Kinexys by JP Morgan has announced plans to issue a deposit token, JPMD, in a few days on the Base public blockchain founded by Coinbase. The world’s most systemically important bank emphasized that it is a permissioned token offering a secure alternative to stablecoins for its institutional clients. It follows a recent trademark application for JPMD which started tongues wagging.
The key benefit is it enables 24/7 transactions which cost less than a cent.
In a statement the bank said, “JPMD is intended to enhance the global digital payments ecosystem by bringing trusted financial infrastructure onto public blockchain and redefining how financial institutions tokenize, move, and manage real-world assets. This is another significant milestone showcasing the undeniable value of combining the benefits of traditional banking with the innovation of blockchain technology.”
The timing coincides with broader regulatory developments, following the passage of stablecoin legislation by the Senate yesterday. These digital currencies could present a real challenge to bank deposits, with banks in some regions already reportedly experiencing outflows.
For JP Morgan, Base represents a calculated approach to public blockchain adoption. It offers a safer path for the bank than other permissionless blockchains. The Layer 2 blockchain built on top of Ethereum is only partially decentralized. It has a Security Council which makes decisions, but this makes an identifiable group of people that the bank could reach out to if something major went wrong. Regulators often complain about public blockchains because there is a lack of control. Base is a happy medium between a private and a fully decentralized blockchain.
The JP Morgan opportunity
For JP Morgan as a first mover amongst US banks, this move represents an opportunity. To date the bank has done well with its permissioned digital payments solution, transacting around $2 billion daily, but this creates frictions with the need to onboard on to a separate bank run network. While onboarding will still be required for JPMD, the technology is more open, reducing the technical friction. This accessibility advantage extends to multiple use cases.
Cross border payments have been JP Morgan’s focus to date, and will be an incredibly important application. The range of institutions that are likely to adopt the JPMD token will be broader than for its permissioned tokens.
However, the most compelling applications lie in emerging on-chain markets. Asset managers are the institutions moving on chain the fastest, with BlackRock and Franklin Templeton as the tokenized money market fund leaders. But supporting 24/7 token sales and redemptions can be relatively costly if an asset manager were to hold stablecoins to meet redemptions. This approach fragments their liquidity and creates operational complexity.
Currently there are workarounds. For example, BlackRock manages most of stablecoin issuer Circle’s reserves. That close relationship means that Circle stands ready to buy BlackRock’s BUIDL tokens. And Ondo Finance will buy the tokens of several institutional issuers including Franklin Templeton. But it would be so much easier to have a single JP Morgan account, and be able to trigger a conversion into JPMD tokens 24/7 when they are needed to meet redemptions. Of course, given the permissioned nature of the tokens, the person redeeming the money market fund would need to be whitelisted by the bank.
In the current environment, asset managers could be motivated to issue their own stablecoins. JP Morgan’s move might dampen that drive.
Tokenized collateral
BlackRock’s BUIDL and Franklin Templeton’s BENJI are also vying for position on another front: tokenized collateral. The CFTC launched pilots to explore the use of tokenized collateral to meet margin requirements. The massive advantage is this enables money market funds and cash to move at scale 24/7. It’s a bigger advantage for funds because securities would usually experience settlement delays. But stablecoins are a key part of the discussion.
In fact, New York Stock Exchange owner ICE is working with stablecoin issuer Circle to explore this use case. This is where JP Morgan could make a big impact. Many of ICE’s clients will have JP Morgan bank accounts, or could open one relatively easily. Hence, in this area JP Morgan may impact Circle’s ambitions to become the institutional stablecoin. Until now Circle hasn’t had any serious competition, but it’s also an extremely nascent area.
Coinbase earns significant revenues from Circle’s USDC, which makes them a notable partner for JPMD. But it turns out JP Morgan and Coinbase have an existing relationship.
“Coinbase is a long-standing J.P. Morgan client, and given its pre-eminent standing in the Web3 space, it is a natural collaborator to Kinexys’ pilot of JPMD,” said Naveen Mallela, global co-head of Kinexys by J.P. Morgan. “The buildout of the on-chain settlement ecosystem for institutional participants in crypto and real-world asset (RWA) transactions is a particular focus of Coinbase. JPMD would provide additional optionality to institutions beyond USDC for digital cash solutions.”
However, there is one uncertainty that could hold back JP Morgan.
Basel Committee rules for permissionless blockchains
The Basel Committee on Banking Supervision (BCBS) has rules for crypto-assets that treat permissionless blockchains punitively, giving deposit tokens and digital securities on permissioned blockchains preferential treatment. Deposit tokens on permissionless chains face nearly identical regulatory burdens to cryptocurrencies.
So how can JP Morgan proceed given this situation?
There are several possibilities. The bank might initially only proceed at a small scale until the situation becomes clearer. Alternatively, perhaps the US won’t implement the rules. Each country has to enact the Basel rules, so the US might plan to delay the implementation of crypto-asset rules which are meant to be in force at the start of 2026, or skip them altogether.
There are two other likely options. Many banking associations have been lobbying the Basel Committee on this point, so they might relent, although the timing is uncertain. A more relaxed approached to permissionless chains may be more likely if the US is wavering on implementing the rules. If they don’t adopt them, other countries could follow.
But the most likely option is hinted at by the choice of the Base blockchain. The Basel rules include several criteria to distinguish between lower risk Group 1 assets that include deposit tokens versus higher risk Group 2. The network is a major component. A key clause states:
“The functions of the cryptoasset and the network on which it operates, including the distributed ledger or similar technology on which it is based, are designed and operated to sufficiently mitigate and manage any material risks.”
To date the Committee reckons that no permissionless blockchains fit the bill. But we suspect JP Morgan will make strong arguments that its relationship with Coinbase means the risks are mitigated.
Stepping back, JP Morgan’s announcement presents a watershed moment for the institutional adoption of permissionless blockchains.
Update: added the quote re Coinbase from Naveen Mallela.
