EBA Assesses Benefits and Challenges of Tokenised Deposits

The European Banking Authority (EBA) has explored the potential advantages and challenges of tokenised deposits, emphasizing the impact of distributed ledger technology (DLT). Tokenised deposits could enhance programmability and efficiency, enabling automation of transactions via smart contracts, which reduces costs, improves speed, and supports complex settlements. These features, however, depend on specific design choices and use cases.

DLT-based systems also have the potential to bolster anti-money laundering (AML) compliance by improving transparency, traceability, and security. Transactions recorded on immutable ledgers can facilitate real-time monitoring and automated compliance processes, although challenges like private key theft and operational vulnerabilities persist.

Consumer protection remains a key concern. Widespread adoption may be hindered by low levels of financial literacy, lack of access to digital tools, and risks of exclusion. Effective disclosures and education will be crucial to mitigate confusion among consumers.

On the regulatory side, distinguishing tokenised deposits from similar instruments like e-money tokens (EMTs) poses classification challenges. The regulatory frameworks for deposits and EMTs differ significantly in terms of rights, protections, and eligibility for deposit insurance.

Additionally, operational risks such as dependency on third-party DLT providers and potential liquidity management challenges highlight the need for robust safeguards. The programmability of tokenised deposits could affect bank liquidity and systemic stability, requiring careful monitoring and empirical analysis as adoption grows.

The EBA’s findings underscore the transformative potential of tokenised deposits while stressing the importance of managing associated risks to ensure consumer confidence and financial stability.