JPMorgan Coin’s EU Push Comes Amid Looming Battle Between Stablecoins and Tokenized Deposits

Stablecoins have been on the payments scene, so to speak, since 2014.

The rise of the coins, which at their most basic level represent digital offerings “backed” by an external asset, such as the U.S. dollar, has been a volatile one.

Generally speaking, the market capitalization the sector offers a shorthand take on sentiment surrounding the space.

And as reported by sites such as AMB Crypto, the market cap of stablecoins stands at roughly $127 billion, the lowest level seen since the fall of 2021.

Part of the retracement may be tied to the fact that the regulatory landscape is still  taking shape, where we reported that the Securities and Exchange Commission (SEC) is tightening its gaze of the industry, where private coin issuance has been a hallmark. And elsewhere, there have been instances when the coins have lost their pegs, especially during the banking turmoil that followed in the wake of the Silicon Valley Bank and Signature Bank collapses.

JPMorgan’s Latest Foray

In the meantime, there’s evidence that financial institutions are bringing their own stablecoin offerings to market, but with some important distinctions, including the fact that they act as deposit tokens and clients will be using them internally (at the bank) to settle transactions. To that end, and as reported this past week, JPMorgan Chase has launched euro-denominated transactions with its blockchain-based JPM Coin. The latest launch follows in the footsteps of a dollar-denominated coin that debuted from JPMorgan in 2019.

In terms of mechanics, the coins can be used by large multinational clients of the banks to transfer funds between (institutional) JPMorgan accounts.

The announcement spotlights what might be a looming competition to transform cross-border payments, but one marked by different technological approaches and even fundamental differences in how digital payments are facilitated.

Tokenized deposits offer another avenue of digitization. And in this case, they are tied to existing bank deposits. As we’ve detailed in past reporting, the tokenized deposits the digital representations of existing bank liabilities. The deposits are held by licensed depository institutions and are recorded on distributed ledgers. But they function within the traditional banking system, with direct account-to-account flows, with none of the volatility that has marked stablecoins (the traditional, “pegged” coins, as noted above) and crypto in general.

The Bank for International Settlements Weighs In

The Bank of International Settlements (BIS) said last week that commercial banks may make headway in modernizing deposits, but through a combination of central bank digital currencies and tokenized deposits. In the report, the BIS contended that “Today, the monetary system stands at the cusp of another major leap. Following dematerialization and digitalization, the key development is tokenization — the process of representing claims digitally on a programmable platform. This can be seen as the next logical step in digital recordkeeping and asset transfer,” adding that “crypto is a flawed system that cannot take on the mantle of the future of money.” Among the key advantages of tokenization, said the BIS: “Tokenized deposits would help preserve the singleness of money … As stablecoins are tradable, their prices can deviate from par, thus undermining the singleness of money.”