Banks Push Tokenized Deposits to Counter Stablecoin Threat

Written by: Gino Matos

Compiled by Saoirse, Foresight News

The bank stated that developing tokenized deposits aims to advance payment modernization, enabling programmable money and 24/7 settlement.

Artem Tolkachev, Chief Real-World Asset (RWA) Officer at Falcon Finance, told CryptoSlate that this narrative only tells half the story:

The key lies in the balance sheet, not the technology itself.

Tokenized deposits can retain funds that would otherwise be withdrawn from banks' balance sheets via stablecoins; this money remains as deposits, allowing banks to continue lending. Tolkachev said:

Stablecoins are competitors to deposits; tokenized deposits are deposits themselves, just with programmable features.

Tolkachev stated that, for holders, tokenized deposits, reserve-backed stablecoins, and overcollateralized synthetic dollars appear nearly identical in outward behavior.

In a tokenized deposit scenario, $100 million in funds would remain on a bank’s balance sheet. The bank earns income through lending, holders bear the credit risk of the bank, but the asset remains insured deposit.

The position of the U.S. Federal Deposit Insurance Corporation (FDIC) also supports this interpretation: tokenization merely changes the form in which deposits are represented, without altering their fundamental nature.

Under the reserve-backed stablecoin model, funds flow into the issuer’s reserve asset pool, where the issuer earns returns from the reserves. Holders bear the issuer’s operational and reserve risks but do not receive any of the returns, as the GENIUS Act prohibits issuers from distributing earnings to holders, and these assets are not backed by deposit insurance.

In over-collateralized synthetic USD, tokens are backed by collateral whose value exceeds their face value, with the collateral and issuer held in separate, isolated custody. Returns depend on how the collateral is managed, and holder protections stem from the over-collateralization ratio and the isolation between the custodian and the issuer.

Tolkachev pointed out that although the three have the same face value, the entities bearing the risk are entirely different; the key is to examine where the funds are held and who has the authority to access them.

The Dallas Federal Reserve Bank's July perspective: Deposit tokens are fundamentally still commercial bank deposits, remain on the issuing bank’s balance sheet, are redeemable at par value, and are subject to the same regulatory framework as ordinary deposits.

The FDIC’s April proposal indicates that deposits held as reserves for stablecoins are insured as corporate deposits, with coverage extending to the stablecoin issuers; individual holders of stablecoins do not have pass-through insurance claim rights. (Note: Pass-through insurance claim rights refer to the ability of individual stablecoin holders to bypass the stablecoin issuer and directly file a claim with the deposit insurance provider. The FDIC proposal stipulates that individual stablecoin holders do not possess this right, and insurance payouts are limited to the stablecoin issuer, as the deposit holder.)

Regardless of the technology used to record underlying deposit liabilities, the rules governing deposit insurance should remain consistent.

Tolkachev argues that if stablecoins cause bank deposit outflows, the first observable consequence will be an increase in funding costs—a phenomenon that emerges before any decline in deposit volumes. Once banks lose their low-cost, stable source of deposits, they must rely on more expensive wholesale funding to maintain lending levels, compressing their profit margins even before lending volumes contract.

He added that this transmission logic remains largely at the level of theoretical debate, with insufficient empirical evidence; existing research considers the transmission pathway plausible, but it lacks real-world case studies to support it.

The Federal Reserve and the Bank for International Settlements have also reached the same conclusion: deposit migration caused by stablecoins will increase funding costs, ultimately leading to loan repricing. Tolkachev said:

This struggle is for the lowest-cost liability within the entire financial system—the direction of credit costs depends on the outcome of this contest.

In early August, Wells Fargo announced plans to launch a tokenized deposit product for business and commercial clients this fall, initially enabling USD/GBP transactions, with plans to expand the offering further by 2027. The bank stated that the product will be subject to the same regulatory protections and deposit insurance eligibility as its existing deposit products.

JPMorgan Chase has been operating JPM Coin deposit tokens on the Base blockchain, enabling institutional clients to transfer funds and post collateral on the public blockchain network, while the underlying funds remain commercial bank deposits.

Tolkachev believes that stablecoins remain better suited for funds requiring 24/7 cross-border circulation, on-chain settlement, and instant transfers between counterparties.

Bank deposits are better suited for funds intended for static storage, backed by deposit insurance, lending partnerships, and the bank’s balance sheet.

Most corporate finance professionals use both tools and choose between them based on specific business scenarios.

Tolkachev also noted: Bank deposits are accompanied by institutional risk assessments and oversight by regulatory authorities; stablecoins enable dollar transfers but lack this risk control and regulatory framework, which is also why they offer faster transaction speeds. Financial officers must verify the underlying collateral before considering its potential returns.

Optimistic scenario: Major banks build an interoperable network of tokenized deposits, keeping corporate treasury balances within the banking system and enabling 24/7 programmable settlement without compromising the underlying funds. Tokenized deposits will become the banking industry’s true countermeasure to stablecoins, delivering comparable technological capabilities while preserving the deposit base essential for lending.

Pessimistic scenario: Even a 1%–3% outflow from U.S. commercial bank deposits—based on the current total deposit size of $19.5 trillion—would amount to approximately $195 billion to $586 billion. The speed at which funds flow into stablecoins far exceeds the capacity of tokenized deposits to absorb them.

Comparison of the advantages and disadvantages of stablecoins and tokenized deposits in different scenarios:

This led to higher financing costs, compressed profits, and loan repricing. The market began to view stablecoins as a genuine liability on bank balance sheets, no longer merely as payment tools.

Banks are moving into tokenized deposits because stablecoins have demonstrated the customer value of programmable dollars. At the heart of this competition right now is the question: Who controls the funds while they are in transit during a transaction?