America’s largest banks, including JPMorgan, Citi and Bank of America, plan to build a network of shared tokenized deposits by the first half of 2027 to protect their deposits from the threat posed by stablecoins, the Wall Street Journal reported.
The system will be operated by The Clearing House, the banks’ collectively owned payments company. Some banks call the network “the bridge,” others call it “the chain,” the WSJ stated.
Tokenized deposits are blockchain representations of customer money deposited in a bank. The planned system will convert these deposits into a digital token that can be quickly transferred on a blockchain.
Stablecoins are dollar-pegged digital assets issued by crypto companies that live outside the traditional banking system. The Clarity Act legislation currently moving through Congress could allow them to pay returns to holders, which could make bank deposits less attractive because the tokens also offer faster and cheaper payment capabilities through a blockchain.
If customers adopt stablecoins at scale, banks could face a flight of deposits into crypto wallets, and deposits are what banks rely on to extend credit in the economy. The tokenized deposit network is designed to ensure that deposits remain within the banking system while providing them with cryptocurrency-like capabilities.
The WSJ report said the Clearing House expects large multinationals to adopt the tokenized deposit network as a gateway to programmable treasury options, real-time liquidity management and cross-border payments.
“This is a big step for banks,” CEO David Watson told the paper, describing a “radically different” future around on-chain payments.
