Banks Make Deposit Defense Their Best Offense in Crypto Battle

Blockchain financial products are no longer merely standing at the edge of banking. They are beginning to reproduce some of its most profitable functions across banking’s own regulated landscape.

Japan, for example, on Wednesday (July 15) passed a new parliamentary amendment placing cryptocurrency assets under the regulatory umbrella of “financial assets.” Previously, digital assets were designated as “payment assets,” not financial ones.

Meanwhile, London on Monday (July 13) issued a report on accelerating tokenization in wholesale financial markets.

The defining question therefore is no longer whether banks will use blockchain. It is whether blockchain-based money will remain an extension of banking or become a competing system that banks merely connect to.

Banks have largely conceded that money will become more programmable, continuously available and compatible with blockchain networks. Their pushback now is aimed at determining what sits underneath that digital experience. Banks are challenging the economics that could make stablecoins more attractive than deposits, building their own blockchain-based forms of commercial bank money and positioning decades of regulatory investment as a service clients should pay to access.

The goal is not to prevent dollars from moving on blockchain networks. It is to prevent the companies operating those networks from capturing the deposits, transaction data and customer relationships that traditionally belonged to banks.

Read also: Crypto Stopped Fighting Banks and Started Copying Them

Banks Turn Stablecoin Yield Into a Regulatory Boundary

The most visible front in the traditional finance versus crypto finance race is taking place in Washington, where banks and crypto companies are battling over whether stablecoin holders can receive interest or interest-like rewards. The GENIUS Act prohibits stablecoin issuers themselves from paying interest, but the unresolved question is whether exchanges, wallet providers and affiliated platforms can offer rewards linked to stablecoin balances. Banking groups say allowing such incentives would create a functional substitute for an interest-bearing deposit without imposing the same capital, liquidity and supervisory requirements applied to banks.

That debate may appear technical, but it goes directly to banks’ funding model. A nonbank stablecoin paying a competitive return could persuade consumers and businesses to move cash from checking and savings accounts into tokens backed largely by Treasury securities. Banks would lose low-cost deposits, while stablecoin issuers or their distribution partners would gain the economics generated by the reserve assets.

The fight over yield is therefore not simply about risk. It is about deciding which institutions are permitted to turn customer cash into an earnings stream. The PYMNTS Intelligence and Citi report “Chain Reaction: Regulatory Clarity as the Catalyst for Blockchain Adoption” found that regulation will shape blockchain’s next leap. Any clear answer to the stablecoin yield question could be one of the biggest drivers of that shift.

See also: Why Stablecoins Are a Money Story, Not a Consumer Story

Banks are also developing an affirmative answer to stablecoins: tokenized deposits.

The distinction between a stablecoin and a tokenized deposit matters. A stablecoin is generally a claim on an issuer supported by a reserve portfolio. A tokenized deposit remains a claim on the bank, carrying the familiar economics and legal structure of commercial bank money while gaining blockchain features such as programmability, continuous settlement and integration with tokenized assets.

JPMorganChase, Bank of America, Citigroup, Wells Fargo and other large institutions are working through The Clearing House on a shared tokenized-deposit network expected to connect traditional banking rails with blockchain infrastructure. The planned system would allow bank deposits to move around the clock while remaining liabilities of regulated commercial banks.

Tokenized deposits could support automated liquidity transfers, delivery-versus-payment settlement, programmable supplier payments and the movement of collateral outside conventional banking hours. The bank keeps the deposit and the client relationship; the corporation gets much of the functionality associated with on-chain money. The limitation is interoperability. Stablecoins can circulate across public networks, wallets and counterparties. Bank deposit tokens may remain fragmented by institution, jurisdiction or permissioned network. The industry’s planned shared infrastructure is an attempt to solve that problem before stablecoins establish a stronger network effect.

Read also: Stablecoins Are Just Wildcat Banking With Better Wi-Fi

Banks Look to Start Selling Crypto Compliance as the Premium Product

Banks’ third defense is to make regulation itself part of the value proposition. Stablecoin adoption by large companies will require more than fast settlement. Corporations need identity verification, sanctions screening, transaction monitoring, reserve custody, liquidity management, reporting and a clear party responsible when something goes wrong.

Banks can monetize that infrastructure without necessarily issuing the winning token. BNY serves as reserve custodian for Ripple’s RLUSD and provides transaction-banking services supporting its operation. Citi has explored reserve management, custody and payment services for stablecoins alongside its own tokenized-deposit products.

A bank that does not dominate stablecoin issuance can still hold the reserves, safeguard assets, process fiat conversions, screen transactions and connect tokens with conventional accounts. Banks are betting that businesses will pay for tokenized money that comes with institutional accountability, even when cheaper or more open alternatives exist.

The lobbying over yield, the race to tokenize deposits and the commercialization of compliance are three parts of the effort to ensure that when money moves on-chain, the bank account does not disappear with it.

At the same time, “Waiting for Certainty: Why Most CFOs Are Holding Back on Crypto and Stablecoins,” the March installment of PYMNTS Intelligence’s 2026 Certainty Project, showed that most middle-market companies remain cautious about digital assets. Usage is limited, with 13% of firms using stablecoins and 5% employing other cryptocurrencies.