2024-E-9

Bank of Japan Review
Deposit Tokenization: Survey of Overseas Initiatives

Payment and Settlement Systems Department
SUGIMURA Kazutoshi, BESSHO Masaki*

August 2024
Recently, initiatives related to "deposit tokenization" have begun to expand globally. With the emergenceof stablecoins, these initiatives seem to seek an extension of functionality in payment and settlement
systems by applying new technologies, such as distributed ledger technology (DLT), to bank deposits as
a traditional means of payment. The main reason such initiatives prefer leveraging deposit money is said
to be its affinity with the two-tier monetary system and possibly with existing laws or regulations. However,there remain some issues that require further clarification on how payments with tokenized deposits are
categorized in the private law system, and how smart contracts provide implications for non-functional
requirements and legal certainty. Multifaceted discussions on deposit tokenization will therefore continue
to be necessary, with an eye toward future payment and settlement systems.

Introduction

Payment within a Single Bank

Initiatives on so-called asset tokenization have been
emerging recently. While the definition of tokenization
varies from one person to another, in the field of
payment and settlement, it often refers to theintroduction of new technologies into payment andsettlement systems to extend their functionality orenhance their performance in such a way that is only
possible with digital technologies.
For example, the Financial Stability Board (FSB)
defines tokenization as "[t]he process of creating a
digital representation (token) of an asset and putting it
on a distributed ledger," 1 while the Bank forInternational Settlements (BIS) defines tokenization as"the process of recording claims on financial or real
assets that exist on a traditional ledger on a
programmable platform."2
Among these, initiatives on deposit tokenization
have recently begun to expand globally. One of thereasons is thought to be the impact of the emergence ofstablecoins. Stablecoins have been structured with aneye to pursuing stability of their values as alternatives
to "traditional" crypto assets, which were found to be
hard to use for payments because of their volatility.
That said, as various issues have also been pointed out
regarding stablecoins, it appears that the idea of deposit
tokenization has gained attention.
This paper provides an overview of overseas
initiatives related to deposit tokenization and points out
some issues that require further discussion.

JPM Coin
A pioneering example of deposit tokenization is JPM
Coin, developed by JPMorgan (Chart 1). 3 It uses apermissioned blockchain to manage the deposit
account's ledger and provides its customers withpayment options in U.S. dollars and euros. JPM Coinaims to facilitate payments between corporate clients.
Multinational corporations are said to see the benefit of
instant cross-border payments in U.S. dollars and euros
on an always-on platform.
JPM Coin is a system exclusive to the customers ofa single bank. In other words, it does not envisage
payments to customers of other banks, which is[Chart 1] Conceptual Diagram of JPM Coin
Permissioned
blockchain

Bank A
Traditional
ledger

Traditional
ledgerTokenize

Customer X of
Bank A(Transfer)

Payment from
customer X tocustomer Y

Customer Y of
Bank A

Note: Based on Oliver Wyman and Onyx (2023).

1

Bank of Japan August 2024

possible with traditional fund transfer services by banks.

destroyed or "burned"); (2) the central bank debits thewholesale CBDC (wCBDC) of Bank A and credits thewCBDC of the beneficiary's bank (Bank B); and (3)Bank B credits customer Y's wallet (i.e., a Bank B
token is created or "minted"). The beneficiary (Y) has
the option to transfer the funds to its deposit accountthat exists outside of the distributed ledger and ismanaged under the traditional banking system.

Project Guardian
Project Guardian, implemented by the Monetary
Authority of Singapore (MAS), is working on asset
tokenization through public-private collaboration. In
the project, pilots and experiments have been carriedout on atomic settlement (i.e., a settlement mechanismthat links delivery of several assets, the details of which
are mentioned later) between different assets. 4 The
unique feature of this project is that it uses a publicblockchain. Under the first industry pilot, a live crosscurrency transaction involving tokenized deposits was
conducted.5
Project Guardian envisions multiple issuanceapproaches to deposit tokenization. 6 An example
would be a token that represents a deposit managed
outside of the blockchain, while another would be anative token in which the primary record of deposits ison the blockchain. For instance, JPMorgan has issued aSingapore dollar-denominated deposit token on a
public blockchain in a manner that allows the issuer togrant access only to qualified users. Although thisdeposit token differs from the above-mentioned JPM
Coin in that it is issued on a public blockchain, what
they have in common is that a single bank is the issuerof the deposit token throughout the entire process of thepayment transaction.

