One of the most important developments over the past several years in the world of crypto is the stablecoin, a variety of blockchain-enabled tokens tied to the price of fiat currencies like the U.S. dollar.
But a new study by the JPMorgans blockchain unit Onyx says that a prospective institution-backed cryptocurrency called a deposit token has the potential to become more popular than stablecoins.
With the volatility of cryptocurrencies like Bitcoin and Ether, traders often use stablecoins to park their holdings in a stable asset and make cross-border payments. The deposit tokens would cover these uses but with a blockchain-based coin that is fully integrated into the traditional banking system.
Although the tokens are still just a concept, the study said they could be issued by banks and would represent commercial bank money but in a digital form, which would expand its uses.
The token form enables new functionality, such as programmability and instant, atomic settlement to speed up transactions and automate sophisticated payment operations, according to the study.
They would also improve upon some of the setbacks related to stablecoins, including challenges that could come with tackling the multitude of transactions that increased institutional adoption would bring.
Because the tokens would be equal to bank money, JPMorgan argues that they will have an edge over stablecoins because of regulations that are already in place to support commercial bank deposits.
We believe deposit tokens will become a widely used form of money within the digital asset ecosystem, just as commercial bank money in the form of bank deposits makes up over 90% of circulating money today, the bank wrote in the study.
Deposit tokens could serve as a regulator-approved alternative to stablecoins, which have come under increased scrutiny by regulators. On Monday, in response to an order from the New York Department of Financial Services, the New York-based crypto company Paxos said it would end its partnership with Binance and stop minting BUSD, the stablecoin it created in collaboration with the crypto exchange.
The stablecoin was once the third largest in the world by market cap.
The Wall Street Journal reported Sunday that the Securities and Exchange Commission plans to sue Paxos because its BUSD stablecoin is allegedly an unregistered security. This enforcement could put at risk any U.S.-based stablecoins, like Circles USDC, which is second only in market cap to Tethers USDT.
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