In today’s newsletter, Sam Boboev, founder of Fintech Wrap Up, looks at how banks are embracing stablecoins and tokenization to upgrade their banking rails.
Next, Sign co-founder and CEO Xin Yan answers your questions about banks and stablecoins on Ask the Expert.
-Sarah Morton
From stablecoins to tokenized deposits: Why banks are taking back the story
Stablecoins dominated early digital money discussions because they solved a narrow technical failure: moving value natively on digital rails when banks could not. Speed, programmability, and cross-platform payments have exposed the limitations of correspondent banking and batch-based systems. That phase is ending. Banks are currently rolling out tokenized deposits to reassert control over money creation, liability structures, and regulatory integrity.
This is not a reversal of innovation. It’s a containment strategy.
Stablecoins extend functionality outside bank boundaries
Stablecoins function as privately issued payment assets. These are typically liabilities of non-bank entities and are backed by reserve portfolios whose composition, custody and liquidity treatment vary from issuer to issuer. Even when fully reserved, they are outside the deposit insurance framework and outside the direct prudential oversight applied to banks.
The technological progress was real. The structural effects were significant. Value transfer has begun to move beyond regulated balance sheets. The liquidity that once strengthened the banking system began to accumulate in parallel structures governed by disclosure regimes rather than capital rules.
This change is at odds with the way banks, regulators and central banks define financial stability.
Tokenized deposits save your deposit and change rails
Tokenized deposits do not introduce new money. They use distributed ledger infrastructure to repackage existing deposits. The asset remains a bank liability. The structure of the claim remains unchanged. Only the payments and programmability layers will evolve.
This difference is crucial.
Tokenized deposits are placed on the balance sheets of regulated banks. Subject to capital requirements, liquidity protection rules, resolution regimes and, where applicable, deposit insurance. There is no ambiguity regarding seniority in bankruptcy. No opacity issues. There is no risk assumed by the new issuer.
Banks are not competing with stablecoins solely on speed. They are competing for legal certainty.
Balance sheet management is the core issue
The real fault line is where it lies on the balance sheet.
Stablecoins externalize payment liquidity. Even if the reserves are held in a regulated institution, the liability itself does not belong to the bank. Monetary transmission weakens. Monitoring visibility fragment. Stresses propagate through structures that are not designed with whole-body loads in mind.
Tokenized deposits keep payment liquidity within regulated boundaries. A faster move is not the same as a balance sheet exodus. Capital remains measurable. Liquidity remains monitorable. Risk remains allocable.
This is why banks support tokenization while resisting stablecoin replacement. The technology is within acceptable limits. Disintermediation is not.
Consumer protection is a constraint, not a feature
Stablecoins require users to evaluate the issuer’s credibility, reserve quality, legal enforceability, and operational resilience. These are institutional-level risk decisions that are imposed on end users.
Tokenized deposits remove that burden. Consumer protection is inherited, not reinvented. Dispute resolution, insolvency procedures and legal measures are subject to existing banking laws. Users do not necessarily become credit analysts.
For advisors, this difference defines suitability. Digital format does not negate quality of responsibility.
Narrative reuse is strategic, not superficial.
Banks are repositioning digital money as an evolution of deposits rather than a replacement. This reconfiguration refocuses power over money within authorized institutions while absorbing the functional benefits demonstrated by stablecoins.
The result is convergence. Blockchain rails that carry bank funds rather than private alternatives.
Stablecoins have forced the system to confront its architectural limitations. Tokenized deposits are a way for incumbents to address them without giving up control.
Digital money is here to stay. The unresolved variable is issuer preference. Banks are now working to fill that gap.
–Sam Boboev, Founder of Fintech Wrap Up
ask an expert
Q. Banks are increasingly positioning stablecoins not as speculative crypto assets, but as payment, collateral, and programmable money infrastructure. From your perspective working on blockchain infrastructure, what is driving this change within large financial institutions and how is this moment different from previous stablecoin cycles?
