A financial institution issues a token backed by an existing obligation to a customer. The deposit itself remains on the institution’s balance sheet; only the form of transfer changes. A specific instrument of this type is called a deposit token—for example, JPMorgan’s PMD, according to forklog.com.
In their report “Deposit Tokens: A Foundation for Stable Digital Money,” analysts at Oliver Wyman refer to the instrument as a digital deposit receipt. It “resides” in a public ledger, settles instantly, and is capable of automatically fulfilling specified conditions.
The deposit does not physically move anywhere. It is subject to the same insurance system and the same regulatory oversight as a regular account. The only thing that changes is the delivery mechanism: traditional payment channels close at fixed times, and the chain of correspondent banks slows down transfers. The token, however, moves between parties instantly and around the clock, and the settlement is recorded automatically.
Such deposits are part of a broader trend toward the institutional adoption of blockchain: in addition to deposits, banks and asset management firms are transferring real-world assets—bonds, stocks, and funds—into this environment.
How does it work?
The process consists of three steps: issuance, transfer, and redemption. A financial institution accepts a customer’s deposit and creates an equivalent number of tokens on a distributed ledger (typically on a one-to-one basis). The holder transfers them directly to the counterparty, bypassing the chain of intermediary banks. The recipient either keeps them in digital form or converts them back into a regular account.
HSBC’s Tokenized Deposit Service works in a similar way. The customer connects to the bank via a secure API; their funds are converted into digital tokens and sent to the recipient’s wallet, where they can be kept as is or withdrawn back as a fiat deposit.
A key feature of this approach is programmability. Conditions under which the instrument transfers from one party to another can be built into the tool. This logic is enabled by smart contracts—self-executing code recorded on a blockchain. The transfer is triggered automatically upon the occurrence of a specified event—such as confirmed delivery of goods, reaching a liquidity threshold, or a specific payment date.
Only customers who have been verified by a specific issuer can participate in the exchange: access is limited to a single financial institution or an affiliated group of banks.
How do tokenized deposits differ from stablecoins?
Both instruments appear similar: a digital token pegged to the dollar or another currency that circulates on a blockchain. But that’s where the similarities end.
A stablecoin is issued by a non-bank company and is backed by a pool of reserve assets—typically short-term U.S. Treasury bills or their equivalents. Such an instrument is traded as a bearer asset: to receive or send it, all you need is a crypto wallet, and no identity verification is required.
A tokenized deposit works differently. The obligation remains with the issuing bank, not with the reserve pool. Transactions take place on a permissioned blockchain, where only verified customers participate. This is a fundamentally different access architecture, not just another type of blockchain. And since a regulated organization handles the issuance, the deposit is subject to the same insurance and oversight as a regular account.
In February 2026, economists at the Federal Reserve Bank of New York described this difference as follows: A stablecoin functions as “safe money” for transactions outside the banking system, whereas a tokenized deposit remains within the traditional model and continues to participate in lending.
Any crypto wallet owner can send or receive a “stablecoin,” whereas a bank token is available only to verified customers of a specific institution. It is precisely this exclusivity that provides the instrument with regulatory protection, but also limits its adoption.
Analysts at the Citi Institute predict that by 2030, the annual turnover of this emerging segment will reach $100–140 trillion. The Bank for International Settlements found that, as of 2024, financial institutions in nearly one-third of the surveyed jurisdictions had already explored and/or tested tokenized deposits.
Why do businesses need tokenized deposits?
The most obvious use case is payments. A tokenized deposit allows for virtually instantaneous transfers between counterparties, without the payment time constraints and delays typical of correspondent banking. This applies to both domestic settlements and cross-border transfers.
HSBC demonstrated this scenario in practice: in September 2025, the bank conducted its first real-time tokenized deposit transaction between Hong Kong and Singapore for Ant International. The transaction eliminated the impact of time zones on treasury operations, allowing the client to manage liquidity continuously.
The second scenario involves transaction collateral. A tokenized deposit can be used as collateral for a loan or to meet margin requirements without withdrawing funds from the account. Collateral can be released or replaced automatically, according to a predefined rule. Similar mechanisms are being tested by Singapore’s Project Guardian, led by the regulator MAS: the pilot covers the listing, distribution, trading, and servicing of tokenized assets. This reduces the workload on relevant departments and frees up capital that would otherwise remain idle.
