Tokenized deposits: how bank deposits become tokens

A tokenized deposit is a bank deposit represented as a token on a blockchain. The dollars remain a deposit liability on the issuing bank’s balance sheet. The token is a digital claim on that existing deposit, not a claim on a separate pool of reserves.

When a customer transfers a deposit token, the bank updates its internal account ledger and records a matching token update on-chain. The payment moves through bank records rather than by moving central-bank reserves between accounts. A payment stablecoin, by contrast, represents a claim on an issuer’s reserve pool and changes hands by switching control of the token on a distributed network.

Tokenized deposits are account-based instruments that typically move only between customers the issuing bank has onboarded. Stablecoins are bearer instruments: control of a private key generally controls the token and allows transfers across a permissionless network without the issuer’s approval. Banks retain compliance controls over tokenized deposits; stablecoins allow broader, permissionless transfers.

Deposits remain part of a bank’s deposit base and can support lending. Tokenized deposits preserve that role because the underlying funds stay within the bank’s balance sheet. Stablecoin reserves are usually held in cash and short-term government securities and do not typically finance bank loans. Research from the Federal Reserve Bank of New York links large-scale stablecoin use to a shift toward narrow banking.

Regulatory treatment differs between the two instruments. The Federal Deposit Insurance Corporation has stated that payment stablecoin holders do not receive deposit insurance. No regulator has issued a clear, general ruling that confirms whether a tokenized representation of an insured bank balance carries the same deposit insurance protections as the underlying account. The GENIUS Act, enacted in July 2025, established a federal statute for payment stablecoins covering reserve rules, licensing, disclosure and redemption rights. Tokenized deposits continue to operate under existing banking law, which was not written specifically for on-chain instruments.

Major banks have built internal systems for deposit-token settlement aimed at institutional clients. JPMorgan has offered deposit-token settlement for years. Citi and HSBC have implemented comparable infrastructure to move corporate cash. The Clearing House is developing a shared interbank network to allow deposit tokens to move between banks, with an initial rollout targeted for the first half of 2027. A recent survey of institutional non-users found a majority plan to adopt stablecoin or tokenized solutions within six to twelve months.

Current limits include restricted transferability and interbank settlement dependencies. Tokenized deposits typically provide 24/7 internal settlement, programmability and instant movement inside an issuing bank or within a limited network. There is no production-grade interbank model in the United States yet, and transfers between banks still require settlement in central-bank reserves at each hop. As a result, tokenized deposits do not offer permissionless transfer across the wider market today.

Market participants are developing both instrument types for different use cases. Tokenized deposits are being built for wholesale and institutional settlement within and eventually between banks. Payment stablecoins are used for open-network transfers and broader market access. Both approaches are in use and under development.