BNY Mellon is exploring the use of tokenized deposits to enable its institutional clients to make payments over blockchain rails. As the world’s largest custodian by assets, BNY’s treasury services unit processes roughly $2.5 trillion in payments each day and oversees about $55.8 trillion in assets.
Tokenized deposits share many characteristics with stablecoins, offering the stability and trust of traditional banking services while leveraging blockchain infrastructure. However, unlike stablecoins, tokenized deposits represent direct claims on commercial bank balances.
The industry has been actively seeking use cases that expand the utility of tokenized deposits. By moving these assets onto decentralized ledgers, BNY would be able to settle transactions almost instantly and at reduced costs. The system would also operate around the clock—an advantage over traditional correspondent banking networks, which are constrained by standard operating hours.
Unlocking New Use Cases
The move comes as stablecoins have gained immense popularity as a means of facilitating cross-border payments. BNY Mellon is the official custody partner for Ripple’s stablecoin, RLUSD. While stablecoins have become useful for payments between financial institutions, tokenized deposits are finding their own applications.
“The use cases for a company like BNY are many,” said Joel Hugentobler, Cryptocurrency Analyst at Javelin Strategy & Research. “There’s the potential for automation on unlocking liquidity once certain obligations and conditions are met, and for 24/7 cash sweeps that reduce intraday borrowing or overdraft risk. Tokenized deposits could reduce failed-trade risk in fund redemptions due to instant settlement. They have the potential to be programmable coupon or dividend disbursements. Repo transactions and clearing are a huge part of banks operations, so this could reduce the timelines and move collateral instantly.”
The Problem of Interoperability
The use of these tokens remains limited due to the lack of interoperability between banks. Enabling banks to transact tokenized deposits with one another would require a shared communication system, which does not yet exist.
“Some of the other use cases involving cross border payments are still in the air,” said Hugentobler. “They need to figure out the interoperability side between banks to participate on any given ledger.”
This isn’t BNY’s first venture into token innovation. The company recently launched a tokenized money market fund in collaboration with Goldman Sachs. Other banks are also exploring similar initiatives: HSBC introduced a tokenized deposit service for corporate clients to support cross-border transactions, while JPMorgan Chase launched a pilot program giving institutional clients access its own proprietary deposit token.
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