Deposit Tokens Emerging as a Foundation for Stable Digital Money

New Oliver Wyman and Onyx by J.P. Morgan report explores the role deposit tokens can play in the evolution of digital money

New York, NY, February 9, 2023 – According to a new report from Oliver Wyman, a business of Marsh McLennan, and Onyx by J.P. Morgan, deposit tokens can be a strong foundation for digital money and support the payment and the settlement of tokenized asset transactions, as the demands on digital money grow in scale and complexity.  The increasing attention and ongoing development of blockchain technologies certainly highlight the need for blockchain-native “cash equivalents” that act as liquid means of payment and stores of value in blockchain environments.

The report observes that while the demand for blockchain cash equivalents has historically been met by stablecoins, deposit tokens may be better positioned to absorb this demand at scale due to the relative impacts on financial stability, monetary policy, and credit intermediation, as on-chain transactional activity increases in size, complexity, and use for traditional financial services.

For context, the blockchain-based deposit tokens discussed represent the same deposit claims as balances held at a licensed depository institution, such as a commercial bank, but are recorded in a token form on a blockchain. Given that deposit tokens are commercial bank money embodied in a new technical form, they sit comfortably as part of the banking ecosystem, subject to the regulation and supervision applicable to commercial banks today. In their token form, commercial bank deposits can bring a number of technical advantages to payments and transaction settlement including programmability, 24/7 transferability, as well as faster and more direct fund flows between counterparties.  

By supporting the above use cases, deposit tokens may become an important part of a broader ecosystem of tokenized assets, which are expected to significantly impact financial services and will likely need payment solutions by trusted institutions.

Ugur Koyluoglu, Partner and the Global Head of Digital Assets at Oliver Wyman said, “Deposit tokens enable programmability, instant and atomic settlement, and can effectively support domestic and cross-border payments, trading and settlement. Unlike stablecoins, deposit tokens also benefit from connectivity to traditional banking infrastructures and regulatory safeguards that already support bank deposits.”

Basak Toprak, Global Product Head of Deposit Tokens at Onyx by J.P. Morgan said, “The digital money landscape is still emerging and various types of digital money will compete to serve different use-cases. We believe deposit tokens will become a widely used form of money within the digital asset ecosystem alongside central bank digital currencies.”

The report highlights various use cases and benefits of deposit tokens and introduces deposit tokens as a distinct type of digital money, serving as a primer on the differences between deposit tokens, stablecoins and Central Bank Digital Currencies (CBDCs). Similar to the commercial bank deposits that represent most of the money in use today, deposit tokens can support a variety of use cases including payments, trading and settlement of regular and tokenized assets, and provision of cash collateral. 

As the token form of a well-understood form of money managed by regulated institutions, deposit tokens can be a stabilizing force in the digital money ecosystem. The reliability of deposits backed by the issuer’s safety and soundness regulation, capital and liquidity requirements, access to contingency funding through the Central Bank, and strong consumer protection policies make deposit tokens a money instrument designed to scale and promote financial stability.

Learn more about the report here


There will be upcoming webinars on the report topic jointly held by Onyx by J.P. Morgan and Oliver Wyman on March 2nd and March 6th.  


About Oliver Wyman

Oliver Wyman is a global leader in management consulting. With offices in more than 70 cities across 30 countries, Oliver Wyman combines deep industry knowledge with specialized expertise in strategy, operations, risk management, and organization transformation. The firm has more than 6,000 professionals around the world who work with clients to optimize their business, improve their operations and risk profile, and accelerate their organizational performance to seize the most attractive opportunities. Oliver Wyman is a business of Marsh McLennan [NYSE: MMC]. 

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