In today’s newsletter, Sam Boboev, founder of Fintech Wrap Up, examines how banks are adopting stablecoins and tokenization to improve banking rails.
Next, Xin Yan, co-founder and CEO of Sign, answers questions about banks and stablecoins in Ask an Expert.
-Sarah Morton
From stablecoins to token deposits: why banks are reclaiming the narrative
Stablecoins dominated early talk about digital currency because they solved a limited technical problem: moving value natively on digital rails when banks could not. Speed, programmability and cross-platform settlement have exposed the limitations of correspondent banking and batch systems. This phase is coming to an end. Banks are now advancing token deposits to reassert control over money creation, liability structure and regulatory alignment.
This is not a reversal of innovation. It’s a containment strategy.
Stablecoins has expanded its capabilities outside the banking perimeter
Stablecoins function as privately issued settlement assets. These generally consist of liabilities of non-bank entities, backed by reserve portfolios whose composition, custody and liquidity treatment vary depending on the issuer. Even when they are fully reserved, they escape deposit insurance frameworks and direct prudential supervision applied to banks.
The technical gain was real. The structural consequence was significant. Value transfer has begun to migrate beyond regulated balance sheets. The cash that once bolstered the banking system began to consolidate into parallel structures governed by disclosure regimes rather than capital rules.
This change is inconsistent with how banks, regulators and central banks define monetary stability.
Tokenized deposits preserve the deposit, change the rail
Tokenized deposits do not introduce new money. They repackage existing repositories using distributed ledger infrastructure. The asset remains a bank liability. The claims structure remains unchanged. Only the regulation and programmability layer evolves.
This distinction is decisive.
A symbolic deposit appears on a regulated bank balance sheet. It remains subject to capital requirements, liquidity coverage rules, resolution regimes and, where applicable, deposit insurance. There is no ambiguity as to seniority in matters of insolvency. There is no reserve opacity problem. There are no new issuer risks to subscribe to.
Banks do not compete with stablecoins on speed alone. They compete on legal certainty.
Balance sheet control is at the heart of the problem
The real dividing line lies in the location of the balance sheet.
Stablecoins outsource settlement liquidity. Even when reserves are held with regulated institutions, the liability itself does not belong to the bank. Monetary transmission is weakening. Fragments of supervisory visibility. Stresses propagate through structures that are not designed to support systemic loads.
Tokenized deposits maintain settlement liquidity within the regulated perimeter. Faster movement does not equate to balance sheet leakage. Capital remains measurable. Liquidity remains manageable. The risk remains attributable.
This is why banks support tokenization while resisting the substitution of stablecoins. The technology is acceptable. Disintermediation is not.
Consumer protection is not a feature, it’s a constraint
Stablecoins require users to evaluate issuer credibility, reserve quality, legal enforceability, and operational resilience. These are institutional level risk judgments imposed on end users.
Tokenized deposits remove this burden. Consumer protection is inherited, not rebuilt. Dispute resolution, insolvency handling and legal remedies follow current banking law. The user does not become a credit analyst out of necessity.
For advisors, this difference defines fit. The digital form does not prevail over the quality of responsibility.
Narrative recovery is strategic and not cosmetic
Banks are repositioning digital currency as an evolution of deposits and not a replacement. This reframing refocuses authority over currency within licensed institutions while absorbing the functional gains demonstrated by stablecoins.
The result is convergence: blockchain rails carry bank money, not private substitutes.
Stablecoins have forced the system to confront its architectural limits. Tokenized deposits are how incumbents process them without giving up control.
Digital currency will persist. The unresolved variable is issuer primacy. Banks are now working to close this gap.
–Sam Boboev, founder, Fintech Wrap Up
Ask an expert
Q. Banks are increasingly presenting stablecoins not as speculative crypto assets, but as settlement, collateralization and programmable currency infrastructure. From your perspective, working on blockchain infrastructure, what is driving this shift within large financial institutions, and how is this moment different from previous stablecoin cycles?
A. The significant distinction between a stablecoin and traditional fiat is that the stablecoin exists on-chain.
This on-chain nature is precisely what makes stablecoins attractive to financial institutions. Once money is natively digital and programmable, it can be used directly for settlement, payments, collateralization and atomic execution across systems, without relying on fragmented existing rails.
Historically, we have seen concerns around stablecoins focused on technical and operational risks, such as smart contract failure or insufficient resilience. These concerns have largely faded. The stablecoin’s core infrastructure has been tested over multiple cycles and has seen sustained real-world use.
Technically, the risk profile is now well understood and often lower than generally thought. The remaining uncertainty is primarily legal and regulatory rather than technological. Many jurisdictions still lack a clear framework that fully recognizes stablecoins or CBDCs as premium representations of sovereign currency. This ambiguity limits their widespread adoption within regulated financial systems, even when the underlying technology is mature.
That said, this period seems structurally different from previous cycles. The conversation moved from “should this exist?” to “how can we safely integrate it into the monetary system?” »
I expect 2026 to bring significant regulatory clarification and formal adoption pathways in multiple countries, driven by the recognition that on-chain money is not a competing asset class, but an upgrade to financial infrastructure.
Q. As banks move toward tokenized deposits and on-chain settlement, identity, compliance, and verifiable credentials become essential. Based on your work with institutions, what infrastructure gaps still need to be filled before banks can scale these systems securely?
A. For these systems to work naturally, we need to match the speed of compliance and identity with the speed of the assets themselves. Currently, settlement takes place in seconds, but verification still relies on manual work. The first step to solving this problem is not decentralization. It’s simply a matter of digitizing these records so that they can be viewed on-chain. We already see many countries actively working to move their core identity and compliance data to blockchain.
In my opinion, there is not a single “gap” that, once filled, would suddenly make everything fit perfectly. Rather, it’s about solving one bottleneck at a time. It’s as if “the left hand is pushing the right hand” forward. Based on our discussions with various governments and institutions, the immediate priority is to transform identity and entity proofs into electronic formats that can be stored and retrieved across different systems.
Currently, we rely too much on manual verification, which is slow and error-prone. We need to move toward a model in which identity is a verifiable digital credential. Once you can pull this data instantly without a human having to manually check and verify a document, the system can actually keep up with the speed of a stablecoin. We are building a bridge between the old method of document classification and the new method of instant digital evidence. This is a gradual improvement where we secure each short board into the barrel until the entire system can hold water.
Q. Many policymakers now talk about stablecoins and tokenized deposits as payment infrastructure rather than investment products. How does this reframe the long-term role of stablecoins as banks increasingly place them alongside traditional payment rails?
A. The future of the world will be completely digitalized. It doesn’t matter whether they are dollar-backed stablecoins, tokenized deposits, or central bank digital currencies. Ultimately, they are all part of the same thing. This is a massive upgrade of the entire global financial system. Reframing stablecoins as infrastructure is a very positive move because it aims to remove the friction that slows down the movement of assets today.
When we work on digital identity systems or blockchain networks on a national scale, we see this as a necessary technical evolution. In fact, if we do our job well, the general public shouldn’t even know that the underlying system has changed. They won’t care about the “blockchain” or the “token”. They will simply notice that their businesses run faster and their money flows instantly.
The real goal of this reframing is to accelerate the turnover of capital throughout the economy. When money moves at the speed of the Internet, the entire engine of global commerce begins to run more efficiently. We are not just creating a new investment product. We’re building a smoother road so everything else can flow. This long-term role is about making the global economy more fluid and removing the old barriers that keep value locked in slow, manual processes.
–Xin Yan, co-founder and CEO, Sign