[Chart 2] Conceptual Diagram of RLN
wCBDC(2) Bank A’s
wCBDC isdebited.

Permissioned
DLT platform(2) Bank B’s
wCBDC iscredited.

Bank ABank B

Traditional
ledger

Traditional
ledgerTokenize

Customer X
of Bank A(Transfer)(1) Customer
X’s "Bank A
token" is"burned."(3) Customer
Y’s "Bank B
token" is"minted."Customer Y
of Bank B

Note: Based on RLN (2022). (1), (2) and (3) in the chart are executed
simultaneously.

In addition, based on the findings of RLN, theSecurities Industry and Financial Markets Association(SIFMA) announced in May 2024 that it will be serving
as program manager for the Regulated Settlement
Network (RSN) proof of concept.9 RSN will simulatedelivery-versus-payment(DvP)
transactions
denominated in U.S. dollars. Specifically, it will
explore the feasibility of programmable shared ledger
technology to settle tokenized assets (e.g., U.S.
Treasury securities) and tokenized money (commercialbank money and wholesale central bank money).

Payment across Multiple Banks
On the other hand, ideas for schemes that can be used
to make payments across multiple banks have also
begun to emerge recently, as illustrated below.

Regulated Liability Network
Citigroup proposed a concept termed the Regulated
Liability Network (RLN), based on which members of
the financial services sector and the Federal Reserve
Bank of New York have conducted a proof of concept.7
In order to improve the efficiency of U.S. dollar
payments, the members of RLN are envisioning theconstruction and operation of an always-on system thatwill enable instant payments. It adopts permissioned
distributed ledger technology (DLT) and aims to takeadvantage of its features such as programmability (i.e.,
the ability of computer programs to automate behavior,
the details of which are mentioned later).8
The payment arrangement in RLN is asimultaneous execution of the following three
processes (Chart 2): (1) the originator's bank (Bank A)
debits customer X's wallet (i.e., Bank A token isGerman Banking Industry Committee
The German Banking Industry Committee (GBIC) has
also published a whitepaper on the Commercial Bank
Money Token (CBMT). 10 It supports automatic
processing and smart contracts using a permissioned
DLT platform, and is intended for B2B use cases suchas DvP. A customer would have two types of addresses:a general address and a convert address, the latter being
designed to prevent the storage of CBMT.
The payment arrangement is as follows (Chart 3):(1) Payer X (customer of Bank A) sends the CBMT
2Bank of Japan August 2024

issued by Bank A (Bank A token) to the convert addressof the payee (customer of Bank B); (2) Bank B sends
the token to its own general address and simultaneously
sends an equivalent amount of CBMT (Bank B token)
to customer Y's general address; and (3) the exposure
between Bank A and Bank B is settled through aninterbank infrastructure. For interbank settlements, it isassumed that the traditional settlement infrastructure isused with an eye to both gross and net settlement. The
latter could save liquidity. After receiving the CBMT,
payee Y can change the token into commercial bankmoney by transferring it to the Bank's general address.
In addition, if Bank B's customer has also completed
the KYC (Know Your Customer) procedure of Bank A,
the customer may continue to hold the CBMT issued
by Bank A by transferring it to his or her generaladdress.

currency cross-border payments with tokenizedcommercial bank deposits and tokenized wholesale
central bank money. The idea behind this is that it
would be more efficient as a payment and settlement
system if various assets in different currencies were
held and settled on a common platform called a unified
ledger (BIS [2023]).
The aforementioned RLN and RSN differ from
Project Agorá in the range of target use cases and target
currencies. However, they seem to be similar in theiridea of tokenizing both commercial bank deposits andcentral bank money and placing them on a common
programmable ledger to realize atomic settlement in an
efficient manner.

Why Tokenization?
Although the above examples have different
characteristics in terms of the use cases andtechnologies they employ, they seem to have thefollowing commonalities in terms of underlying ideas.

[Chart 3] Conceptual Diagram of GBIC
Traditional
settlement
infrastructure(3) Bank B’s "Bank A
token" is redeemed andfunds are settled between
Bank A and Bank B.

