Tokenized Bank Deposits vs Stablecoins: A Critical Analysis
Tokenized bank deposits represent digital versions of traditional bank balances on blockchain, while stablecoins are cryptocurrency tokens pegged to stable assets. Anyway, according to Omid Malekan, an adjunct professor at Columbia Business School, tokenized bank deposits fundamentally lack the flexibility and technical features that make stablecoins superior. The core distinction lies in their operational frameworks—tokenized deposits remain permissioned systems with KYC controls and restricted functionality, whereas stablecoins offer composability and broader utility across decentralized applications. Malekan’s analysis reveals that overcollateralized stablecoin issuers maintain 1:1 cash or cash-equivalent reserves, creating safer liability structures compared to fractional reserve banks issuing tokenized deposits. This difference in reserve requirements leads to divergent risk profiles for users and institutions.
On that note, the technical limitations of tokenized deposits significantly restrict their use cases, preventing integration with cross-border payment systems, decentralized finance protocols, and services for unbanked populations. Supporting evidence comes from the growing stablecoin market, which reached $300 billion in total supply by October 2025 according to Standard Chartered data, showing 46.8% year-to-date growth. This accelerated adoption contrasts with the constrained functionality of tokenized deposits. The composability of stablecoins enables seamless integration across crypto applications, while tokenized deposits stay confined within traditional banking parameters.
Comparative analysis shows that tokenized deposits function like “checking accounts where you could only write checks to other customers of the same bank,” as Malekan describes. This limitation undermines their utility in the broader crypto ecosystem, where interoperability and permissionless access are core values. While tokenized deposits maintain banking sector control, they sacrifice the innovation potential that stablecoins unlock through decentralized infrastructure.
You know, the synthesis of these arguments suggests that tokenized bank deposits face significant structural disadvantages against stablecoins. As the crypto ecosystem evolves toward greater decentralization and interoperability, the permissioned nature of tokenized deposits positions them as inferior solutions for digital finance transformation. It’s arguably true that this analysis challenges banking sector assumptions about tokenized deposit viability while highlighting stablecoins’ technical advantages.
Tokenized bank deposits lack the flexibility and technical features of stablecoins, making them an inferior product.
Omid Malekan
What’s the point? Such a token can’t be used for most activities. It’s useless for cross-border payments, can’t serve the unbanked, doesn’t offer composability or atomic swaps with other assets, and can’t be used in decentralized finance.
Omid Malekan
Regulatory Frameworks and Banking Sector Response
Global regulatory frameworks are evolving to address both tokenized deposits and stablecoins, with significant implications for banking sector adaptation. The Basel Committee on Banking Supervision is considering revisions to its 2022 guidance on banks’ crypto exposure, potentially adopting a more favorable stance toward cryptocurrencies. This development comes as financial institutions grapple with integrating digital assets while maintaining stability under existing regulatory structures.
The current Basel rules treat stablecoins on public blockchains with the same capital charges as riskier assets like Bitcoin, drawing criticism from market participants who argue regulated, asset-backed stablecoins pose far lower risks. Chris Perkins of CoinFund previously noted that “capital requirements set by the Basel Committee create significant barriers for banks seeking to engage with crypto assets.” This regulatory approach has suppressed banking sector innovation while stablecoins operated under different frameworks.
Evidence from regulatory divergence shows the European Union’s MiCA regulation already allows stablecoins to attract capital treatment aligned with their backing assets, while the U.S. GENIUS Act encourages competition among different issuers under Treasury and Federal Reserve oversight. Japan maintains a conservative stance limiting stablecoin issuance to licensed entities with stringent liquid asset requirements. These varying approaches create compliance challenges for global institutions operating across multiple jurisdictions.
Comparative analysis reveals that regions with clearer regulatory frameworks experience more predictable market conditions and smoother institutional integration. The banking lobby has pushed back against yield-bearing stablecoins over fears that stablecoin issuers sharing interest with customers would erode the banking industry’s market share. This resistance drew criticism from NYU professor Austin Campbell, who accused the banking industry of using political pressure to protect its financial interests at retail customers’ expense.
The synthesis of regulatory trends indicates that balanced approaches yield the most favorable outcomes, supporting innovation while maintaining appropriate safeguards. As digital assets become more integrated with traditional finance, regulatory frameworks are evolving toward more sophisticated and internationally coordinated models. This progression represents a critical phase in crypto’s transition from niche innovation to mainstream financial asset class.