The third scenario involves built-in payment logic. A transfer can be configured to trigger only when a specified condition is met—without any manual intervention.
Example: the treasury department of a corporation with operations in Hong Kong, Singapore, and London. At the end of the business day, the team consolidates available funds across legal entities and ensures that no entity accumulates unused balances overnight. In a traditional system, such a transfer goes through correspondent channels with fixed closing times, settlement taking several days, and manual reconciliation at the final stage.
The transition to a tokenized deposit changes the picture: the same company holds bank balances in the form of digital tokens within a restricted-access network and transfers them between its own accounts or those of approved counterparties at any time. The transfer condition—for example, reaching a liquidity threshold or reconciling with an invoice—is specified directly in the payment and is triggered automatically.
Which banks have already launched tokenized deposits?
Financial giant JPMorgan is promoting deposit tokens through its own blockchain division, Kinexys, formerly known as Onyx. The JPMD token pilot was confirmed in June 2025. In November, the company launched it on the Base mainnet—a Layer 2 solution from Coinbase.
The token remains a tool with limited access: despite the public infrastructure, only institutional clients can obtain it.
Later, JPMorgan and Singapore’s DBS Bank announced the development of a compatibility framework that will allow tokenized deposits to be transferred directly between the two organizations.
HSBC launched its Tokenized Deposit Service in May 2025—initially for internal settlements in Hong Kong—and by September had completed its first cross-border transaction. By the end of that year, the service had been expanded to the United Kingdom and Luxembourg, supporting the pound, the euro, the dollar, the Hong Kong dollar, and the Singapore dollar, and in April 2026, it was extended to the corporate and institutional segments in the United States.
BNY introduced a similar service for institutional clients in January 2026. At the same time, the bank and Goldman Sachs launched tokenized money market funds—a product similar to deposits but distinct from them.
In July 2026, the SWIFT interbank system joined the technology development effort by launching a pilot project for a shared blockchain ledger for cross-border payments using tokenized deposits. Seventeen banks from five continents are participating in the testing, including Citi, HSBC, UBS, BNY, DBS, and Wells Fargo.
The system enables banks to transfer customer funds in the form of tokens 24/7, seven days a week, through existing infrastructures until final settlement. This approach allows banks to maintain their usual standards for compliance, lending, and risk management, while simultaneously improving the efficiency of liquidity management and the quality of customer service.
What are the advantages of tokenized deposits?
The main advantage is settlement time. A standard bank transfer is completed at fixed times and passes through a chain of correspondent banks. A tokenized deposit is settled instantly and around the clock, regardless of time zones and standard business hours.
The second advantage is programmability: conditions can be built directly into the transaction, rather than being verified manually at every step. This eliminates delays in areas that previously required human intervention—from invoice reconciliation to confirming liquidity thresholds.
The third advantage is regulatory status. A tokenized deposit legally remains a bank obligation. It is subject to the same safeguards as a regular account (deposit insurance, access to liquidity, and the regulatory framework).
Taken together, these factors are driving interest among institutional investors. According to the HSBC Treasury Pulse survey, demand for tokenization among corporate treasuries could increase sixfold over the next two years.
What are the risks and limitations of tokenized deposits?
The main practical risk is the lack of a shared infrastructure. Most programs are confined within a single bank’s ecosystem. It is not yet possible to transfer an asset directly from JPMorgan to HSBC. A unified clearing network for such transactions is still under development.
To address this issue, in June 2026, 17 major U.S. financial institutions—including JPMorgan Chase, Bank of America, Citigroup, Wells Fargo, HSBC, and BNY—announced the creation of a shared infrastructure through The Clearing House. The launch is scheduled for the first half of 2027 (a technology partner for the project is still being selected).
The second risk factor is the technology itself. Smart contract code may contain errors, and distributed ledgers currently have less operational history compared to traditional banking systems—there are still few well-tested scenarios for responding to failures.
The third issue brings us back to the question of access: a tokenized deposit is justified only when the sender and recipient are clients of the same organization or are connected to another financial institution via a compatibility infrastructure.
Until such interbank connections are fully operational, the tool remains powerful within a single issuer but less useful for payments that cross institutional boundaries.