Programmability
First, many initiatives have in common the aim forextension of functionality in the payment andsettlement systems by applying the idea ofprogrammability. Programmability in payment systems
refers to the ability of computer programs to control
and automate system behavior in the circulation offunds and securities.12 It is true that there are several
possible ways to achieve this, but most discussions
surrounding deposit tokenization seem to involve
implementing smart contracts on a distributed ledger. A
smart contract is a self-executing application of aprogrammable platform that can trigger an action if
pre-specified conditions are met (BIS [2023]).
In the crypto asset community, users anddevelopers are already being able to deploy smart
contracts that enable additional service functions,which are utilized in decentralized finance (DeFi)
services. Under these circumstances, it seems that
deposit tokenization initiatives attempt to apply asimilar idea to payments using bank deposits, which isa form of traditional financial transaction.
One of the programmability aspects that is
specifically considered in deposit tokenization
initiatives is atomic settlement. Atomic settlement
refers to a sequential process where either all
settlements are successfully executed or none of thesettlements take place. In the case of the delivery of two
assets, it refers to a settlement mechanism that links
them and ensures that delivery of one asset occurs if

Bank B
Permissioned DLT platform

Convertaddress ofcustomer Y

Generaladdress ofBank B

Send

Bank A
Tokenize
Traditional
ledger

Generaladdress ofcustomer X(1) Customer X’s"Bank A token" issent to customer
Y's convert
Customer X address.
of Bank A(Transfer)
Generaladdress ofcustomer Y

Traditional
ledger(2) "Bank B
token" issent tocustomer
Customer Y Y's generalof Bank B
address.

Note: Based on GBIC (2023).

Other recent initiatives
In South Korea, a live pilot of deposit tokens, involving
100,000 individuals, will start from the OctoberDecember quarter of 2024.
In addition to the above, Project Agorá, led by the
BIS Innovation Hub, together with seven central banks
including the Bank of Japan and commercial banksfrom each jurisdiction, will test for improvements in the
speed and cost of cross-border payments by utilizing
technologies such as tokenization and smart
contracts.11 Specifically, the project will discuss multi3

Bank of Japan August 2024

and only if delivery of the other asset takes place.
Although DvP, which is an atomic settlement offunds and securities, and PvP (Payment versus
Payment), which is an atomic settlement of different
funds (for example, Japanese yen and U.S. dollars), arerealized in existing payment and settlement systems, it
is said that these could also be achieved on a DLT
platform,13 as discussed in the second phase of Project
Stella, jointly implemented by the European Central
Bank and the Bank of Japan,14 and in MAS's Project
Guardian.
In addition, many initiatives refer, as an advantage
of tokenization, to interoperability between deposits ofdifferent banks or of different currencies, and also theease of exchanging deposits for other tokenized assets(RLN [2022], MAS [2023a], BIS [2023]).

systems, in order to ensure that various types of money
including commercial bank deposits are convertible tocash at par. Such a system serves as an effective meansof supplying money widely throughout society. At thesame time, there is the advantage of allowing theallocation of financial resources by private-led
initiatives, where commercial banks, which are skilled
in gathering and analyzing information on borrowers,
lend and provide deposits to firms and other customers(Ueda [2024] 17 ). It is also argued that the flexible
creation of money by commercial banks under this twotier structure makes it easier to respond nimbly tofunding needs for settlements, especially in large-value
B2B transactions (BOJ PSSD [2024]18).
While there are various ideas, including stablecoins,regarding new forms of money that could enhance thefunctional and non-functional aspects of payment
systems, it seems that deposit tokenization isconsidered to be a potential approach that is affinitive
with this two-tier monetary system.
In addition to this, deposits are backed by a bank's
entire balance sheet under fractional reserve banking(DEA [2023]19). Especially in contrast to the case of
stablecoins backed by high-quality liquid assets, it isalso pointed out that the characteristics of deposits
would make it possible to avoid locking up such assets(Garratt et al. [2022]20).
Besidesthese
points,concerns
about
cryptocurrencies undermining monetary sovereignty(RLN [2022]) and those about the impact on financial
intermediation related to the issuance of CBDC (GBIC[2023]) are also noted as motivations for considering
deposit tokenization.

