Will deposit tokens threaten stablecoins in global payments?
We've all read the forecasts, $4 trillion market by 2030 for the stablecoins, in a bull-case scenario, but do these tokenized currencies stand uncontested?
Traditional finance (TradFi) companies are moving into the crypto and blockchain world and any smart person would know that they are not coming to be "contributors" to the cause of decentralized finance, they are coming to influence and control as much of the market as possible.
Since the industry has proven to be the future of finance, TradFi has no choice but to make necessary adjustments to stay competitive.
In the past, their biggest fear was Bitcoin, hated and spat on it multiple times, but it's now evident that something else threatens their place in society more than Bitcoin ever could.
You see, Bitcoin was just an asset, even though the initial intentions for it included wide use in global payments, it was never going to the preferred choice, not with its level of volatility, so TradFi embracing Bitcoin would have merely been a smart investment decision, not one to save them from being potentially displaced.
The stablecoins are what could bring about that reality. Right now, several banks (and banking groups) are fighting to force regulation of specific services they deem could trigger an outflow of capital from the commercial banks, a $6 trillion capital outflow scare.
This scare is led by concerns over yield on stablecoins being offered by multiple crypto native companies, a service that may lead to an adoption event that could very likely cripple multiple banks.
The stablecoin market is today valued at $313.90 billion, coinmarketcap.com data shows, with Citigroup projecting a growth to $4 trillion by 2030, and the United States Federal Reserve expecting a half of that growth over the next decade, one can't say that the tokenized currencies issued by private companies are not a threat to traditional finance.
But what if TradFi has something that can take back control of consumer liquidity, and by extension, global finance?
Deposit tokens: a threat?
What are deposit tokens?
Here's a simple definition from a Jun 17 report from cointelegraph.com.
Deposit tokens, specifically, represent dollar deposits held in customers’ bank accounts. Unlike stablecoins — digital representations of fiat currencies backed by cash and cash equivalents — deposit tokens operate within the traditional banking framework.
From an institutional standpoint, deposit tokens are a superior alternative to stablecoins,” Mallela told Bloomberg, noting that their fractional reserve backing makes them more scalable.
Naveen Mallela is an executive at JPMorgan’s blockchain division, Kinexys.
More recently, deposit tokens have been reported to be explored (setting aside stablecoins) for cross-bank payments.
US investment bank JPMorgan and Singapore multinational banking group DBS announced Tuesday that they are developing a blockchain-based tokenization framework to enable onchain transfers between their deposit token ecosystems. The effort aims to set a new industry standard for cross-bank digital payments.
The tokenization framework will allow the two financial institutions to facilitate instant payments around the clock, across both public and permissioned blockchain networks, providing their institutional clients with broader access to cross-bank onchain transactions. – Cointelegraph report
As much as this would sound like a solution that mostly targets institutions, not every day consumer, it would be a terrible judgment on our part to presume that support would not be expanded to the consumer market.
According to a Sep 07 report, also from cointelegraph.com, JPMorgan is in fact developing deposit tokens for settlements for the consumer market.
The banking giant has reportedly developed most of the infrastructure to run these deposit token solutions.
I think that at the very least, this is competition but at the same time, I believe that it will rejected by consumers, especially across the global market. The reason being that these tokens will very likely have limitations that don't exist with stablecoins.
Limitations such as KYC requirements and probably require being a user of JPMorgan banking services, whereas most stablecoin users will pretty much never interact with their issuers native platforms.
Notwithstanding, they will pull some liquidity that should have flowed into stablecoins away, but I guess one should not have expected that TradFi players will just sit back and watch their leverage flow into private firms pockets.
More banks globally are going to explore deposit tokens, I think they will fail to capture the stablecoin market long-term, but in the short-term, they are instruments of control and surveillance from TradFi that native crypto users should probably avoid, irrespective of whatever incentives may be offer to attract adoption.
Posted Using INLEO