The risk for banks is not that stablecoins exist; it’s credit intermediation.

​Stablecoins have clear utility in open networks, decentralized finance and permissionless payments. The risk is that nonbank issuers could become the preferred gateway for digital money, pushing banks out of the customer relationship and the payment flow, and eventually out of the deposit base. ​

Disintermediation occurs when funds that would traditionally be held as bank deposits are moved into accounts held by nonbank issuers. When a customer moves money into a stablecoin, those funds are typically withdrawn from the fractional-reserve banking system and placed into full-reserve models. This is because, under the GENIUS Act, stablecoins must be backed 100% by cash or high-quality liquid assets, such as government bonds.​

The concern is that this change will undermine traditional banks' ability to provide credit to the real economy. Since nonbank stablecoin issuers do not engage in lending, every dollar that leaves a bank deposit base reduces a bank's capacity to fund loans through traditional deposit-based intermediation. This narrow banking could create a trade-off where the efficiency of a digital medium of exchange comes at the direct cost of reduced investment and economic growth. Stablecoins may be safer under new rules, but they are still a parallel form of digital money.

Tokenized deposits help banks answer a simple market demand​.

Customers want money that works on digital rails. Rather than surrender that demand to nonbank issuers, banks can bring commercial bank money onto those rails. A tokenized deposit keeps the liability inside the regulated banking system. When a bank customer converts an ordinary deposit into a tokenized deposit, the asset does not need to leave the banking balance sheet. The record-and-transfer mechanism changes, but the customer still has a claim against the bank. ​

This allows banks to offer many of the same customer benefits associated with stablecoins, including programmable domestic and cross-border payments, atomic settlement and always-on transfers, without giving up their role in credit creation. ​

For a bank CEO or transaction banking head, the question is whether the bank wants corporate clients to use a token issued by a nonbank platform or a programmable version of the deposit relationship they already hold. ​

A prime example of this utility is the Citi Token Services platform, which has been live since 2024 and allows corporate clients to move funds between locations such as New York and Singapore with near-instant finality while allowing clients to continue using existing fiat accounts and balances.

Stablecoins will coexist, but institutional money has different rules.​

​Stablecoins are well-suited to open, permissionless ecosystems, but the opportunity for banks is different: providing regulated digital money for institutional clients before nonbank platforms own the customer interface.

Institutional money movement operates under a different set of requirements. Corporate treasurers care about auditability, counterparty risk, yield, legal recourse and operational control. In that environment, tokenized deposits offer three distinct advantages.​​

First, they preserve balance sheet continuity. A tokenized deposit remains commercial bank money, issued inside the regulated banking perimeter.

Second, they can be more attractive for treasury balances. Stablecoin issuers are restricted from paying yield under U.S. law, while bank deposits can be interest-bearing depending on product design and applicable rules.

Third, tokenized deposits preserve the link between money and credit creation. Central bank reserves and commercial bank deposits together support the singleness of money and the elasticity needed for the real economy. This is the ability to exchange different forms of money at par without a discount, and tokenized deposits preserve that relationship within the commercial banking system.

​What are the next steps for banks​?

The first step is maintaining strict use-case discipline. Start where clients already feel pain, such as intraday liquidity, cross-border treasury, collateral movement, tokenized securities settlement, trade finance and supplier payments. ​

Second, banks must focus on network building and interoperability. The full potential of tokenized deposits will only be realized when different platforms can talk to each other. Banks should engage with industrywide initiatives like Project Agorá, which involves the BIS and eight central banks to create a common platform for cross-border payments using tokenized deposits. ​

The third step is architecture maturity. Banks need unbiased advisory before choosing the operating model, ledger, consortium structure and compliance framework. They also need compliant blockchain infrastructure partners that understand regulated finance, not just token issuance. Identity, permissioning, privacy, monitoring, auditability, resilience, interoperability, smart contract risk and core banking integration must be designed into the system from day one. ​

Finally, banks should expand beyond seeing stablecoins as only a threat. They can issue tokenized deposits for institutional clients while also providing reserve custody, settlement services, fiat ramps and compliance infrastructure to stablecoin ecosystems. ​

By bringing commercial bank money on-chain, banks can counter disintermediation and ensure they remain the foundational layer of the global financial system for the digital age.

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