Stablecoins vs Tokenized Deposits: Which Could Power the Future of Payments?

Two versions of money are competing to move onto blockchains.

One came from crypto.

The other is coming from banks.

Stablecoins such as USDT and USDC have already demonstrated that dollar-denominated value can move globally, 24 hours a day, through blockchain networks.

Banks are developing another model: tokenized deposits.

Instead of creating a separate digital token backed by reserves, a bank represents an existing deposit balance on programmable infrastructure.

The Bank for International Settlements has now taken a clear position in this debate.

At the Jackson Hole Economic Symposium on August 28, BIS General Manager Pablo Hernández de Cos argued that tokenized deposits offer a more promising foundation for mainstream payments, while stablecoins may be better suited to more specialized roles.

Is that assessment right?

The answer depends on what we expect future money to do.

Summary

Stablecoins and tokenized deposits both move fiat-denominated value using digital or blockchain-based infrastructure, but their legal and financial structures are different.

A stablecoin is typically issued against a pool of reserve assets.

A tokenized deposit represents a commercial bank deposit recorded using programmable infrastructure.

The BIS argues that tokenized deposits are better positioned to preserve three properties of the existing monetary system: singleness, interoperability and financial integrity.

Stablecoins, however, already have substantial advantages in public-blockchain distribution, self-custody, cross-border accessibility and integration with DeFi.

The future may therefore involve coexistence rather than one model completely replacing the other.

Stablecoins and Tokenized Deposits Solve the Same Problem Differently

Start with a simple payment.

Alice wants to send Bob $1,000 digitally.

With a stablecoin, Alice might send 1,000 units of a dollar-denominated token over a blockchain.

With tokenized deposits, her bank balance could instead move through a programmable banking network.

To the user, both may eventually feel almost instantaneous.

Underneath, however, the claims are very different.

Stablecoins vs Tokenized Deposits at a Glance

The table explains why neither product is simply a better version of the other.

They inherit advantages and limitations from two very different financial systems.

What Is a Tokenized Deposit?

A tokenized deposit is a commercial-bank deposit represented using programmable digital infrastructure.

The important word is deposit.

If a customer has $10,000 in a conventional bank account, that balance is a liability of the bank to the customer.

Tokenizing the deposit changes how the balance can potentially move and interact with financial applications.

It does not necessarily turn it into a separate reserve-backed cryptocurrency.

This distinction is central to the BIS argument.

Why the BIS Prefers Tokenized Deposits for Mainstream Payments

Pablo Hernández de Cos framed the comparison around three properties of trustworthy money:

singleness

interoperability

integrity

These sound abstract, but each addresses a practical payment problem.

1. Singleness: Is One Dollar Always One Dollar?

Imagine one person holds USDT while another only accepts USDC.

Both tokens aim to represent one U.S. dollar.

But they are separate instruments issued by different entities.

Converting between them can require a market transaction.

Under normal conditions, the difference may be tiny.

During market stress, prices can deviate from $1.

The BIS argues that this weakens what economists call the singleness of money: the expectation that one unit of money is interchangeable at par with another unit of the same currency.

Bank deposits work differently.

A $100 balance at Bank A and $100 at Bank B remain denominated in the same national currency, while interbank obligations ultimately settle through the central banking system.

Tokenized deposits attempt to preserve that architecture while modernizing the infrastructure.

2. Interoperability: Public Blockchains Have a Fragmentation Problem

Stablecoins appear highly interoperable because they exist on many blockchains.

The reality is more complicated.

A USDC token on one network is not automatically transferable to every other network.

Moving assets between chains can involve native issuance mechanisms, cross-chain protocols or bridges.

That creates additional technical and sometimes security risks.

Tokenized deposits have their own problem.

Most experiments currently operate inside restricted institutional systems that cannot seamlessly communicate with one another.

So neither model has solved interoperability.

The BIS argument is that a common settlement layer anchored in central-bank money could eventually make tokenized bank deposits more interoperable across financial institutions.

3. Financial Integrity: Permissionless Money Is Harder to Police

Stablecoins can move between self-custodied wallets without every transfer passing through a bank.

That is one of their most useful properties.

It is also one reason regulators worry about them.

A permissionless blockchain does not automatically know who controls an address.

Banks, by contrast, operate inside established KYC, AML and sanctions-compliance frameworks.

The BIS therefore sees tokenized deposits as easier to integrate into existing financial-integrity controls.

But there is an obvious trade-off.

The same architecture that makes stablecoins harder to supervise can also make them easier for legitimate users to access globally without depending on a particular bank.

Where Stablecoins Are Already Winning

The BIS argument describes how an ideal monetary system should work.

The market tells us what people are actually using.

And here stablecoins have a major advantage:

they already work at scale.

Stablecoins are used for:

crypto trading;

cross-border transfers;

on-chain lending;

DeFi collateral;

payments;

remittances;

digital-dollar savings;

24/7 settlement.

Tokenized deposits do not yet have an equivalent global multi-bank ecosystem.

The BIS itself acknowledges this.

Most tokenized-deposit systems remain pilots, single-bank networks or permissioned institutional platforms.

The Biggest Stablecoin Advantage Is Composability

A stablecoin can move into a smart contract.

