What to know:

BNY, the world’s largest custodial bank, has taken its first major step toward tokenization by offering institutional clients the ability to settle bank deposits on a blockchain.

The Wall Street giant, with nearly $58 trillion in assets under management, is launching a platform that mirrors client balances on a private blockchain to support faster settlement and liquidity management, according to a statement on Friday.

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The move comes as BNY has been testing blockchain deposits to overhaul its payment settlement process. Last year, the bank announced that it was testing tokenized deposits as part of its efforts to modernize its global payment infrastructure.

"Tokenized deposits provide us with the opportunity to extend our trusted bank deposits onto digital rails — enabling clients to operate with greater speed across collateral, margin, and payments, within a framework built for scale, resilience, and regulatory alignment," said Carolyn Weinberg, BNY chief product and innovation officer, in the release.

Tokenization is the process by which real-world assets are converted into blockchain-based tokens.

Around the clock settlement

BNY said the capability is now live on BNY’s Digital Assets platform, allowing institutional clients to represent their existing deposit claims as onchain entries. These tokenized balances are designed to streamline collateral and margin workflows, two areas of finance that often require quick and reliable movement of funds.

The platform operates on a permissioned blockchain controlled by BNY, and governed by the company’s established risk, compliance, and control frameworks, the bank said.

However, BNY will continue to record the actual bank balances on traditional ledgers to ensure regulatory compliance.

It's not the first bank to push into blockchain settlement technology. More financial institutions are looking to transition from legacy systems that operate only during business hours to digital infrastructure that can settle assets around the clock.

Most recently, JPMorgan began its JPMD token in June on Coinbase’s Base blockchain, while in Europe, nine banks are building a MiCA-compliant euro stablecoin.