What Is This 600-Strong Bank Network Using Tokenized Deposits For?

Cryptocurrency was, by design, created to be separate from the traditional financial system.

But the sector’s long-standing barriers to traditional adoption, whether technological, regulatory or even behavioral, appear to be dissolving. And scaling digital assets like tokenized deposits or even securities inside traditional banking and capital markets infrastructure appears to be a top-down exercise.

According to a Thursday (March 19) American Banker report, tokenized deposits issued by financial institutions Custodia and Vantage Bank will now be used within Participate, a network that facilitates loan sharing among roughly 600 financial institutions.

A day earlier on Wednesday (March 18), the U.S. Securities and Exchange Commission (SEC), issued an approval order for Nasdaq Inc.’s proposal to introduce tokenized representations of listed securities. Participants can opt to have trades in Russell 1000 stocks, as well as ETFs tracking the S&P 500 and Nasdaq 100, settled as tokenized securities rather than through traditional methods.

While both tokenization initiatives may be more of a digital wrapper around traditional deposits and securities rather than a new asset class, they may still hold outsize implications for what future bridges between traditional finance operations and tokenized executions could look like.

Across both announcements, after all, the twist is not what is being traded or moved, but how ownership is recorded, transferred and ultimately settled. They are less about technological innovation than about distribution. And in financial systems, distribution is what determines whether a tool reshapes the market or remains a curiosity.

See also: New SEC Guidance Pushes Stablecoins Closer to Cash Status

A Future-Focused Reinvention of Market Infrastructure

Loan participation networks are a foundational but underappreciated feature of banking. They allow institutions to share exposure to loans, spreading risk and enabling smaller banks to participate in deals that would otherwise exceed their balance sheet capacity. These networks depend on coordination across multiple institutions, often involving complex reconciliation processes, delayed settlements and operational friction.

The Custodia and Vantage bank partnership represents an infrastructure-first experiment that layers blockchain onto existing systems and does not replace them. By representing deposits as programmable digital assets on a blockchain or similar ledger, transactions can be settled more quickly, ownership can be tracked with greater precision and reconciliation can be automated.

Unlike stablecoins, tokenized deposits are issued by regulated banks and are directly linked to traditional deposit accounts. They carry the implicit (and in many cases explicit) protections associated with the banking system, including regulatory oversight and, in some jurisdictions, deposit insurance frameworks. At the same time, they aim to offer many of the functional advantages that have made stablecoins attractive: programmability, near-instant settlement and interoperability with digital platforms.

The blockchain layer operates as an additional representation mechanism, not an independent system of truth. The result is a hybrid model: decentralized technology deployed within centralized governance structures.

“We don’t start with the asset,” Biswarup Chatterjee, global head of partnerships and innovation, Citi Services at Citi, told PYMNTS in an earlier interview. “We typically start with our client need, and then we look at the pros and cons of each type of asset or financing instrument.”

Still, the headline number of the 600 banks within the Participate network does not imply that hundreds of institutions will immediately begin using tokenized deposits at scale. Adoption will likely be gradual, with early participants testing the system in limited contexts before broader uptake occurs.

At the same time, each additional participant increases the potential utility of the system, making it more attractive for others to join. Over time, what begins as a niche feature can become a standard expectation.

Read also: Tokenization’s Institutional Pitch Hits a Liquidity Wall

Defining the Digital Asset Token

Institutions including JPMorgan Chase, Goldman Sachs, Citi, HSBC and BNY Mellon have all launched blockchain-based platforms aimed at institutional finance.

If deposits can be represented as digital tokens that move seamlessly across platforms and institutions, the barriers to transferring liquidity could diminish. This could enhance efficiency, allowing capital to flow more quickly to where it is needed. But it could also introduce new risks, including the possibility of faster deposit outflows in times of stress.

For smaller banks, the implications are ambiguous. On one hand, improved access to shared networks and more efficient settlement mechanisms could level the playing field. On the other, increased mobility of deposits could intensify competition, making it easier for funds to migrate to larger or more technologically advanced institutions.

The PYMNTS Intelligence report “Waiting for Certainty: Why Most CFOs Are Holding Back on Crypto and Stablecoins” noted that most middle market firms have not even considered using digital assets, though adoption of stablecoins is further along than that of other cryptocurrencies.