JP Morgan (JPM.US) Expands Blockchain Strategy, Will Pilot Depositing Token JPMD on Coinbase (COIN.US) Public Chain

J.P. Morgan (JPM.US) is set to launch a pilot project called JPMD, a token representing the US dollar deposits of the world's largest bank. With Financial Institutions, Inc. accelerating its presence in the digital asset space, this move signifies a significant breakthrough for traditional financial giants in blockchain applications. Naveen Mallela, Co-Head of Kinexys by JPMorgan's global blockchain department, revealed that a transaction is expected to be completed in a few days: J.P. Morgan will transfer a fixed amount of JPMD from its digital banking wallet to the largest cryptocurrency exchange in the United States, Coinbase Global (COIN.US). He stated that the issuance and transfer of the token will take place on Coinbase's public blockchain Base, and will be denominated in US dollars. In the future, Coinbase's institutional clients will be able to use this deposit token for trading. J.P. Morgan plans to pilot the project for a few months and expand to other users and currency denominations after regulatory approval. This action significantly expands J.P. Morgan's blockchain presence. Currently, global banks and multinational corporations such as Banco Santander S.A. Sponsored ADR, Deutsche Bank Aktiengesellschaft, and PayPal are exploring the use of digital assets for faster and lower-cost payments. Meanwhile, the U.S. Congress is expected to approve stablecoin-related legislation soon, which is likely to drive widespread adoption of this technology. A deposit token is a transferable digital currency that represents a deposit liability of a commercial bank, essentially a digital version of customer account deposits. The difference between a deposit token and a stablecoin is that stablecoins are typically tokens pegged to a fiat currency and backed 1:1 by highly liquid assets such as government bonds. Mallela pointed out, "From an institutional perspective, deposit tokens are a superior alternative to stablecoins. Due to the partial-reserve banking system they are based on, we believe they are more scalable." He mentioned that deposit tokens like JPMD may earn interest and be covered by deposit insurance in the future, advantages that mainstream stablecoins currently do not have. The JPMD pilot project signifies J.P. Morgan's expansion of digital asset product applications from internal systems to external sources. As a pioneer on Wall Street in deploying blockchain technology, J.P. Morgan has operated the Kinexys Digital Payments network (formerly JPM Coin), allowing corporate clients to transfer U.S. dollars, euros, and pounds between accounts at the bank. Data shows that the network's transaction volume increased tenfold last year, currently processing over $2 billion in transactions daily. However, this still represents a tiny fraction of J.P. Morgan's daily total payment department transaction volume of around $10 trillion. Mallela stated that J.P. Morgan will continue to expand the Kinexys Digital Payments network, which differs from the initial user group of JPMDexpected to be favored by customers seeking commercial bank-backed stablecoin alternatives. For many years, J.P. Morgan has been exploring the use of deposit tokens to accelerate cross-border payment settlements and stated in a white paper several years ago, "Deposit tokens will become a widely-used form of currency in the digital asset ecosystem, much like commercial bank money forms over 90% of circulating money today." The JPMD pilot project also injects momentum into the Base blockchain. Base is a public blockchain associated with the Ethereum network, developed internally by Coinbase and launched in 2023, quickly attracting users and tokens to become a popular platform for issuing memecoins, now also used for more serious applications. According to CoinGecko data, based on the amount of funds locked in applications, Base has become the most popular Ethereum Layer 2 blockchain, with nearly $4 billion locked in various applications from finance to gaming, with its core advantages being low transaction fees and fast confirmation times. Mallela emphasized, "This is the first time a commercial bank is deploying business fundsproducts based on depositsonto a public chain, and we chose to start with Base." Although banks have been cautious in the past about the security and use of public blockchains due to regulatory concerns, during the second term of the Trump administration, the US has relaxed its regulatory stance towards crypto companies. It is worth noting that while JPMD is designed to operate on a public blockchain, it will maintain permissioned token attributes and only be open to J.P. Morgan institutional clients.