Advantages for non-functional requirements
Some initiatives point out that the non-functional
requirement of constant (24 hours a day, 365 days ayear) operation is one advantage of adopting DLT(RLN [2022], Oliver Wyman and Onyx [2023]).
Especially in the context of cross-border payments thatinvolve time differences, this feature is said to be apotential strength (RLN [2023b]15).
Others point out that, as multiple parties share thesame state of ledger, DLT has the advantage of moreeasily ensuring tamper resistance, failure tolerance, andease of recovery in the event of failure.

Why Deposits?
The abovementioned points aimed at by tokenization
have already been widely acknowledged in recent
discussions regarding the enhancement of payment andsettlement systems, and are not necessarily unique todeposit tokenization. So why are these initiatives
targeting deposits rather than other assets?

Potential affinity with existing laws andregulations
Some initiatives point out the possibility of referencing
existing banking regulation as an advantage of deposit
tokenization. For example, from the perspective of
AML/CFT (Anti-Money Laundering and Combating
the Financing of Terrorism), system design choices that
limit the owners of tokenized deposits to the bank's
customers are said to be an important aspect ofregulatory compliance (BIS [2023]). In this regard,
there is also a view that tokenized deposits can be
designed to ensure that they are transferred only tothose who have completed a KYC procedure with atleast one financial institution, while crypto assets andstablecoins traded on permissionless blockchains could
have the risk of being transferred to those who have notpassed a KYC check (Garratt and Shin [2023]21).
In addition, some initiatives point out that if theseAffinity with the two-tier monetary system
First, there are arguments that emphasize that
deposits are a component of the two-tier monetarysystem (BIS [2023]). From the perspective ofsupplying money, which is a means of settlingtransactions, central banks exclusively supply central
bank money such as banknotes and central bankreserves, while commercial banks supply bank deposits
through credit creation. Under this two-tier structure
between the central banks and commercial banks, aframework of so-called singleness or uniformity ofmoney 16 has also been put in place, through thedevelopment of bank supervision and deposit insurance
4

Bank of Japan August 2024

can be categorized as "deposits," their legal status ortreatment of deposit insurance could fall under existingarrangements (as pointed out under U.S. law, RLN[2023c]22).

of smart contracts may affect legal certainty, assuming
various scenarios such as withdrawal of manifestationof intention to pay, seizure of deposit claims,
bankruptcy of the payer, malfunction of smart contracts,and disruption of communication. If an undesirable
outcome is expected, it would be necessary to consider
how smart contracts should be designed in advance to
avoid such an outcome.
In addition, attention would be paid to the treatment
under the deposit insurance system. Whether or nottokenized deposits are insured should be determined byeach jurisdiction based on the design of the deposit
insurance system and each tokenization scheme. In thisregard, RLN (2023c) and Cunliffe (2023)23 point out
the possibility of applying or utilizing the existing
deposit insurance schemes in the U.S. and U.K.,
respectively. On the other hand, GBIC (2023) suggests
an option to create a dedicated deposit insurance fund.
From a practical point of view, even if tokenizeddeposits were insured, in a jurisdiction where an
insurance limit per depositor is applied, there would bea risk of impairing fair and prompt protection ofdepositors unless there was an effective method of
aggregating all deposit accounts that each depositor has
at the bank.

Issues regarding Deposit Tokenization
Thus far, this paper has provided an overview ofoverseas initiatives related to deposit tokenization.
Based on this, some issues that are perceived as
requiring further consideration are pointed out below.

