#9: Where is Digital Money Heading in 2023

27 Feb

2nd March 2023

With:

| Keith Bear (University of Cambridge)

| Philip Ennes (JP Morgan)

In Session #9, Keith Bear (University of Cambridge) and Philip Enness (JPMorgan) join FNA to dissect the "Third Corner" of the digital money triangle. As the industry moves beyond simple asset tokenization, the need for a blockchain-native "cash equivalent" has become urgent. While stablecoins have filled this void historically, our guests explain why Tokenized Deposits—digital representations of bank-held funds—are better positioned to serve institutional needs.

The discussion focuses on the transition of licensed depository institutions into "Challenger FMIs." By using platforms like JPM Coin (part of JPMorgan's Onyx/Kinexys ecosystem), banks can now offer corporate clients 24/7 programmable payments and atomic settlement. Unlike stablecoins, which often sit outside the regulatory perimeter, tokenized deposits inherit the safety, soundness, and deposit insurance of the traditional banking system, making them a stabilizing force rather than a disruptive threat.

The session covered:

Defining the Tokenized Deposit: Moving from legacy ledger entries to on-chain tokens that represent a direct, regulated claim on a commercial bank.
JPM Coin Case Study: Insights into the world’s most successful live application of deposit tokens, currently processing billions in daily transaction volume for multinational corporations.
The "Singleness of Money": How tokenized deposits ensure that "one dollar is always one dollar," avoiding the de-pegging risks associated with non-bank stablecoins.
Programmable Liquidity: Using smart contracts to automate complex financial operations, such as "Just-in-Time" funding and conditional payments (escrow).
The Regulatory Shield: Why deposit tokens are a natural extension of the existing banking framework, benefiting from fractional reserve models, capital requirements, and lender-of-last-resort access.
Interoperability & RLN: Exploring the Regulated Liability Network (RLN) as a way to ensure different bank tokens can settle seamlessly against one another using a wholesale CBDC.
Competition vs. Complementarity: Whether tokenized deposits will eventually "crowd out" stablecoins or if they will serve distinct institutional vs. retail niches.