Rohani, executive director, Canadian Web3 Council

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