Stablecoins are having a moment, growing to multiple hundreds of billions in circulation, with national governments, crypto entities, and traditional financial institutions all testing the waters. As such, stablecoins have been entered into a sort of competition with tokenized deposits, which are digital tokens representing deposit claims on the bank, recorded on a programmable ledger.
In a new report, Stablecoins vs. Tokenized Deposits, Joel Hugentobler, Cryptocurrency Analyst at Javelin Strategy & Research, compares and contrasts these types of currency and considers how they might coexist. “The choice between stablecoins and tokenized deposits is not binary,” he said. “Banks will have the ability and opportunity to offer both, but the debate over the two products represents a strategic fork that will shape how banks remain relevant in digital money.”
Stablecoins Have Taken the Lead
Stablecoins and tokenized deposits share many characteristics and use cases. Although stablecoins have a proven track record and have already settled trillions of dollars in transaction volume, tokenized deposits are still establishing themselves in the marketplace.
Stablecoins and tokenized bank deposits leverage blockchain technology to modernize payments and value movement, allowing for faster settlement across geographies at any time. But there are key differences.
Pegged to fiat currencies, stablecoins’ primary advantage was introducing stable digital money into crypto and fintech ecosystems. They have expanded on use cases such as decentralized financial services and global remittances, things that were previously impossible for traditional bank deposits.
In contrast, tokenized deposits offer the stability and trust of traditional banking services while leveraging internal blockchains. This allows them to expand the capabilities of deposit accounts, but they have generally had limited functions thus far.
“Stablecoins have moved ahead in the race between the two vehicles largely because they have filled a necessary use case for cross-border payments,” Hugentobler said. “Tokenized deposits are primarily used for intrabank operations. Unless there’s another bank that wanted to use JP Morgan’s Connexus or something like that, where they can send those tokenized deposits instantly, they don’t enable a bank to use their tokenized deposits outside of that particular bank. But they can be used for anything in between—cross-border payments, remittances, micro transactions, merchant payments, all those things that have been discussed for stablecoins.”
The Promise of Interoperability
A key that will help tokenized deposits gain traction with banks is interoperabilty. If banks want to interact with each other, they must develop some sort of system of communication for sending tokenized deposits.
“Otherwise it’s just intrabank thing that can help with settlement and fees and that sort of thing, which is good but limited,” Hugentobler said.
Tokenized deposits at companies like JPMorgan Chase and Citi already offer large commercial customers benefits that anchor those banks to tokenized money in controlled, regulated ways. If banks decide to hesitate or temper their strategy to hedge against risk or compliance issues, that could sideline them while more nimble, nonbank issuers move ahead.
The key for banks, Hugentobler said, is to remember the opportunity in this area is not simply to preserve deposits or to chase after the hype that stablecoins are receiving. The real benefit is to redefine the role of digital currency as money becomes increasingly programmable, interoperable, and borderless. The banks that know the differences between tokenized deposits and stablecoins, and how each can be leveraged, will be ready to play a role in the next generation of value movement.
The Role of Regulation
Tokenized deposits fall under the existing FDIC umbrella as covered deposits that are held by banks. While that limits what they can do under a highly prescribed regulatory regime, it also means they’re able to be implemented quickly. They can be used for intrafirm settlements, clearing, and other transactions that don’t require the hoops, as it were, faced by stablecoins, which require a one-to-one reserve requirement.
European regulators have emphasized that recording the deposit claim on a blockchain does not change its legal nature; it remains a deposit subject to deposit taking and prudential rules. That is one more reason tokenized deposits exist outside of many of the requirements for stablecoins. That is making it much simpler for banks to work with deposit tokens than stablecoins from risk and compliance standpoints.
Stablecoins are already being used as important payment tools within the open, global ecosystem of decentralized financial services. Soon, they will be used for more traditional money movement. But Hugentobler said that if stablecoin volumes increase, as most observers expect, there could be the potential for systemic risks if they’re not overseen correctly or audited.
“These issuers don’t have the reserves that they say they do,” he said. “It might take a liquidity run for more regulation to come in. But the industry’s been waiting on something to happen in this area. After the stablecoin regulation came out, it’s given a pretty robust framework for developers.”
A Mixed Blessing for Stablecoins
Although cryptocurrencies were initially celebrated by supporters as something outside a government’s purview, regulation has been a mixed blessing. The GENIUS Act, which was signed into law in July, established federal standards for the issuance, trading, and custody of stablecoins. By putting guardrails around the digital assets industry, the law gave users an increased sense of security. It provided the same stability that the MiCA (Markets in Crypto Assets) Act gave Europe when it was passed in 2024.
“Whether it’s a new product, a new stablecoin, or something related to them, 40% of them have happened after the GENIUS Act was put into law,” Hugentobler said. “Before, companies were kind of afraid to launch a new product or integrate some sort of product into their system because no matter how compliant or robust they made their system, they didn’t have any guidelines to go with. Now they definitely feel more comfortable.”
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