It’s a very nuanced way of suppressing activity by making it so expensive for the bank to do activities that they’re just like, ‘I can’t.’
Chris Perkins
The resistance to yield-bearing stablecoins from the banking lobby drew criticism from New York University professor Austin Campbell, who accused the banking industry of using political pressure to protect its financial interests at the cost of retail customers.
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Institutional Adoption and Market Dynamics
Institutional engagement with digital assets has accelerated significantly, driven by regulatory clarity and operational efficiencies. Major banks and asset managers including BNY Mellon, Goldman Sachs, and JPMorgan are exploring tokenization to improve cross-border payments, reduce transaction costs, and offer real-time settlements. This trend reflects a broader move toward digital asset integration, with data showing increasing capital flows into regulated services.
Evidence from institutional activity includes the tokenized Treasury market reaching $8 billion and initiatives like Santander’s Openbank crypto trading under MiCA expanding market access. Over 150 public companies added Bitcoin to their balance sheets in 2025, while corporate use of stablecoins for payroll and treasury management tripled recently. These developments indicate a shift from speculative uses to practical, compliance-focused strategies that attract steady institutional participation.
Supporting data shows that institutions operating in jurisdictions with clear regulatory frameworks demonstrate more confident engagement with digital assets. Custodia Bank and Vantage Bank introduced a turnkey solution for issuing tokenized deposits, integrating them into existing financial systems. China Merchants Bank International tokenized a $3.8 billion money market fund on BNB Chain, expanding on-chain distribution and integrating with DeFi applications.
Comparative analysis reveals contrasting institutional approaches—while traditional banks explore tokenized deposits, crypto-native institutions focus on stablecoin infrastructure. Circle’s collaboration with Deutsche Börse exemplifies how regulated stablecoins like EURC and USDC are being integrated into European market infrastructure. This partnership aims to reduce settlement risks and improve efficiency for banks and asset managers, demonstrating practical applications beyond theoretical benefits.
The synthesis of institutional trends indicates a fundamental shift toward strategic, compliance-driven crypto engagement. As regulatory frameworks continue to evolve, institutional participation is likely to deepen, bringing greater market stability and professionalization to the digital asset space. This maturation process represents a significant milestone in crypto’s integration with traditional finance while highlighting the competitive dynamics between tokenized deposits and stablecoins.
We’re planning to advance the use of regulated stablecoins across Europe’s market infrastructure—reducing settlement risk, lowering costs, and improving efficiency for banks, asset managers and the wider market.
Jeremy Allaire
Banks and financial institutions have started experimenting with tokenized bank deposits, bank balances recorded on a blockchain, but the technology is doomed to lose out to stablecoins.
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Technological Infrastructure and Functional Capabilities
Technological advancements fundamentally differentiate stablecoins from tokenized deposits through features like composability, interoperability, and programmability. Stablecoins can be transferred across the crypto ecosystem and used in various applications, while tokenized deposits remain permissioned systems with know-your-customer controls and restricted functionality. This technical distinction creates significant functional advantages for stablecoins in decentralized finance environments.
Evidence from infrastructure development shows blockchain networks handling over 3,400 transactions per second represent substantial scalability improvements. Cross-chain interoperability platforms like LayerZero facilitate seamless transfers between different blockchain networks, improving liquidity and user experience. Smart contracts enable automated compliance enforcement and complex financial operations that tokenized deposits cannot replicate within their permissioned frameworks.
Supporting examples include Plume Network’s use of onchain automation for shareholder records and DTCC integration, which streamlines compliance and cuts inefficiencies. The use of multi-signature wallets and cold storage in custody solutions, as mandated by regulations, builds confidence by protecting digital assets against hacking and unauthorized access. These technological safeguards address key concerns for traditional financial institutions considering crypto adoption.
Comparative analysis reveals that tokenized deposits incorporate built-in safeguards and regulatory compliance through frameworks like Custodia’s patent-protected system, offering enhanced security and efficiency. However, these advantages come at the cost of limited functionality compared to stablecoins’ permissionless nature. The banking sector’s technological approach prioritizes control and compliance over innovation and accessibility.
The synthesis of technological considerations suggests that infrastructure development will be a key factor in long-term success. As regulations set clearer parameters, development must align with these standards to enable features like programmable money and enhanced cross-border payments. Stablecoins’ technical advantages in composability and interoperability position them favorably against tokenized deposits for future financial innovation.
Stablecoins are also composable, meaning they can be transferred across the crypto ecosystem and used in various applications, unlike tokenized deposits, which are permissioned, have know-your-customer controls, and have restricted functionality.
