What Are Tokenized Deposits?
Tokenized deposits are digital representations of bank deposits recorded on a distributed ledger.
A financial institution issues a token corresponding to an existing obligation to a client. The deposit itself remains on the organization's balance sheet; only the method of transfer changes. This specific type of instrument is referred to as a deposit token, such as the PMD from JPMorgan.
Analysts at Oliver Wyman describe in their report Deposit Tokens: A Foundation for Stable Digital Money that this instrument acts as a digital receipt for a deposit. It "lives" in a shared ledger, is settled instantly, and can automatically execute specified conditions.
The deposit itself does not physically move. It is subject to the same insurance system and regulatory oversight as a traditional account. The only change is in the delivery mechanism: traditional payment channels close at fixed times, and the chain of correspondent banks slows down transfers. In contrast, tokens transfer between parties instantly and around the clock, with settlement recorded automatically.
These deposits fit into a broader trend of institutional blockchain adoption: beyond deposits, banks and asset managers are transferring real-world assets—such as bonds, stocks, and funds—into this environment.
Diagram of the creation and transfer of a tokenized deposit. Source: Oliver Wyman / ForkLog.How Does It Work?
The process consists of three steps: issuance, transfer, and redemption. The financial institution accepts the client's deposit and creates an equivalent number of tokens on the distributed ledger (typically at a one-to-one ratio). The holder transfers them directly to a counterparty, bypassing the chain of intermediary banks. The recipient can either keep them in digital form or convert them back to a traditional account.
A similar setup is found in the Tokenised Deposit Service from HSBC. The client connects to the bank via a secure API, their funds are converted into digital tokens, and sent to the recipient's wallet: they can either keep them as is or withdraw them back as fiat deposits.
A key feature of this approach is programmability. Conditions can be embedded in the instrument, dictating how it transfers from one party to another. This logic is enabled by smart contracts—self-executing code recorded on the ledger. The transfer occurs automatically upon the occurrence of a specified event, such as confirmed delivery of goods, reaching a liquidity threshold, or a specific payment date.
Only clients who have passed verification with a specific issuer can participate in the exchange: access is limited to the confines of a particular financial institution or a related group of banks.
A five-step diagram of how a deposit works. Source: HSBC / ForkLog.How Do Tokenized Deposits Differ from Stablecoins?
Both instruments appear similar: a digital token pegged to the dollar or another currency, operating on a blockchain. However, that is where the similarities end.
A stablecoin is issued by a non-bank entity, backed by a pool of reserve assets—typically short-term U.S. Treasury bonds or their equivalents. This instrument operates as a bearer asset: to receive or send it, all that is needed is a crypto wallet, and identity verification is not required.
Tokenized deposits function differently. The obligation remains with the issuing bank, not with a reserve pool. The exchange occurs on a permissioned blockchain, where only verified clients participate. This represents a fundamentally different access architecture, not just another blockchain. And since issuance is handled by a regulated organization, the deposit is subject to the same insurance and oversight as a traditional account.
Economists at the Federal Reserve Bank of New York articulated this difference in February 2026, stating that a stablecoin operates as "safe money" for transactions outside the banking system, while a tokenized deposit remains within the traditional model and continues to participate in lending.
Anyone with a crypto wallet can send or receive a "stablecoin," whereas a bank token is only available to verified clients of a specific institution. This exclusivity provides regulatory protection for the instrument but limits its widespread adoption.
Citi Institute analysts predict that by 2030, the annual turnover of this emerging segment could reach $100–140 trillion. The Bank for International Settlements found that by 2024, financial organizations in nearly a third of surveyed jurisdictions had already studied and/or tested tokenized deposits.
Comparison of stablecoins and tokenized deposits. Source: ForkLog.Why Do Businesses Need Tokenized Deposits?
The most obvious scenario is for payments. A tokenized deposit allows for transfers between counterparties to occur almost instantly, without time constraints on payments and delays typical of correspondent transactions. This applies to both domestic transactions and cross-border transfers.
HSBC demonstrated this scenario in practice: in September 2025, the bank conducted its first tokenized deposit transaction between Hong Kong and Singapore for Ant International in real-time. The transaction eliminated the impact of time zones on treasury functions, allowing the client to manage liquidity continuously.
