Tokenized deposits, which offer several benefits over stablecoins, are gaining popularity among global regulators.
Tokenized Deposits and Their Advantages
Tokenized deposits are non-transferable tokens that retain traditional protections such as insurance and central bank support. These deposits enable programmable payments and are viewed as safer and more stable compared to stablecoins. Recent market events, such as the crises involving Terra and FTX, have shown that stablecoins can lose their peg due to volatility, increasing interest in tokenized deposits.
Drawbacks of Tokenized Deposits
Despite the appeal of tokenized deposits, they face certain challenges. Unlike stablecoins, tokenized deposits lack the same liquidity and flexibility, making them less dominant in the crypto market. Additionally, under some proposals, the issuance of stablecoin tokens may be unprofitable for banks due to interest-free reserve requirements.
Regulatory Perspectives and Banks
The market situation is being regulated through various approaches. In the U.S., the GENIUS Act is set to encourage bank-issued stablecoins. A notable example is JPMorgan testing its deposit token, JPMD, on the Ethereum network. This step emphasizes the growing interest in tokenized assets among financial institutions.
Tokenized deposits represent a promising alternative to stablecoins in terms of stability and security, yet their drawbacks, such as limited liquidity, remain relevant.
