Wall Street's Focus on Tokenization: Institutions Over Consumers

Major financial institutions like JPMorgan and Citi are currently utilizing tokenization primarily for institutional clients, despite their vast blockchain capabilities.

Tokenized Deposits: A Limited Reach

JPMorgan processes over $3 trillion through its Kinexys blockchain platform, while Citi Token Services handles billions in daily cross-border transactions. Despite their advancements, these services are largely confined to institutional users and private networks, leaving everyday consumers out of the equation.

This exclusion is intentional. Mintoo Bhandari, founder of the U.K.-based Monument Bank, which boasts a balance sheet of approximately $2.4 billion, commented, "Most of the coins that have been minted and are being used for money transfer are all internal projects." He further noted, "Is that really moving the needle for the whole bank and for the consumer? Not yet."

This situation highlights the ongoing debate surrounding tokenized money. While banks are implementing tokenized deposits and payments, the majority of these initiatives cater exclusively to institutional clients or require permissioned access. Monument and the privacy-centric blockchain Midnight are exploring ways to provide regulated, interest-bearing deposits that would allow retail clients to engage with tokenized investments and lending without needing to understand cryptocurrency.

Challenges of Legacy Systems

Bhandari critiqued the banking industry's digital transformation efforts, stating, "99% of the banks in the world are like, 'Yeah, we're really digital, we have an app!' But the reality is they're struggling with legacy architectures that go back to the 1970s that they cannot leap."

Jerald David, CEO of Lynq Network, explained that treasury departments at major banks often juggle multiple systems for similar tasks, including JPMorgan's tokenized deposits, regulated stablecoins, and traditional correspondent accounts. He emphasized that clients cannot afford to have liquidity fragmented across different networks, as this leads to significant capital inefficiencies.

Unlike stablecoins, tokenized deposits are claims on the issuing bank, can accrue interest, and remain within the regulated banking framework. The challenge remains whether banks can offer these advantages to consumers while upholding privacy and compliance standards.

Interest-Bearing Tokenized Deposits

Monument plans to differentiate itself by offering tokenized savings accounts that yield interest, leveraging its banking license. Bhandari stated, "Unlike stablecoin issuers, we can pay interest on deposits."

Fahmi Syed, President of the Midnight Foundation, highlighted another hurdle: banks must secure clients' transaction data while using public blockchain infrastructures. He noted, "Once you create a private blockchain, how do you then speak to another private blockchain? You then have to use a bridge or some other mechanism, and at that point, you have data leakage." Both JPMorgan and Citi have acknowledged these challenges.

While private bank blockchains can function as internal ledgers, connecting them to external networks securely is complex. Midnight employs zero-knowledge proofs, which allow banks to validate transactions without disclosing personal data.

David illustrated the operational challenges, explaining that funds paid back in stablecoins might not be accessible when needed due to banking hours and the inability to process digital assets at those times. "The capital exists, it’s just dislocated," he said, emphasizing the inefficiency of unavailable funds.

Retail Access to Tokenization

Monument intends to tokenize up to £250 million (approximately $335 million) of retail deposits on Midnight, ensuring these deposits remain interest-bearing and fully backed by the bank, with protections in place under the Financial Services Compensation Scheme.

Bhandari remarked, "Nobody yet has actually enabled retail to directly participate in tokenization." He emphasized that users would not need to understand blockchain or cryptocurrency; the experience will mimic that of traditional sterling deposits, available for withdrawal on demand.

The longer-term vision includes providing customers access to fractional private equity, tokenized structured products, and Lombard lending through a regulated banking application, subject to necessary permissions.

If successful, Monument plans to license its infrastructure to other banks via Monument Technology. The broader question is not whether banks can tokenize money, but whether they can create practical solutions for consumers while maintaining the privacy, regulatory protections, and trust that differentiate bank deposits from crypto tokens.