The second scenario involves collateral for transactions. A tokenized deposit can be pledged for a loan or margin requirement without withdrawing funds from the account. The collateral can be released or replaced automatically, according to a specified rule. Such mechanisms are being tested by Singapore's Project Guardian under the supervision of the MAS: the pilot encompasses listing, distribution, trading, and servicing of tokenized assets. This reduces the burden on specialized services and frees up capital that would otherwise remain idle.
The third scenario involves embedded payment logic. Transfers can be set up to trigger only when a specified condition is met—eliminating manual operations.
For example, a corporation's treasury with operations in Hong Kong, Singapore, and London consolidates free funds at the end of the business day and ensures that no entity accumulates unused balances overnight. In a traditional system, such a transfer goes through correspondent channels with fixed closing times, multi-day settlements, and manual reconciliation at the final stage.
Switching to a tokenized deposit changes the landscape: the same company holds bank balances as digital tokens within a permissioned network and transfers them between its own accounts or approved counterparties at any time. The transfer condition—such as reaching a liquidity threshold or reconciling with an invoice—is set directly in the payment and triggers automatically.
Which Banks Have Launched Tokenized Deposits?
Financial giant JPMorgan is promoting deposit tokens through its blockchain division Kinexys, formerly known as Onyx. The pilot for the JPMD token was confirmed in June 2025. In November, the company launched it on the Base mainnet—a Layer 2 solution from Coinbase.
The token remains an access-restricted instrument: despite the public infrastructure, it is only available to institutional clients.
Later, JPMorgan and Singapore's DBS Bank announced the development of a compatibility framework that will allow direct transfers of tokenized deposits between the two organizations.
HSBC launched its Tokenised Deposit Service in May 2025—initially for domestic transactions in Hong Kong, and by September, it conducted its first cross-border operation. By the end of the same year, the service expanded to the UK and Luxembourg, supporting the pound, euro, dollar, Hong Kong dollar, and Singapore dollar, and in April 2026, it extended to the corporate and institutional segment in the U.S.
BNY introduced a similar service for institutional clients in January 2026. Concurrently, the bank and Goldman Sachs launched tokenized money market funds—a direction close to deposits but distinct.
In July 2026, the interbank system Swift joined the development of the technology, launching a pilot project for a shared blockchain ledger for cross-border payments using tokenized deposits. Seventeen banks from five continents, including Citi, HSBC, UBS, BNY, DBS, and Wells Fargo, are participating in the testing.
This system allows banks to transfer client funds as tokens around the clock, with final settlement through existing infrastructures. This approach maintains familiar compliance, lending, and risk control standards while enhancing liquidity management efficiency and customer service quality.
What Are the Advantages of Tokenized Deposits?
The primary advantage is settlement time. A standard bank transfer is completed at fixed hours and passes through a chain of correspondent banks. A tokenized deposit settles instantly and around the clock, regardless of time zones and standard working hours.
The second advantage is programmability: conditions can be embedded directly into the transaction, rather than checked manually at each step. This eliminates delays where employee involvement was previously required—from invoice reconciliation to liquidity threshold confirmation.
The third advantage is regulatory status. A tokenized deposit legally remains the obligation of the bank. It is subject to the same guarantees as a traditional account (deposit insurance, access to liquidity, and supervisory framework).
These factors collectively stimulate institutional interest. According to a HSBC Treasury Pulse survey, demand for tokenization among corporate treasuries could increase sixfold over the next two years.
Advantages of tokenized deposits over traditional ones. Source: ForkLog.What Are the Risks and Limitations of Tokenized Deposits?
The main practical risk is the lack of a common infrastructure. Most programs are confined within the ecosystem of a single bank. Currently, it is not possible to transfer assets directly from JPMorgan to HSBC. A unified clearing network for such operations is still in development.
To address this issue, in June 2026, 17 major financial organizations in the U.S., including JPMorgan Chase, Bank of America, Citigroup, Wells Fargo, HSBC, and BNY, announced the creation of a joint 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 current and near future of tokenized deposits. Source: The Clearing House / ForkLog.The second risk factor is the technology itself. Smart contract code may contain errors, and distributed ledgers have less operational history compared to traditional banking systems—there are few tested scenarios for responding to failures.
The third issue returns to the access question: a tokenized deposit is justified only when the sender and receiver are clients of the same organization or connected through a compatibility infrastructure with another financial institution.
As long as such connections between banks are not fully operational, the instrument remains powerful within a single issuer but less useful for payments that cross institutional boundaries.