European Banking Authority: 17% of EU banks plan to get involved in tokenized deposits in the next two years

The European Banking Authority (EBA) has published a report on tokenized deposits, arguing that from a regulatory perspective, tokenized deposits are essentially the same as traditional deposits. The agency plans to analyze current regulations to determine whether they are adequate. It noted that there is no rush to act because of the limited activity on tokenized deposits so far. A survey in March identified only two projects, but did not name them. The analysis said that one of the projects should be the Commerzbank Money Token (CBMT) because it mentioned five banks and five companies; the other could be Euroclear's D-FMI because it is purely for securities settlement and mentions the UTXO used by R3's Corda enterprise blockchain. According to the EBA survey, 17% of EU banks plan to get involved in tokenized deposits in the next two years. The paper explores the benefits of tokenized deposits, such as programmability, efficiency, and atomic settlement. It believes that most banks are likely to adopt permissioned blockchains because customers need to be identified and the Basel Committee's encryption rules make it difficult for banks to use permissionless blockchains. However, the agency believes that blockchains have typical 51% attack risks and potential reliance on third parties, and programmability may bring additional liquidity risks. However, the report points out that it is too early to talk about the impact of tokenization on deposit stickiness. The EBA believes that it is important to distinguish between electronic money tokens (EMT or stablecoins) issued by banks and tokenized deposits under the European Crypto MiCA regulations. Both use DLT, are bank liabilities, and are redeemable at face value. Deposits are linked to the identity of the account holder, while stablecoins are bearer and therefore associated with the ownership of the token. Due to the bearer nature of stablecoins, they can be transferred to others, while tokenized deposits cannot. Payments made with tokenized deposits can eliminate liabilities at one bank and create liabilities at another bank. In addition, interbank settlement must be carried out. The EBA report mentions a number of tokenized deposit projects around the world, including at least 25 projects that are purely tokenized deposits, more than 20 bank stablecoins, and 30 projects covering cross-border payments and other applications.