A JPMorgan study says this crypto could overtake stablecoins

JPMorgan published a study that claims a new type of blockchain-based token could overtake stablecoins in popularity. Erik McGregor—LightRocket via Getty Images

One of the most important developments in recent years in the crypto world is stablecoin, a series of blockchain-enabled tokens linked to the price of fiat currencies such as the US dollar.

But a new study from JPMorgan’s blockchain unit Onyx says a potential institutional-backed cryptocurrency called the deposit token has the potential to become more popular than stablecoins.

With the volatility of cryptocurrencies such as Bitcoin and Ether, traders often use stablecoins to park their holdings in a stable asset and make payments across borders. The deposit tokens will 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 use.

“The token scheme enables new functionality, such as programmability and instant atomic settlement to speed up transactions and automate sophisticated payment operations,” according to the study.

They will also ameliorate some of the setbacks associated with stablecoins, including challenges that may come with dealing with the many transactions that increased institutional use would entail.

Because the tokens will be equal to bank money, JPMorgan argues that they will have an advantage over stablecoins due to regulations already in place to support commercial bank deposits.

“We believe deposit tokens will become a widely used form of money in 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 can serve as a regulator-approved alternative to stablecoins, which have come under increased scrutiny from regulators. On Monday, in response to an order from the New York Department of Financial Services, New York-based crypto company Paxos said it would end its partnership with Binance and stop minting BUSD, the stablecoin it created in partnership with the crypto exchange.

The stablecoin was once the third largest in the world by market capitalization.

The The Wall Street Journal reported on Sunday that the Securities and Exchange Commission plans to sue Paxos because its BUSD stablecoin is allegedly an unregistered security. This enforcement could jeopardize all US-based stablecoins, such as Circle’s USDC, which is second only to Tether’s USDT in market capitalization.