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Secure methods like multi-signature wallets and cold storage are crucial. These steps protect digital assets and build trust in crypto ecosystems.
Vince Quill
Market Impact and Future Trajectory
The competitive dynamics between tokenized bank deposits and stablecoins have significant implications for crypto market development and traditional finance transformation. Stablecoins continue to grow as an asset class, with total supply reaching $300 billion in October 2025 and transactions hitting $46 trillion over the past year according to Andreessen Horowitz’s State of Crypto report. This growth contrasts with the constrained adoption of tokenized deposits within banking systems.
Evidence from market projections shows Standard Chartered forecasting the tokenized real-world asset sector swelling to $2 trillion by 2028, which includes fiat currencies, real estate, equities, bonds, commodities, art, and collectibles. The investment bank’s research outlines allocation patterns with money-market funds and tokenized US stocks each set to capture $750 billion, while tokenized US funds and less liquid segments account for $250 billion each. These projections assume stablecoin liquidity and DeFi banking as important prerequisites.
Supporting data indicates the stablecoin market expanded from $205 billion to nearly $268 billion between January and August 2025, demonstrating robust growth despite regulatory uncertainties. Federal Reserve Governor Christopher Waller emphasized the importance of gradual, policy-driven adoption, noting that sustainable growth relies on incremental implementation rather than sudden market shifts. This measured approach acknowledges both potential benefits and risks of stablecoin integration.
Comparative analysis of market impact reveals that tokenized deposits must compete with yield-bearing stablecoins or stablecoin issuers finding ways of circumventing yield prohibition in the GENIUS stablecoin Act. The current average yield offered on savings accounts at retail banks in the US or UK is well under 1%, making anything above that attractive to customers and creating competitive pressure on traditional banking products.
The synthesis of market trends suggests that stablecoins’ technical advantages and growing adoption position them favorably against tokenized deposits in the evolving digital finance landscape. As the crypto ecosystem matures and integrates with traditional finance, the functional limitations of tokenized deposits may constrain their market share while stablecoins continue expanding their utility and user base across global financial systems.
Stablecoins continue to grow as an asset class.
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The tokenized real-world asset sector, physical or financial assets tokenized on a blockchain, which includes fiat currencies, real estate, equities, bonds, commodities, art, and collectibles, is projected to swell to $2 trillion by 2028.
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Expert Perspectives and Academic Analysis
Academic and expert analysis provides critical insights into the competition between tokenized bank deposits and stablecoins, with significant implications for financial innovation. Omid Malekan’s assessment that tokenized deposits represent inferior products compared to stablecoins stems from structural analysis of their technical capabilities and market positioning. His arguments highlight fundamental differences in flexibility, security models, and utility across financial ecosystems.
Evidence from additional expert commentary includes Austin Campbell’s criticism of banking industry resistance to yield-bearing stablecoins, accusing the sector of using political pressure to protect financial interests at retail customers’ expense. This perspective challenges traditional banking approaches to digital asset integration and highlights tension between innovation protection and consumer benefit in regulatory discussions.
Supporting analysis comes from Standard Chartered’s Geoff Kendrick, who stresses the vital link between stablecoin infrastructure and RWA growth, noting that “stablecoin liquidity and DeFi banking are important pre-requisites for a rapid expansion of tokenised RWAs.” This view underscores how ecosystem components depend on each other, with stablecoins acting as both fuel and foundation for broader digital asset development.
Comparative expert perspectives reveal divided opinions on digital asset integration approaches. While banking sector representatives emphasize the safety and regulatory compliance of tokenized deposits, crypto experts highlight the innovation potential and accessibility advantages of stablecoins. These differing viewpoints reflect broader philosophical divisions about financial system evolution and the role of decentralization.
The synthesis of expert analysis suggests that stablecoins’ technical advantages and growing market presence position them as dominant solutions in digital finance transformation. As academic research and industry experience accumulate, the functional limitations of tokenized deposits become increasingly apparent while stablecoins demonstrate practical utility across diverse financial applications and user segments.
Overcollateralized stablecoin issuers, who must maintain 1:1 cash or short-term cash equivalent reserves to back their tokens, are safer from a liability perspective than the fractional reserve banks that would issue tokenized bank deposits.
Omid Malekan
In DeFi, liquidity begets new products, and new products beget new liquidity. We believe a self-sustaining cycle of DeFi growth has started.
Geoff Kendrick
