Author: Gino Matos
Compiled by: Saoirse, Foresight News
Banks claim building tokenized deposits is to modernize payments and achieve programmable money with 24/7 settlement.
Artem Tolkachev, Chief Real-World Asset (RWA) Lead at Falcon Finance, told CryptoSlate that this narrative only tells half the truth:
"The key is the balance sheet, not the technology itself."
Tokenized deposits can retain funds that would otherwise be transferred out of the bank's balance sheet by 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."
The Underlying Logic of Stablecoins vs. Tokenized Deposits
Tolkachev stated that for holders, tokenized deposits, asset-backed stablecoins, and over-collateralized synthetic dollars appear almost identical externally.
In the tokenized deposit scenario, $100 million would stay on a bank's balance sheet. The bank earns revenue from lending, holders bear the bank's credit risk, but the asset remains an insured deposit.
The stance of the U.S. Federal Deposit Insurance Corporation (FDIC) also supports this interpretation: tokenization only changes the form of the deposit, not its essence.
In the asset-backed stablecoin model, funds flow into the issuer's reserve pool, with the issuer earning the reserve yield. Holders bear the issuer's operational and reserve risks without sharing the yield. The "GENIUS Act" prohibits issuers from distributing yield to holders, and such assets lack deposit insurance as a backstop.
With over-collateralized synthetic dollars, tokens are backed by collateral worth more than their face value, held in segregated custody. The yield depends on how the collateral is managed. Holder protection comes from the over-collateralization ratio and the segregation mechanism between custodian and issuer.
Tolkachev pointed out that all three have the same face value, but the risk bearers are completely different. The core issues are where the funds are held and who has the right to use them.
The Battle for Funds: The Game Begins Before Deposit Outflows
The Dallas Federal Reserve stated in July: Deposit tokens are essentially commercial bank deposits, remain on the issuing bank's balance sheet, are redeemable at par, and are subject to the same regulatory framework as ordinary deposits.
An FDIC proposal in April indicated: Deposits held as stablecoin reserves are insured with coverage for the stablecoin issuer (corporate deposit); ordinary individual stablecoin holders do not have pass-through insurance claim rights. (Note: Pass-through insurance claim rights refer to the right of ordinary stablecoin users to file a claim directly with the deposit insurer, bypassing the stablecoin issuer. The FDIC proposal states individual holders do not have this right; insurance only pays the issuer company as the depositor.)
Regardless of the technology used to record the underlying deposit liability, the rules for deposit insurance should be consistent.
Tolkachev suggested that if stablecoins cause bank deposit outflows, the first observable consequence would be rising funding costs, which would be noticeable before a decline in deposit size. After losing low-cost, stable deposit sources, banks would have to rely on more expensive wholesale funding to maintain lending, compressing profit margins even before lending contracts.
He added that this transmission logic is mostly theoretical, lacking sufficient empirical data. Existing research finds the pathway plausible but lacks real-world case studies for confirmation.
The Federal Reserve and the Bank for International Settlements have separately reached the same conclusion: Deposit migration triggered by stablecoins would increase funding costs, ultimately leading to loan repricing. Tolkachev said:
"This game is competing for the cheapest liability in the entire financial system. The direction of credit costs depends on the outcome of this game."
Wells Fargo announced plans in early August to launch a tokenized deposit product for corporate and commercial clients this fall, initially for USD/GBP transactions, with further expansion planned for 2027. The bank stated the product has the same regulatory protections and deposit insurance eligibility as existing deposit products.
JPMorgan Chase already runs the JPM Coin deposit token on the Base blockchain, allowing institutional clients to transfer funds and post collateral on a public network, with the underlying funds still being commercial bank deposits.
The Trajectory of the Balance Sheet Game in the Coming Years
Tolkachev believes stablecoins remain better suited for funds requiring 24/7 cross-border movement, on-chain settlement, and instant transfers between counterparties.
Bank deposits are better for statically held funds, backed by deposit insurance, lending relationships, and the bank's balance sheet.
"Most corporate treasurers will use both tools, choosing based on business needs."
Tolkachev also cautioned: Bank deposits come with institutional risk assessment and regulatory oversight of reserves; stablecoins facilitate dollar movement but lack this risk-control and regulatory system, which is also why they transfer faster. Treasurers must examine the underlying collateral before being attracted by their yield potential.
Optimistic Scenario: Large banks build interoperable tokenized deposit networks. Corporate treasury balances remain within the banking system, achieving 24/7 programmable settlement without losing the underlying funds. Tokenized deposits would become the banking industry's real counter to stablecoins, offering similar technological capabilities while preserving the deposit base essential for lending.
Pessimistic Scenario: Even if only 1%-3% of U.S. commercial bank deposits flow out, given the current total deposit size of $19.5 trillion, the outflow would be approximately $195 billion to $586 billion. Funds would pour into stablecoins far faster than tokenized deposits could absorb them.
Comparison of Stablecoin vs. Tokenized Deposit Advantages/Disadvantages in Different Scenarios:
This would be followed by rising funding costs, compressed profits, and loan repricing. The market would start viewing stablecoins as a real threat to the liability side of bank balance sheets, no longer just as payment tools.
Banks' move into tokenized deposits stems from stablecoins proving the customer value of programmable dollars. The core of the current competition is: who controls the funds when they are in a pending state during a transaction.