Legal status
One of these issues is the legal status of deposit
tokenization.
First, the legal nature of deposit tokenization in theprivate law system would be an important issue. A
definition of tokenization is to "integrate the records ofthe underlying asset normally found in a traditional
database with the rules and logic governing the transfer
process for that asset" (BIS [2023]). However, rules forthe transfer of interest, including that of deposit claims,
are established by the private law system of eachjurisdiction, such as by the stipulations in the Civil
Code, other specific legal provisions, and/or by caselaw. Under these circumstances, it is necessary to
deepen the discussion on how consistently the "burningand minting" or "assigning" of tokens in paymenttransactions across multiple banks is categorized within
the private law system (see, as an analysis under U.S.
law, RLN [2023c]).
In such discussions, it would be desirable to designa system that makes it possible to identify the entity towhom the tokenized deposit belongs in a manner thatprovides legal certainty even when, for example, thepayer goes bankrupt or when a discrepancy has
occurred between the payer's manifestation of intent
and the record of the token on the ledger. In particular,when a token represents a deposit managed in a
traditional banking system outside of the distributed
ledger, consideration will be required as to whether thetiming of the payment becoming final is understood to
be one of the following: (1) when the payee's token isrecorded or minted; (2) when the payee's deposit
account is credited on the traditional banking system;or (3) otherwise.
This point should also be made sufficiently clear in
relation to the nature of smart contracts, which are selfexecuting computer programs that can trigger certain
actions automatically if pre-specified conditions are
met. Specifically, it will be necessary to deepen
discussions from the perspective of how the existenceTechnology and design choices based onfunctional and non-functional requirements
The technology and design that should be adopted will
also be an issue.
Many of the initiatives summarized in this paper
have adopted a permissioned DLT platform, while there
is also a case for testing a permissionless DLT platform(MAS [2023a]).
Reasons for choosing a permissioned DLT platform
include perspectives of allowing various parties toparticipate in transactions while complying withregulations (RLN [2023a]) and of complying with
AML regulations (GBIC [2023]). Looking at thesearrangements, it is a characteristic feature of payments
across multiple banks that, instead of directlytransferring the originating bank's token, a beneficiarybank's token is minted and paid to the payee. This isdifferent from stablecoins on permissionless DLT
platforms in which the payer's token is transferred tothe payee in such a way that it maintains its identity orcontinuity. In some cases, a DLT platform andtraditional core banking systems coexist, and value
may be transferred between the two.
Further research is required to understand the extent
to which smart contracts can handle the complex
functions of atomic processing of burning, transferring,
5

Bank of Japan August 2024

and/or minting multiple tokens issued by each bankwhile ensuring the stability and efficiency expected in
actual transactions. It is also necessary to explore how
to ensure the governance and auditability of smart
contracts.
On the non-functional side, when implementing
tokenized deposits in society, it is necessary to consider
scalability to accommodate an increase in transactions.
In addition, as mentioned above, some initiatives pointout as advantages the interoperability and always-on
operation that come with adopting a DLT platform.
As shown by BIS (2023), there are several possible
patterns for interoperability (Chart 4). In Chart 4, A and
B are methods of connecting a DLT platform to existing
payment and settlement systems using an application
programming interface (API), while C is a method ofsettling various assets on a unified ledger. In the former
methods using API, the assumption is that the assets arelocked on the existing system and the tokens areunlocked on the programmable platform. While it has
been argued by some that C will be more useful ifemphasis is placed on affinity with programmability

such as atomic settlements, A and B may also enable
existing payment and settlement systems to be utilized
more effectively.
UK Finance, a trade association for the U.K.
banking and financial services sector, has examined the
RLN concept in the context of use cases in the U.K.24
It has presented several architectural options including(1) connecting existing payment systems to the sharedledger via API, (2) settling some tokens on the sharedledger while connecting to some payment systems via
API, and (3) settling all tokens on the shared ledger.
In relation to ensuring interoperability of DLT
platforms, MAS and some major financial institutions
across jurisdictions, including JPMorgan, have begun
an initiative named Global Layer One (GL1) to explore
the design of an open and digital infrastructure fortokenized financial assets. 25 Regarding theinteroperability of tokenized deposits with central bankmoney or other financial assets, it is necessary tocompare these approaches and elucidate whichapproach has relative advantages.

Concluding Remarks[Chart 4] Interoperability and "Unified Ledger"
Proposed by BIS

Throughout this paper, we have surveyed overseas
initiatives on deposit tokenization. While outside ofthis scope, domestic studies are also being conductedon payment instruments based on tokenized deposits.
There are various ongoing discussions about the
future form of money, but as mentioned above, it isconsidered appropriate to maintain the two-tiermonetary system of central banks and commercial
banks. Especially with large-value cross-border
payments in mind, it seems necessary to take note of
the possibility that the solution of deposit tokenization
will be evaluated as making some kind of contribution
to resolving pain points in current business practices.
From this perspective, we will accumulate knowledge
through participation in Project Agorá. It is also
necessary to learn from the upcoming findings ofvarious other experiments.
With an eye toward future payment and settlement
systems, multifaceted discussions on deposit
tokenization through deeper analyses of the issues
raised in this paper will continue to be necessary.

