Tokenized Deposits Steal Stablecoin Buzz — and the Business Model

For much of the past two years, stablecoins dominated the conversation about on-chain money. From near obscurity in 2024 to thousands of mentions across earnings calls, regulatory filings and investor decks in 2025, they became the headline act.

Transaction volumes surged between 80% and 100% year over year. Annual transfer volumes climbed into the tens of trillions of dollars, with monthly flows rivaling or exceeding those of card networks and large payment platforms. For a time, stablecoins looked like the inevitable future of digital money.

That was phase one of the on-chain dollar story.

Phase two begins in 2026, and it looks very different.

Why the Center of Gravity Shifts

The stablecoin boom was fueled by an unusually favorable macro- and regulatory environment. Elevated short-term interest rates turned reserve balances into profit engines. Permissive treatment allowed issuers to capture yield on segregated funds. Near-zero user fees were subsidized by what amounted to a carry trade embedded in a payments product.

That environment is changing.

Market expectations point to lower short-term rates. A 100-basis-point decline in Treasury yields would strip more than a billion dollars in annual reserve income from the stablecoin industry, erasing a meaningful share of revenue for the largest issuers. When reserve yield is the business model, falling rates are not a cyclical inconvenience. They are a structural problem.

At the same time, regulations are no longer ambiguous.

Frameworks such as the EU’s MiCA regime and the U.S. GENIUS Act mandate one-to-one backing with high-quality liquid assets, tighter governance and explicit limits on how reserve yield can be used or shared. Payment stablecoins are increasingly treated like e-money, with a clear regulatory signal that customer funds should be protected, not monetized through balance-sheet arbitrage.

Taken together, falling rates and tightening rules force a reckoning.

The Fork in the Road

As regulation hardens, a clean divergence is emerging.

On one side are nonbank stablecoins. They are pushed into a narrow box: tightly constrained instruments with limited balance-sheet flexibility, no yield sharing and rising compliance costs. To sustain growth, issuers must pivot toward issuance and redemption fees, transaction charges, FX spreads and value-added services layered on top of the core token.

On the other side are banks.

Bank regulators, and particularly the FDIC, are opening the door for deposits to live on blockchain rails while retaining their existing legal and supervisory treatment. Recent signals indicate that deposits represented on permissioned — and, in carefully controlled cases, public — blockchains can remain insured so long as they stay on bank balance sheets and comply with existing rules around ownership, recordkeeping and risk management.

That distinction matters.

Tokenized deposits are not new money. They are the same commercial bank deposits corporates already hold, now represented as tokens rather than database entries locked inside proprietary systems. They carry the same capital treatment, the same supervision and the same resolution frameworks but gain programmability, 24/7 settlement and composability.

Banks do not need a new business model for tokenized deposits to work.

Why Tokenized Deposits Scale Where Stablecoins Struggle

Banks already move money at scale. Wholesale and cross-border banking networks process well over $10 trillion per day, or quadrillions of dollars annually, with battle-tested processes for liquidity, settlement and compliance.

Deposits anchor those economics. They support net interest margin, lending, FX, payments and cash-management revenue. Tokenization extends that model into an always-on, programmable environment without forcing banks to extract margin transaction by transaction.

Stablecoin issuers do not have that luxury.

As yield compresses and compliance costs rise, nonbank stablecoins become harder to scale cheaply for high-volume, low-margin institutional flows where basis points matter. Costs eventually surface, in fees, spreads or functional constraints.

Tokenized deposits, by contrast, ride on existing relationship economics. Banks can justify infrastructure investment through wallet share, balance-sheet optimization and client retention rather than per-transaction profitability. That makes it easier to keep explicit fees low for the corporates and institutions that drive the largest flows.

From Theory to Live Infrastructure

This shift is no longer theoretical.

Citi has integrated Citi Token Services with 24/7 USD Clearing, enabling institutional clients to move tokenized deposits across jurisdictions in near-real time without leaving established account, compliance and settlement frameworks.

HSBC has launched a Tokenized Deposit Service that allows corporates to convert deposits into tokens that move instantly between wallets while remaining embedded in existing treasury workflows.

J.P. Morgan’s Kinexys platform has gone further, piloting a dollar-denominated deposit token operating on blockchain rails, backed by the bank’s balance sheet and governed by standard KYC and risk controls.

In each case, tokenized deposits are positioned as core infrastructure rather than speculative instruments. They support liquidity management, collateral mobility, programmable treasury operations and large-value settlement while mirroring existing account structures and legal protections.

For CFOs and treasurers, the permissioned nature of these systems is not a constraint. It is the feature. It maps cleanly onto how they already think about counterparties, risk tiers and control.

Where Each Instrument Lives

None of this means stablecoins disappear.

Stablecoins will continue to play a role in retail and crypto-native ecosystems. They remain useful for peer-to-peer transfers, developer platforms, public-chain applications and consumer-facing use cases where borderless access matters more than balance-sheet integration.

But the wholesale and institutional map looks different.

For large-value, low-margin, system-scale flows, tokenized deposits are emerging as the preferred, on-chain dollar because they look and behave like the instruments corporates already use. Upgraded rather than reinvented.

What Tokenized Deposits Replace

Tokenized deposits replace the idea that instant money at scale globally needs a new issuer to become programmable.

In 2026, the on-chain dollar that matters most will not be minted outside the banking system. It will be issued by it. Upgraded, insured and embedded into existing balance sheets.

When programmability arrives without requiring disruption, institutional money will choose continuity and predictability every time. That choice, more than hype or volume, is what will shift the center of gravity back inside the bank.

Find more observations and insights from Karen Webster about what may lie ahead:

What 2026 Will Make Obvious

Ten Structural Shifts Reshaping Payments, Commerce and the AI Economy