Deposit Tokens and the Case of JPMorgan’s JPMD: A Shariah Perspective

The financial sector is undergoing a quiet transformation as leading institutions introduce blockchain-based tools that mirror traditional instruments in digital form. Among the most prominent of these innovations are deposit tokens, digital representations of bank deposits issued by regulated financial institutions. Their emergence has raised new questions about how Islamic finance should engage with digital money structured by conventional banks.

Understanding Deposit Tokens

A deposit token is a digital claim issued by a commercial bank, representing a customer’s fiat deposit held in custody at that bank. Unlike stablecoins, which are often backed by government securities or money market instruments and issued by non-bank entities, deposit tokens are fully integrated into the existing banking infrastructure. They offer programmable settlement, compliance enforcement through embedded logic, and near-instant transfers via blockchain platforms. Because regulated banks issue them, deposit tokens typically fall under existing supervisory frameworks and, in some jurisdictions, may be eligible for deposit insurance.

This distinction is important. While stablecoins such as USDC and USDT are managed by entities that operate on the periphery of traditional finance, deposit tokens are created at the core of it. Proponents argue that deposit tokens are more scalable and trustworthy, especially for institutional use. They offer the technological benefits of tokenization without departing from the legal and operational models of conventional finance. However, this structural integration with fractional reserve banking also raises significant ethical and jurisprudential concerns from a Shariah perspective.

JPMorgan’s JPMD: A Case Study

In 2025, JPMorgan announced the launch of  the JPMorgan Deposit Token (JPMD) on the Base blockchain, a Layer 2 solution built on Ethereum. JPMD is issued exclusively to institutional clients and functions as a tokenised representation of dollar deposits held in a designated Blockchain Deposit Account (BDA) at JPMorgan.

The lifecycle of JPMD follows a predictable pattern: an eligible client deposits fiat with JPMorgan and requests the issuance of digital tokens equivalent to the deposit amount. These tokens can be transferred on-chain to other approved parties, subject to compliance and sanctions screening. When the token holder wishes to redeem their funds, the tokens are burned and fiat is returned to the account. At all stages, JPMorgan maintains full control over the system, including the ability to freeze or reverse transactions.

One of the more controversial aspects of JPMD is its potential for interest-bearing returns. Although the function is not active by default, the design of the token enables the future implementation of interest-based remuneration. This is consistent with the view of its issuers, who see JPMD not as a radical departure from the banking status quo, but as a more efficient extension of it. In fact, JPMorgan executives have described deposit tokens as superior to stablecoins precisely because they are built on fractional banking systems and allow for scalability through institutional frameworks.

Shariah Evaluation

From a narrow transactional perspective, deposit tokens like JPMD may appear Shariah-compliant when used strictly for payments and backed by fiat balances. However, this view fails to address deeper structural and systemic concerns tied to their design, function, and long-term intent.

JPMorgan does not present JPMD as a neutral payment utility. In public statements, Naveen Mallela, Global Co-Head of Onyx by JPMorgan, described deposit tokens as “based on fractional banking,” positioning them as a scalable alternative to stablecoins. While the whitepaper avoids explicit references to such architecture, the statement confirms a key reality: JPMD is not structured as a fully segregated, asset-backed instrument. Instead, it functions as a liability within a conventional banking framework, where deposited funds can be reallocated and rehypothecated.

Moreover, the token has been engineered with future remuneration capabilities, that is, the potential to earn interest. Although this feature is currently inactive, JPMorgan has openly acknowledged its planned integration. A structure intentionally designed to facilitate riba cannot be considered ethically neutral, even if dormant. From a Shariah governance standpoint, permissibility must be evaluated not only on current usage but also on the architecture and roadmap of the instrument.

In addition, JPMorgan retains unilateral administrative control over JPMD, including the ability to freeze, reverse, or block transactions. This level of centralized authority stands in direct contradiction to the foundational principles of blockchain technology, which aim to reduce reliance on arbitrary gatekeepers. By re-centralizing power in the hands of a conventional financial institution, JPMD undermines the very innovation that made digital assets transformative: the creation of trustless, decentralized systems.

Finally, beyond technical considerations lies a broader ethical concern. Instruments like JPMD are being positioned not as tools of reform, but as extensions of existing financial hierarchies. They gain traction not by offering greater equity or justice, but by aligning with institutional power, regulatory convenience, and global financial infrastructure. As these systems evolve, there is a genuine risk that Muslim users and institutions will be compelled to adopt such instruments by necessity, and by choice, thus reinforcing dependence on riba-based models and missing the opportunity to build authentic, ethically grounded alternatives.

Conclusion

AmanX does not endorse JPMD as Shariah-compliant. While technically it may appear permissible under strict limitations, its foundational design, strategic intent, and future use cases are misaligned with Islamic monetary ethics. More than a neutral tool, JPMD represents a digital repackaging of the very financial structures that Islamic finance was meant to reform. It is not simply a question of halal usage today, but of the ideological and systemic alignment that such instruments entail.