Introduction to On-Chain Banking
US banks are making significant strides in preparing for an on-chain future, but their approach may surprise some. Rather than launching new, speculative crypto products, these institutions are focusing on tokenized versions of traditional financial instruments, such as deposits, funds, and custody services. This strategic shift is driven by the potential of blockchain technology to increase efficiency, reduce costs, and enhance security in financial transactions.
Major banks, including JPMorgan and Citi, are at the forefront of this movement. They are developing and testing tokenized deposit systems, which enable real-time, 24/7 transfers on blockchain-based rails. For instance, JPMorgan’s JPM Coin system allows for peer-to-peer payments and settlements between approved customers, while Citi’s Token Services integrates tokenized deposits and smart contracts into its institutional cash management and trade finance offerings.
Tokenized Cash and Deposits
Tokenized deposits, also known as “deposit tokens,” are digital representations of commercial bank deposits issued and redeemed by regulated banks. These tokens are designed to move according to embedded rules, automated settlement, real-time voting, and reduced counterparty risk, all within the existing regulatory framework. This innovation has the potential to transform the way banks manage cash and deposits, making transactions faster, more secure, and more efficient.
Notable examples of tokenized deposit systems include JPMorgan’s JPM Coin and Citi’s Token Services. These systems have been successfully tested and are now being used by institutional clients for multi-million dollar transactions. The New York Fed’s New York Innovation Center (NYIC) has also released details of a proof of concept of the Regulated Liability Network (RLN), involving several major banks, including BNY Mellon, Citi, and HSBC.
Custody and Safe Storage
For an on-chain system to function at scale, assets must be held and transferred under strict custody and governance standards. US banks have been building this layer, with BNY Mellon announcing the launch of its digital asset custody platform in October 2022. This platform allows select institutional clients to hold and transfer Bitcoin (BTC) and Ether (ETH), positioning the service as an extension of its traditional custody function adapted to digital assets.
Regulatory authorities have provided guidance on crypto asset custody, with the Office of the Comptroller of the Currency (OCC) stating that national banks are allowed to offer cryptocurrency custody services to their customers. The US Federal Reserve has also published a paper on the custody of crypto assets by banking organizations, outlining expectations regarding risk management, internal controls, and operational resilience.
Tokenized Funds and Collateral
Banks are also experimenting with tokenizing traditional investment products, such as money market funds. In December 2025, JP Morgan Asset Management announced the launch of its first tokenized money market fund, My OnChain Net Yield Fund (MONY), which will be powered by Kinexys Digital Assets. This move is significant, as it links tokenized cash and tokenized yield-producing instruments within well-known regulatory structures.
Tokenization has the potential to unlock on-chain liquidity and fractional ownership, areas where traditional finance could gain an advantage over typical crypto-native models. Some US banks and market participants are exploring the role of tokenization in preserving traditional trading revenues by directly integrating digital asset trading and brokerage infrastructure with banking systems.
Regulations and the Future of On-Chain Banking
The regulatory environment has evolved in parallel with these pilot projects, with the OCC clarifying that national banks may engage in certain crypto-related activities, including custody and some stablecoin and payment functions. The OCC has also issued a series of interpretive letters addressing related topics, including banks holding deposits backing stablecoins and the use of distributed ledger networks and stablecoins for payments.
As the banking sector continues to prepare for an on-chain future, it is likely that we will see further innovation and adoption of blockchain technology. With major banks leading the charge, the potential for increased efficiency, security, and transparency in financial transactions is significant. For more information on this topic, visit https://cointelegraph.com/news/how-us-banks-are-quietly-preparing-for-an-onchain-future?utm_source=rss_feed&utm_medium=rss_category_analysis&utm_campaign=rss_partner_inbound
