BNY Mellon investigates tokenized deposits as a means for its institutional clients to conduct payments via blockchain networks. As one of the world’s largest custodians by assets, BNY’s treasury services process approximately $2.5 trillion in daily transactions and manage around $55.8 trillion worth of assets.

Tokenized deposits combine the stability and reliability of traditional banking with the benefits of blockchain technology. Unlike stablecoins, these deposits directly represent commercial bank balances.

Unlocking New Use Cases

The financial industry is exploring various applications for tokenized deposits to enhance their utility beyond cross-border payments facilitated by stablecoins. By transferring assets onto decentralized ledgers, BNY Mellon aims to enable nearly instantaneous and cost-reduced transactions outside of regular banking hours.

The Problem of Interoperability

The utilization of these tokens is currently constrained due to a lack of interoperability among banks. Creating a shared communication system that allows institutions to transact with tokenized deposits would be essential but not yet in place.

BNY Mellon’s use cases for this technology are diverse,” Joel Hugentobler, Cryptocurrency Analyst at Javelin Strategy & Research, noted. They could automate the release of liquidity once certain conditions are met, enhance 24/7 cash sweeps to reduce intraday borrowing risks, and instantly settle fund redemptions by lowering failed-trade risk. Moreover, tokenized deposits may facilitate programmable coupon or dividend payments and expedite repo transactions and clearing processes.”

BNY Mellon’s foray into token innovation includes launching a tokenized money market fund in partnership with Goldman Sachs. Similarly, other financial institutions like HSBC and JPMorgan Chase are also exploring similar initiatives aimed at facilitating cross-border transactions.