Deposit Tokens – What Are They?

Deposit tokens are native tokens on a blockchain which directly represents the retail or institutional deposits in the form of tokens. Unlike typical cryptocurrencies or stablecoins that may be backed by various assets, deposit tokens correspond closely to underlying bank deposits held by commercial banks or financial institutions. A deposit token also differs slightly from a tokenized deposit. While some use the terms interchangeably, tokenized deposits are actually token representation of the commercial deposits where each token is backed by retail or institutional deposits.[1]

Key features of Deposit Tokens include:

1. The issuer (usually a bank) holds a corresponding liability: i.e. depositors’ funds are owed, often repayable on demand or at some defined term;

2. The token serves functions analogous to traditional deposit accounts: payments, transfers, possibly programmable logic (e.g. conditional transfers, automated settlement);

3. The token may exist on a public or permissioned blockchain, using cryptography and smart contracts; and

4. There may be a separation (custodial) between token owners and the issuer, possibly involving wallets.

These tokens can also be used in a variety of ways. These include:

• Conditional Payment: The token is programmed to execute payments only using smart contracts. This automated transaction would not require a trustee. In real estate, M&A, and eCommerce transactions, funds can be held in tokenized form and automatically released to the seller once ownership or asset transfer is verified. In supply chain financing, payments to suppliers could also be triggered automatically upon confirmation of goods delivery, streamlining the process and reducing delays.

• Cross-Border Payments: These tokens allow for real- time settlement across different time zones and enables near-instantaneous settlement. This could potentially cut costs significantly (no need for intermediaries and currency conversion) and reducing settlement times (blockchain is operational 24/7). Also, blockchain technology allows for real-time tracking of transactions, improving transparency and providing more visibility into the payment process.

• Securities Settlement: The tokens can be programmed for atomic settlement (i.e the exchange of securities and payment occurs simultaneously). This reduces counterparty risk. Additionally, if both the securities and payment are tokenized, unlike traditional markets with fixed trading hours, systems could potentially enable round-the-clock trading and settlement.

The benefits of using deposit tokens are also aplenty.[2]

• Legal Enforceability: Deposit tokens can be structured to ensure that transactions are legally binding and enforceable, often by aligning token issuance with existing payment and banking laws. These tokens also inherit the regulatory oversight associated with traditional banking institutions, increasing trust and stability in them.

• Settlement Efficiency: They can facilitate streamlined settlement backed by central bank money or equivalent high-quality settlement assets, reducing counterparty risk. Moreover, transactions can potentially be processed 24/7, improving liquidity management and cutting settlement times.

• Compliance by Design: Compliance checks (such as anti-money laundering (AML), know-your-customer (KYC), and sanctions screening) can be integrated to help embed regulatory adherence within token operations.

• Retail and Institutional Use: These tokens enhance interoperability between traditional financial infrastructure and innovative blockchain ecosystems and can be designed for both retail and institutional payments.

• Transparency and Security: The use of smart contracts enables secure, immutable audit trails and automation of settlement processes.

• Integration with Legacy Systems: Deposit tokens can be integrated with existing banking infrastructure, minimizing disruption while leveraging blockchain advantages. This brings together traditional finance and the emerging world of decentralized finance (DeFi).

Singapore’s Framework

In Singapore, the regulatory landscape for digital tokens, including deposit tokens, has evolved significantly with the introduction of the Financial Services and Markets Act 2022 (FSMA), which came into operation on 28 April 2025. Under this framework, the Monetary Authority of Singapore (MAS) strictly governs digital token service providers (DTSPs) and the activities surrounding digital tokens.[3]

The FSMA delineates digital tokens broadly as digital payment tokens or digital representations of capital market products that are capable of being stored, transferred, or traded electronically. Deposit tokens may fall within the ambit of digital payment tokens under the Payment Services Act 2019 depending on how they are structured and used. The FSMA complements this by regulating digital token service providers that operate from Singapore but provide services overseas.

Key stipulations include:

• Licensing Requirement: Digital token service providers offering services related to digital payment tokens, including deposit tokens, must be licensed by MAS if operating from Singapore or serving Singapore customers. Notably, Singapore-incorporated DTSPs providing services solely overseas must cease their activities unless licensed, ensuring strong oversight.

• Anti-Money Laundering and Countering the Financing of Terrorism (AML/CFT): DTSPs must comply with stringent AML/CFT regulations with MAS empowered to conduct inspections and enforce compliance.

For more information on the FSMA, see our previous article here.

A notable initiative in Singapore’s deposit token landscape is Project Guardian. This was launched by MAS in May 2022 with three objectives in mind – to establish standardised protocols and processes, develop comprehensive risk management and regulatory frameworks, and foster cross-border implementations.[4]

The project brought together over 20 financial institutions including major banks such as JPMorgan and DBS, who conducted pilot transactions to demonstrate the feasibility of tokenized bank deposits on public blockchains. For instance, DBS Bank and SBI Digital Asset Holdings tested the concept of tokenised Singapore Government Securities (SGS) bonds and Japanese Government Bonds (JGB) and conducted bilateral trades involving them.

With the FSMA and Project Guardian, Singapore is positioning itself as a regional hub for compliant digital asset innovation, while enforcing a high regulatory bar to uphold financial stability and consumer protection.

Switzerland Framework

The Swiss approach to deposit tokens is illustrated by the Deposit Token Proof of Concept (PoC) initiative led by the Swiss Bankers Association and in collaboration with PostFinance, Sygnum Bank, and UBS. The Results Report released in September 2025 showed promising signs.[5]

Two use cases were tested: payments between customers of different banks and an automated exchange of assets via a trust-like process. In both cases, it was proven that the technology worked and that the payments were legally binding and complied with regulatory requirements.

The PoC demonstrated that smart contracts can enable seamless transactions across multiple banks, confirming both technical fungibility and operational feasibility. Both the transactions met AML, CFT, and sanctions screening requirements, showing that compliance processes could be integrated into blockchain workflows.

However, the model also highlighted some limitations such as the dependency on off-chain banking infrastructure and the lack of an automated integration with core banking systems.

Next steps include expanding the pilot to more banks, refining legal frameworks, and improving integration with core banking systems while also exploring coordination with the Swiss National Bank’s digital currency initiatives to create an interoperable deposit token infrastructure across the Swiss financial sector.

Finally, Switzerland has published on October 22, 2025 a proposed revised regulation applicable to stablecoins issued by non-banking entities with a specific regulatory licence for such issuers (lighter regime as for a bank)[6].