JPMorgan collaborates with Coinbase to launch JPMD, marking the first time commercial bank funds are brought on-chain.
JPMorgan, the largest bank in the US, has just passed the trademark application for 'JPMD.' Today, it announced the upcoming launch of a pilot program for a deposit token named $JPMD in the coming days, marking the first time a commercial bank has deployed deposit products on a public blockchain.
Naveen Mallela, Global Joint Head of JPMorgan's blockchain division Kinexys, told Bloomberg that the bank will transfer a fixed number of $JPMD tokens to Coinbase custody via Coinbase's Base blockchain.
$JPMD token will be priced in US dollars and issued on Coinbase's Ethereum Layer 2 blockchain, Base. This pilot program is expected to run for several months, during which approved Coinbase institutional clients will be able to trade using $JPMD.
Mallela emphasized: 'This is the first time a commercial bank has placed commercial funds, deposit-based products on a public chain, starting with Base.'
Base stated: 'Transferring funds should only take seconds, not days. Commercial banks are going on-chain.' This collaboration symbolizes a significant milestone in integrating traditional banking operations with blockchain technology, providing institutional clients with 24/7, sub-second settlement fast fund transfer services.
Source: X Base indicates the ability to provide institutional clients with 24/7, sub-second settlement fast fund transfer services.
Deposit token battles stablecoin, JPMorgan promotes 'superior alternative'.
JPMorgan deliberately positions $JPMD as a 'deposit token' rather than a stablecoin, Mallela calls it 'a superior alternative to institutional stablecoins.' Unlike stablecoins such as $USDT and $USDC, $JPMD is not backed by US dollars but is a digital version of the US dollars clients already hold at the bank, representing the dollar deposit claim held in the client's bank account.
Deposit tokens operate within the traditional banking framework, utilizing a fractional reserve system, making them more scalable. Mallela pointed out that $JPMD may pay interest in the future and may qualify for deposit insurance, which is an advantage that most stablecoins cannot offer. In contrast, stablecoins are merely digital representations of fiat currency backed by cash and cash equivalents.
JPMorgan argued in the Kinexys white paper that commercial bank funds account for more than 90% of circulating funds, which could also hold a similar market share in digital form. The bank expects institutional demand for bank-issued stablecoin alternatives to drive early use of $JPMD, positioning it as a core tool for cross-border settlement and on-chain liquidity management.
Regulatory advantages are clear, avoiding stablecoin regulatory risks.
The timing of the launch of $JPMD coincides with the increasingly strict regulatory environment for stablecoins in the US. On the very day the pilot program was announced, the US Senate passed the GENIUS Act with a vote of 68 to 30, establishing a legal framework for dollar-pegged tokens. Unlike publicly traded stablecoins facing regulatory change risks, $JPMD, as a permissioned token, is limited to approved institutional investors.
Further Reading
GENIUS Act passes Senate! GENIUS focuses on US dollar dominance and consumer protection, awaiting House deliberation.
By restricting the token to regulated institutional investors, JPMorgan can avoid some of the regulatory risks faced by the stablecoin market, creating a more manageable and compliant environment to provide digital asset services. This strategy allows JPMorgan to sidestep regulatory issues in the broader stablecoin market while still participating in the rapidly growing digital asset industry.
JPMorgan executives have met with the SEC cryptocurrency task force to discuss the potential impact of digital asset regulation and the migration of capital markets to public blockchains. The meeting covered JPMorgan's existing business footprint in the cryptocurrency industry, including handling repurchase agreements on a digital platform and how to maintain a competitive edge as financial institutions seek faster and cheaper transactions.
Ambitious expansion plans challenge existing stablecoin dominance.
JPMorgan's blockchain network Kinexys currently processes over $2 billion in transactions daily, having grown tenfold over the past year. The bank plans to further enhance network capacity, and $JPMD could ultimately become an important component of the bank's financial infrastructure. If the pilot is successful and receives regulatory approval, JPMorgan plans to scale up issuance and increase currency options.
This initiative is JPMorgan's latest attempt to deepen its foray into the cryptocurrency world. Reports in May indicated that JPMorgan and several other major banks were discussing whether to jointly issue a stablecoin. The bank has been experimenting with blockchain technology since launching its blockchain initiative Onyx (now known as Kinexys) in 2020.
As large banks and corporations like Bank of America and the Depository Trust & Clearing Corporation (DTCC) increase blockchain experiments, and Congress advances legislation to potentially formalize stablecoin reserve and audit rules, the launch of $JPMD could set a precedent for traditional financial institutions entering the digital asset industry. With a stablecoin market exceeding $140 billion in market capitalization, it remains to be seen whether JPMorgan's deposit-based token can shake the dominance of $USDT and $USDC.
Further Reading
Bank of America reveals it is developing a stablecoin: We must be prepared! Will regulatory clarity help institutions enter?
DTCC reportedly to issue stablecoin? Settlement giant may enter the market, financial facilities fully embrace blockchain.
'Stablecoin Terminator? JPMorgan launches 'deposit token', can it challenge USDT's position?' This article was first published in 'Crypto City.'
