Why Stablecoin Providers Should Look at Tokenized Deposits
The Current Limitations of Stablecoin Payments
Stablecoins are gradually gaining share in global payments, but transaction volumes are still relatively limited.
Relatively few banks and payment service providers (PSPs) actually take stablecoins onto their balance sheets as part of a payment. Instead, the off-ramp usually happens in another jurisdiction, such as the US or the UAE. There, a third-party provider converts the stablecoins into USD fiat and ensures the funds are paid into an offshore account held by the payout bank.
To reach the end beneficiary, the payout bank then generally relies on a traditional prefunding model, with fiat liquidity deposited at a local bank in advance. Or a local third-party payout provider can handle the payment in local currency on behalf of the off-ramp provider.
In both cases, the stablecoin transfer doesn't necessarily make the end-to-end payment more efficient. Multiple intermediaries are still involved, scattered prefunding ties up liquidity across jurisdictions, and most opportunities to net inbound and outbound payments are lost.
Where the Real Efficiency Gains Lie
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Payment providers can hold and reuse digital value instead of repeatedly converting it into fiat and topping up prefunded accounts. That reduces their reliance on intermediaries, puts their liquidity to better use and lets them net inbound against outbound flows. Distributed ledger technology can support this – provided the participating institutions are legally able to hold and transfer the tokens.
Why Are Banks Hesitant to Hold Stablecoins?
Banks remain cautious about holding stablecoins, mainly because of regulatory uncertainty. Our own research points the same way: in The Real Pace of Change, the survey of more than 50 senior payments executives we did with FinanceX Magazine, adoption of alternative payment rails depends far more on regulatory clarity, ecosystem maturity and organizational readiness than on the technology itself.
In jurisdictions such as the US and the EU, evolving regulation is creating clearer rules for issuing, holding and using digital assets. In many other markets, legislation is still unclear or incomplete. Some jurisdictions explicitly prohibit stablecoins or heavily restrict them.
The concerns run deepest in emerging markets, where stablecoins have often been used to get around local capital controls. Regulators there may see them less as a more efficient way to pay and more as a potential threat to foreign exchange reserves, monetary policy and national financial sovereignty. For a local bank, that can make the legal and regulatory risks of adopting stablecoins outweigh the operational benefits.
Tokenized Deposits: An Alternative Approach
I believe tokenized deposits are one answer: a complement to stablecoins that, if structured correctly, can enable instant, peer-to-peer value transfers across borders within existing banking and deposit frameworks – in a model where participating institutions and local regulators can work together. A tokenized deposit is a digital representation of a deposit held with a financial institution – a claim on the issuing bank. A conventional stablecoin, by contrast, is typically issued by a separate entity against reserve assets.
Depending on their legal and operational structure, tokenized deposits may be designed to sit within existing banking legislation instead of being treated as crypto-assets. Such a structure can be built around an existing bank deposit, or a bank guarantee secured by a pledged cash account, with the claim or guarantee represented digitally. That matters: a token that stays within the applicable banking and payment framework may offer a way to move value digitally without the legal constraints that apply to crypto-assets.
The design can also include controls so that transfers only take place between authorized payment providers and comply with local currency regulations, capital controls and other regulatory requirements. How it's treated will depend on the jurisdiction and the legal characteristics of the instrument. Tokenizing a deposit, guarantee or payment arrangement doesn't on its own guarantee that it falls outside crypto-asset regulation.
How It Works in Practice
Tokenized deposits build on established banking frameworks rather than an uncertain regulatory environment. That could let local banks take a more direct part in token-based payment flows. This is where network-based tokenized deposits matter. Unlike a single bank’s own token, bank-agnostic tokenized deposits can move directly between institutions on shared infrastructure. A receiving bank could accept a tokenized claim from another participating institution, use it to transfer value within the agreed framework and pay out the corresponding fiat amount through its domestic payment system.
The result is the speed and programmability of distributed ledger technology, built on the regulatory foundations the banking system already has.
What Does This Mean for Stablecoin Providers?
My advice to stablecoin providers: treat tokenized deposits as a complementary instrument that extends the reach of your payment networks, not as a competing technology.
The underlying technology and payment architecture can be similar, so existing processes and infrastructure may need only limited changes. What differs is the legal nature of the token, who issues it and the regulatory framework that governs its use.
What stablecoin providers stand to gain:
Access to restricted markets: A route into jurisdictions where local banks and payment providers can't use conventional stablecoins.
A broader network of payout partners: Local financial institutions may be more willing to participate when the instrument fits within an established banking framework.
More efficient liquidity management: Direct transfers between participating institutions could reduce reliance on prefunded fiat accounts and third-party off-ramps.
Greater potential for netting: Tokenized value could help match inbound and outbound payment flows, reducing unnecessary conversions and liquidity movements.
A more flexible payment infrastructure: Supporting both stablecoins and tokenized deposits could let providers pick the right instrument for each market, depending on local regulation and operational requirements.
Beyond Stablecoins Alone
I don't think the future of token-based cross-border payments depends on stablecoins alone.
Stablecoins can offer real advantages in speed, programmability and global accessibility, but in many markets regulation still limits their adoption by banks. Tokenized deposits could help close that gap – alongside stablecoins, not instead of them.
The greatest value of token-based payments won't come from simply moving money onto a blockchain. It will come from letting financial institutions transfer, reuse and settle value directly – with fewer intermediaries, less trapped liquidity and a regulatory model that works across markets.
