Will deposit tokens put stablecoin issuers out of business?

This is Part 2 of a feature on Australian dollar stablecoins. See Part 1 here.

Over in traditional finance, stablecoin experimentation is well underway, with Australia and New Zealand Banking Group (ANZ) in the lead. The bank hit a milestone in June last year, using its Australian dollar stablecoin A$DC in a foreign exchange transaction to purchase tokenized carbon credits.

With A$DC, the entire process was shortened from around two or three days to mere minutes. ANZ is also exploring the use of A$DC as “programmable money” to automate supply chain transactions in the distilling industry.

Photo credit: beangeled81 / 123RF

A$DC is minted on Ethereum and backed 1:1 by Australian dollar deposits in the bank. While ANZ won’t offer staking programs using A$DC, it is exploring custody and financing services and may look for a white-labeled technology provider to do so.

Another of the country’s “Big Four” banks, National Australia Bank, followed suit in January, announcing plans to launch its AUDN stablecoin by the middle of this year.

Deposit tokens vs. stablecoins

JPMorgan Chase, currently the world’s largest bank by market capitalization, is bullish on stablecoins but has used a different term for tokenized commercial bank money – “deposit tokens.” Other names for deposit tokens include “tokenized deposits” and “tokenized bank liabilities.”

While stablecoins now have to be backed 1:1 with fiat or highly liquid reserves, deposit tokens don’t as they are governed by existing capital requirements for banks.

For ANZ, it is clear that the A$DC is strictly a stablecoin. But the bank looks to be exploring deposit tokens too.

“We’re not creating private money,” said ANZ banking services lead Nigel Dobson on the A$DC. “We’re creating a payment instrument. We do expect A$DC to circulate but backed by bank deposits.”

See also: The World Bank bets on blockchain to fix the carbon market

The regulatory standards for bank-issued stablecoins were just finalized by the Basel Committee on Banking Supervision (BCBS) in December 2022.

Under BCBS’ recommendations, when a bank issues a stablecoin, it must be prepared to have all of those tokens redeemed within 30 days. In other words, the bank must back 100% of its stablecoins with either fiat currency or assets that can be liquidated almost immediately.

The BCBS is a global industry group of 45 members comprising central banks and bank regulators, including the Reserve Bank of Australia and the Australian Prudential Regulation Authority (APRA).

A different accounting treatment

Are crypto-native stablecoin issuers out of business?