A. The key difference between stablecoins and traditional fiat currencies is that stablecoins exist on-chain.
This on-chain nature is what makes stablecoins interesting for financial institutions. Once money is natively digitized and programmable, it can be used directly for settlement, payments, collateral, and atomic execution across systems without relying on fragmented traditional rails.
To date, concerns regarding stablecoins have focused on technical and operational risks, such as smart contract failures and lack of resilience. Those concerns have largely diminished. The core stablecoin infrastructure has been rigorously tested over multiple cycles and continues to see real-world use.
Technically, the risk profile is now well understood and is often lower than commonly assumed. The remaining uncertainties are primarily due to legal regulations rather than technical ones. Many jurisdictions still lack a clear framework that fully recognizes stablecoins or CBDCs as first-class expressions of sovereign currency. This ambiguity limits large-scale adoption within the regulated financial system, even when the underlying technology matures.
That said, this moment feels structurally different from previous cycles. The conversation has shifted from “Should this exist?” “How can we safely integrate it into our monetary system?”
I expect significant regulatory clarity and formal implementation pathways to be established in multiple countries in 2026, driven by the recognition that on-chain money is an upgrade to financial infrastructure rather than a competing asset class.
Q. As banks move to tokenized deposits and on-chain payments, identity, compliance, and verifiable credentials will become central. From your work with financial institutions, what infrastructure gaps do you think need to be addressed to enable banks to safely scale these systems?
A. For these systems to perform naturally, the velocity of compliance and identity must match the velocity of the assets themselves. Currently, payments occur in seconds, but verification still relies on manual processing. The first step to solving this is not decentralization. Simply digitize these records and make them accessible on-chain. We are already seeing many countries actively moving their core identity and compliance data to blockchain.
In my opinion, there is no single “gap” that once you close it, suddenly everything scales perfectly. Instead, it’s a process of fixing bottlenecks one at a time. It feels like the left hand is pushing the right hand forward. Based on discussions with various governments and agencies, the immediate priority is to convert proof of identity and proof of substance into an electronic format that can be stored and retrieved across different systems.
Currently, we rely too much on manual validation, which is time-consuming and error-prone. We need to move to a model where identity is a verifiable digital credential. If this data can be captured instantly, without humans manually checking or validating documents, the system can actually keep up with the speed of stablecoins. We are building a bridge between old ways of filing documents and new ways of instant digital proof. This is a gradual improvement that fixes each short plate in the barrel until the entire system can hold water.
Q. Many policymakers are now talking about stablecoins and tokenized deposits as payment infrastructure rather than investment products. As banks increasingly deploy stablecoins along traditional payment rails, how will this reconfigure the long-term role of stablecoins?
A. The future of the world will be completely digital. It doesn’t matter whether we are talking about dollar-backed stablecoins, tokenized deposits, or central bank digital currencies. After all, they’re all part of the same thing. This is a massive upgrade to the entire global financial system. Reconfiguring stablecoins as infrastructure is a very positive move as it focuses on removing the friction that slows the movement of assets today.
When we work on digital identity systems and national blockchain networks, we see it as a necessary technological evolution. In fact, if we do our jobs well, the public shouldn’t even know that the underlying system has changed. They won’t care about “blockchain” or “tokens”. They just find that their business runs faster and their money moves instantly.
The real goal of this restructuring is to accelerate capital turnover throughout the economy. When money can move at the speed of the Internet, the entire engine of world trade begins to run more efficiently. We’re not just developing new investment products. We are building smoother roads for everything else to travel on. Its long-term role is to make the global economy more fluid and remove old barriers that lock value into slow, manual processes.
–Xin Yan, Co-Founder and CEO of Sign
Please continue reading
- Fidelity Investments will launch Fidelity Digital Dollar (FIDD), a USD-backed stablecoin, in early February 2026 to support 24/7 institutional and retail on-chain payments.
- The UK government has said it expects banks to treat crypto businesses fairly as part of efforts to make the country a global hub for digital assets.
- The U.S. Senate Agriculture Committee is scheduled to raise prices on the cryptocurrency market structure on January 29th.