The tokenized-deposit vs. stablecoin fight is a distraction.

Banks multiply money. Stablecoins move it. We need both.

Author

Simon Taylor
December 07, 2025

📣 Mini Rant: The tokenized-deposit vs. stablecoin fight is a distraction.

Banks multiply money. Stablecoins move it. We need both.

The tokenized deposit maxi says: "Stablecoins are unregulated shadow banking. Everyone will prefer banks when they tokenize."

Some banks and central banks love this narrative.

The stablecoin maxi says: "Banks are dinosaurs. We don't need them on-chain. Stablecoins are the future of money."

Crypto natives love this narrative.

Both miss the point.

Banks create cheaper credit for their biggest customers

Your $100 deposit becomes $90 in loans (and more). That's how fractional reserve banking works. It's been the engine of economic growth for centuries.

  • F500 companies park $500M at JPM. 

  • They get giant credit lines in return. Below-market rates. 

  • The deposits are the bank's business model and the corporates understand this.

Tokenized deposits preserve this on-chain, but they're ONLY for bank customers. You're still inside the bank's perimeter. Still subject to their hours, their processes, their compliance.

For companies that want cheap credit lines? Tokenized deposits make sense.

Stablecoins work like cash

Circle and Tether hold 100% reserves. $200B in T-Bills. They capture 4-5% yield. They pay you zero.

What you get in return is money outside any bank's perimeter. $9 trillion moved cross-border via stablecoins in 2025. Works anywhere with Internet. 24/7 without permission.

No correspondent banks asking questions. No waiting for SWIFT to clear. No "we'll get back to you in 3-5 business days."

For companies that need to pay a supplier in Argentina at 11pm on a Saturday? Stablecoins make sense.

The future is both

A corporation that wants a good credit line from its banks might also want to use stablecoins as a rail to access long-tail markets.

Imagine this scenario

  • A Fortune 500 corporation holds tokenized deposits at JPM

  • In return, it gets favorable credit lines for US operations

  • It needs to pay the Argentine supplier who prefers stablecoins

  • So it swaps JPMD for USDC

An example of where we could be going.

On-chain. Atomic.

Best of both. 

Use legacy Rails where they work. 

Stables where they don't.

This isn't either/or. It's and.

  • Tokenized deposits → cheap credit inside bank perimeters

  • Stablecoins → cash-like settlement outside bank rails

  • On-chain swaps → instant conversion, zero settlement risk

There’ are pros and cons to both.

Feature

Tokenized Deposits

Stablecoins

Best at

Credit creation, regulated on/off ramps, institutional treasury

Global settlement, cross-border flows, DeFi composability

Core strength

Fractional reserve banking enables cheap credit

Universal accessibility without permission

Who issues

Banks only

Anyone (subject to local rules)

Reserve model

Partial reserves + lending book

100% reserves in T-Bills/repos

Portability

Trapped within the issuing bank's ecosystem

Moves anywhere, any chain, any wallet

Operating hours

Bank hours + local payment method settlement windows

Instant, 24/7 to anyone with internet access

Regulatory status

Fully regulated as bank deposits globally

Fragmented (MiCA, GENIUS, etc.)

Liquidity backstop

Deposit insurance + central bank facilities

None (fire sale risk in runs)

Yield to holder

Potentially yes (at the bank's discretion)

No (issuer captures float, aside from “marketing rewards”)

Best use case

Corporate treasury, trade finance, mortgage origination

Remittances, DeFi, and emerging market dollar access

Biggest flaw

Can't cross bank boundaries easily

No public safety net in crisis

These things will co-exist.

On-chain > APIs for payment orchestration

Some bank Maxi’s will say “we don’t need tokenized deposits, we have APIs” and for some use cases they’re right. 

That’s where onchain finance comes into its own.

Smart contracts compose logic across multiple businesses and persons. When supplier's deposits land, smart contracts can trigger inventory financing, working capital lines, currency hedges. From banks and non-banks. Automatically. Instantly.

Deposit → stablecoin → invoice paid → downstream payment happens.

APIs are point-to-point. Smart contracts are many-to-many. That makes them ideal for workflows that cross organizational boundaries. That’s the superpower of onchain finance.

That's a fundamentally different architecture for financial services.

The future is on-chain

Tokenized deposits solve for cheap credit. Deposits stay captive. Banks lend against them. Their business model remains intact.

Stablecoins solve for portability. Money moves anywhere without permission. The global south gets dollar access. Corporates get settlement speed.

The tokenized deposit maxi wants regulated rails only.

The stablecoin maxi wants to kill banks.

The future needs both.

F500s want giant credit lines from their bank AND instant global settlement. Emerging markets want local credit creation AND dollar access. DeFi wants composability AND real-world asset backing.

The fight over which one wins misses what's happening. The future of finance is on-chain. Both tokenized deposits and stablecoins are infrastructure for getting there.

Stop arguing about winners. Start building interoperability.

Composable money.

ST.