Source: BIS (2023).

* Currently at the Kobe Branch
1 Financial Stability Board (2023), "The Financial Stability
Risks of Decentralised Finance."
2 Bank for International Settlements (2023), "Blueprint for the
future monetary system: improving the old, enabling the new."
3 Oliver Wyman and Onyx by JPMorgan (2023), "Deposit

6

Bank of Japan August 2024

Digital Currency."
18 Bank of Japan, Payment and Settlement Systems Department(2024), "FIN/SUM 2024: 'Future of Wholesale Payments' Session 3: 'Future of Wholesale Payments' Key Discussions -."19 Digital Euro Association (2023), "Banking on Tokens: A
Primer on Tokenized Commercial Bank Deposits."
20 Garratt, Rod, Michael Lee, Antoine Martin, and Joseph
Torregrossa (2022), "The Future of Payments Is Not
Stablecoins," Federal Reserve Bank of New York Liberty Street
Economics.
21 Garratt, Rodney, and Hyun Song Shin (2023), "Stablecoinsversus tokenised deposits: implications for the singleness ofmoney," BIS Bulletin, No 73.
22 The Regulated Liability Network (2023c), "Legal Report."
23 Cunliffe, Jon (2023), "The shape of things to come:innovation in payments and money."24
UK Finance (2023), "Regulated Liability Network: UK
Discovery Phase."
25 Monetary Authority of Singapore (2023b), "MAS Partners
Financial Industry to Expand Asset Tokenisation Initiatives."

tokens: A foundation for stable digital money."
4 Monetary Authority of Singapore (2023a), "Project Guardian:
Enabling Open and Interoperable Networks."
5 Monetary Authority of Singapore (2022), "First Industry Pilot
for Digital Asset and Decentralised Finance Goes Live."
6 Oliver Wyman Forum, DBS Ltd, Onyx by JPMorgan, and SBI
Digital Asset Holdings (2022), "Institutional DeFi: The Next
Generation of Finance?"
7 The Regulated Liability Network (2022), "Digital Sovereign
Currency: Whitepaper."
8 The Regulated Liability Network (2023a), "Technical Report."
9 Securities Industry and Financial Markets Association (2024),"Members of the U.S. Financial Sector to Explore Multi-Asset
Settlement Using Shared Ledger Technology."
10 German Banking Industry Committee (2023), "Working
Paper on Commercial Bank Money Token."
11 Bank for International Settlements (2024), "Project Agorá:central banks and banking sector embark on major project to
explore tokenisation of cross-border payments."
12 HOJO Masashi and HATOGAI Junichiro (2022), "Realizing
Programmability in Payment and Settlement Systems." (Bank ofJapan Review 2022-E-8).
13
SUGIE Jiro and HATOGAI Junichiro (2023), "Efforts to
Improve Payments Using DLT: Focusing on Wholesale CBDC
Experiments in Various Countries." (Bank of Japan Review
2023-E-9).
14 European Central Bank and Bank of Japan (2018), "Securities
settlement systems: delivery-versus-payment in a distributed
ledger environment."
15 The Regulated Liability Network (2023b), "Business
Applicability Report."
16 Committee on Payment and Settlement Systems (2003), "Therole of central bank money in payment systems."
17 UEDA Kazuo (2024), "What to Know about Central Bank

The Bank of Japan Review Series is published by the Bank to
explain recent economic and financial topics for a wide rangeof readers. This report, 2024-E-9, is a translation of theJapanese original, 2024-J-10, published in June 2024. Views
expressed are those of the authors and do not necessarilyreflect those of the Bank. If you have any comments orquestions, please contact FinTech Center, Payment andSettlement
Systems
Department(E-mail:post.fintech@boj.or.jp). The Bank of Japan Review Series andthe Bank of Japan Working Paper Series are available athttps://www.boj.or.jp/en/index.htm.

7Bank of Japan August 2024