Why Every Bank Should Tokenize Deposits

The GENIUS Act has legitimized stablecoins, igniting a new race for the future of digital money. At the center of this shift lies tokenized deposits — a massive opportunity for banks to win their place in onchain finance and build an interoperable network.

Stablecoins vs. Tokenized Deposits

Stablecoins like Tether and USDC are already powering global, 24/7, open-loop payments. Banks such as JPMorgan or Citi have built similar systems internally, but only for their own customers. The key difference? Stablecoins are public, interoperable, and accessible to anyone. Tokenized deposits could bring banks into that same open-loop arena.

A tokenized deposit is simply a dollar deposit represented on-chain, backed by a bank’s balance sheet and FDIC insurance. Unlike stablecoins, which are mostly backed by Treasuries, tokenized deposits remain part of the banking system — meaning banks can lend against them, pay yield, and maintain their existing balance sheet operations.

The opportunity is not winner-take-all. In reality, stablecoins and tokenized deposits will co-exist to solve different problems:

Stablecoins serve as global digital cash, useful in unstable economies or niche markets.

Tokenized deposits bring the benefits of tokenization — instant, 24/7, programmable payments — to mainstream banking customers.

Tokenized reserves may one day represent central bank money directly.

Onchain Swaps

Every payments company, fintech, and even Western Union is entering the stablecoin game. If banks don’t move, they risk being bypassed. The GENIUS Act gives them an edge: tokenized deposits are deposits, with the credibility, regulation, and customer trust that banks already own.

Onshore tokenized deposits can become interchangeable for stablecoins and other tokenized deposits in other currencies.

Swapping a banks’ tokenized deposits with offshore stablecoins extends the banks’ reach to go to the last mile in areas where the correspondent banking can’t reach.

Onshore stablecoins become a cash-like instrument for nonbanks and help connect offshore stablecoins back to legitimacy.

Innovative banks can extend this ‘swap strategy’ and offer products that once were out of reach like offering innovative banking and payment services to multi-national businesses.

Growth Constraints and Caution

Banks already move billions daily through private tokenized systems, but those are closed networks. The next step is going public — issuing tokens on chains like Ethereum, Solana, or Base, making them transferable to anyone, anywhere.

Doing this won’t be simple. Privacy, KYC, and compliance challenges remain unsolved. Regulators are cautious, and mistakes now could mean fines later. But the direction is clear: the market is shifting, and competitors aren’t waiting.

Strategic Path Forward

Banks have an opportunity to shape digital finance. Given the risk adverse nature of banks, proof-of-concept programs should start now in partnership with onchain public networks like Ethereum, Solana, and Baseeducation needs to be

Pilot small programs on private L2s

Experiment with one use case at a time

Build compliance frameworks before scaling

Joint education and guidance with state regulators to create clear legislation at the state-level

The next decade will be defined by whether banks stay locked in their closed systems or embrace open-loop, onchain finance. Tokenized deposits give them the right to play — but only if they adapt to this new financial ecosystem.

Note: This post was inspired by Simon Taylor’s article on the topic. The images and many of the key points were used, and expanded on based on my experience working in fintech, banking, cross-border payments, and crypto.