Large Banks Launch Blockchain Deposit Token Experiment

Recently, a leading financial institution announced that it will pilot a new type of digital asset called deposit Token. This Token will be deployed on a public Blockchain and initially be available only for the institution's corporate clients. It is expected that in the coming days, the institution will transfer a certain amount of deposit Token from its digital wallet to a large cryptocurrency exchange.

This plan is not a hasty decision. As early as last year, the bank began researching the feasibility of deposit tokens in its Blockchain department. The day before the pilot announcement, it was discovered that the bank had applied for relevant trademarks covering functions such as cryptocurrency trading, payments, and custody.

The company emphasizes that deposit tokens are a more robust and regulated alternative to stablecoins. The global co-head of its Blockchain division stated that these tokens are priced in USD, may have interest-bearing capabilities in the future, and could be included in deposit insurance. He believes that from an institutional perspective, deposit tokens are superior to stablecoins because they are based on a fractional reserve banking system, offering greater scalability.

This bank has been at the forefront of promoting the application of blockchain technology. Currently, it operates a digital payment network that allows corporate clients to transfer US dollars, euros, and British pounds. The transaction volume of the network grew tenfold last year and currently processes over $2 billion in transactions daily on average.

Although the deposit token is designed to operate on a public Blockchain, it will still be a permissioned Token, available only for institutional clients of the bank. This pilot also further supports the development of the underlying public chain.

At the same time, another executive from the bank expressed her concerns about the "overcrowded" stablecoin market at a recent meeting. She believes that the industry needs to consider whether it could lead to market overcrowding or fragmentation.

Deposit tokens are different from stablecoins. Deposit tokens are transferable tokens issued on the blockchain by licensed deposit-taking institutions, representing the holder's right to request deposits from the issuing institution. They naturally belong to the banking system and are subject to the regulations and oversight applicable to commercial banks.

Deposit tokens can support a variety of application scenarios, including domestic and international payments, trading and settlement, and the provision of cash collateral. Their token form can also enable new functionalities, such as programmability and instant, atomic settlement, thus speeding up transaction times and automating complex payment operations.

Recently, the U.S. Senate passed a stablecoin regulatory bill that will establish a regulatory framework for stablecoins and digital assets. The bill requires one-to-one reserves, consumer protection, and anti-money laundering mechanisms.

Overall, the launch of this large bank's deposit Token is not only an important milestone in its Blockchain strategy, but also reflects that traditional financial institutions are accelerating their exploration of the future form of on-chain payments. Currently, several multinational financial and technology companies are also attempting to utilize Blockchain technology to achieve more efficient and low-cost payment settlement services.

In the process of blockchain technology becoming mainstream in the financial system, deposit tokens issued by commercial banks, protected by a regulatory framework, and connected to the existing account system may become the new standard for "on-chain cash" in this new phase. The development in this area deserves continued attention.