From there it might:

provide liquidity;

secure a loan;

settle a tokenized asset;

enter an automated market maker;

move to another application.

This ability for financial applications to connect like software modules is often called composability.

Traditional bank deposits were never designed for that.

Tokenized deposits could gain programmable capabilities, but banks also have to maintain compliance controls and institutional boundaries.

That may make completely open composability difficult.

The Biggest Tokenized-Deposit Advantage Is the Banking System Behind It

A bank deposit is not merely a digital number.

It exists within a financial architecture involving:

bank capital;

liquidity regulation;

deposit protection;

central-bank reserves;

lender-of-last-resort facilities;

payment regulation.

Tokenized deposits can potentially bring blockchain-like programmability into that structure without forcing users to move money outside the banking system.

This is why banks are increasingly interested in the model.

It allows them to modernize money without surrendering the deposit relationship.

Could Stablecoins Drain Deposits From Banks?

This is one of the biggest strategic questions.

Suppose a company keeps $50 million in stablecoins rather than $50 million in commercial-bank deposits.

The company still holds dollar-denominated value.

But the banking system may lose part of its deposit funding.

Banks use deposits as an important funding source for lending.

At sufficiently large scale, migration from deposits toward stablecoins could therefore affect bank funding and monetary-policy transmission.

This is one reason the stablecoin debate is no longer confined to crypto regulation.

What About Yield?

Yield complicates the competition.

Traditional bank deposits can pay interest.

Some tokenized deposits may eventually do the same.

Many mainstream payment stablecoins, however, do not directly pass the income generated by reserve assets to ordinary holders.

That creates room for other on-chain products such as tokenized money-market funds and tokenized Treasuries.

The future monetary system may therefore contain several layers:

stablecoins for payments

tokenized deposits for banking

tokenized Treasuries for yield and collateral

rather than one universal token replacing everything.

Stablecoins vs Tokenized Deposits vs CBDCs

Central bank digital currencies add a third model.

A CBDC is a direct or structurally mediated form of central-bank money.

A tokenized deposit remains commercial-bank money.

A stablecoin is privately issued digital money backed according to the issuer's reserve structure.

Their roles can therefore be summarized as:

The three systems do not necessarily have to be mutually exclusive.

Could Stablecoins and Tokenized Deposits Coexist?

This is actually the scenario the BIS leaves open.

Its latest position is not that stablecoins must disappear.

Instead, Hernández de Cos argues that tokenized deposits should carry much of everyday and wholesale payment activity, while stablecoins could continue serving specialized roles such as decentralized financial markets under appropriate safeguards.

Whether markets develop that way is another question.

Stablecoins already have network effects that policy design alone cannot erase.

The Real Competition Is About the Settlement Layer

The stablecoin-versus-deposit debate can sound like a competition between two types of token.

It is bigger than that.

The question is:

What kind of money will settle a tokenized financial system?

If stocks, bonds, Treasuries, funds and other real-world assets increasingly move onto programmable infrastructure, those assets need a payment leg.

That payment could be:

a stablecoin;

a tokenized bank deposit;

tokenized central-bank money;

or some combination of all three.

This is why stablecoin policy, RWA tokenization and bank blockchain projects are increasingly converging into the same conversation.

Which Model Is More Likely to Win?

For crypto-native activity, stablecoins currently have a substantial lead.

For regulated interbank and institutional payment systems, tokenized deposits may fit more naturally into existing legal and monetary frameworks.

For public money, central banks may develop their own tokenized settlement infrastructure.

The most plausible outcome is therefore not:

stablecoins OR tokenized deposits.

It is:

stablecoins AND tokenized deposits — connected by increasingly interoperable settlement systems.

FAQ

What is the difference between stablecoins and tokenized deposits?

A stablecoin is typically a privately issued digital token backed by reserve assets. A tokenized deposit represents a commercial-bank deposit using programmable digital infrastructure.

Are tokenized deposits cryptocurrencies?

Not in the conventional sense. They can use blockchain or distributed-ledger technology but remain claims on regulated commercial banks.

Are tokenized deposits safer than stablecoins?

They have a different risk structure. Tokenized deposits retain exposure to the issuing bank and may benefit from banking protections depending on jurisdiction. Stablecoins depend on their issuer, reserves, redemption structure and technical infrastructure.

Does the BIS support stablecoins?

The BIS recognizes potential specialized roles for stablecoins but argues that tokenized deposits are a stronger foundation for mainstream everyday and wholesale payments.

Can tokenized deposits be used in DeFi?

Technically they can interact with programmable systems, but today's tokenized-deposit projects generally have much more restricted access and interoperability than public stablecoins.

Will tokenized deposits replace USDT and USDC?

There is no evidence that replacement is inevitable. Stablecoins already have substantial crypto-native and cross-border network effects. The two forms of digital money could coexist.

What is the difference between tokenized deposits and CBDCs?

Tokenized deposits are liabilities of commercial banks. CBDCs represent central-bank money. Their issuer and legal structure are therefore fundamentally different.

Disclaimer

This article is for informational and educational purposes only. Regulatory treatment, deposit protection and the legal status of stablecoins and tokenized deposits vary by jurisdiction and product structure.