US Bank Consortium to Launch Tokenized Deposit Network Next Year

Major US banks are planning to launch a tokenized deposit network next year.

The Wall Street Journal reported on June 4 that the network will connect existing payment rails with digital-asset infrastructure. It will be operated by The Clearing House, the real-time payments network company owned by major commercial banks including JPMorgan Chase & Co., Bank of America Corp., Citigroup Inc. and Wells Fargo & Co.

Once in place, the network would allow deposits to move instantly and payments to settle in real time around the clock. "This is a very important decision for the banking industry as the future of on-chain payments and finance shifts rapidly," The Clearing House Chief Executive Officer David Watson said.

The network is aimed at US banks and is targeting a launch in the first half of next year. A provider for the underlying blockchain technology has not yet been selected.

Banks have recently become increasingly wary that the spread of stablecoins could draw deposits away from the traditional banking system. They have also clashed with crypto firms over legislation that would allow stablecoins to pay interest.

Banks' preference for tokenized deposits over stablecoins is clear. Tokenized deposits turn traditional bank deposits into digital tokens on a blockchain. They preserve the same credit-risk profile, regulatory requirements and accounting treatment as existing deposits, making them easier to offer within the current regulatory framework. They also help keep funds inside the banking system.

Wall Street is also gaining momentum in tokenizing traditional assets such as stocks, bonds and funds. Major exchanges are preparing to launch tokenized securities platforms, while asset managers are rolling out tokenized money-market funds.

"Customers are not showing explosive demand right now, but there is clear interest," Mark Monaco, head of global payments solutions at Bank of America, said. He added that the new network would help banks gain an advantage as they prepare to adopt new technology.