In today’s newsletter, Sam Boboev, founder of Fintech Wrap Up, discusses how banks are embracing stablecoins and tokenization to improve banking pipelines.
Then, Xin Yan, co-founder and CEO of Sign, answers questions about banks and stablecoins on Ask an Expert.
-Sarah Morton
From stablecoins to tokenized deposits: why banks are taking back the narrative
Stablecoins dominated the early discourse around digital money because they solved a small glitch: natively moving value across digital rails when banks couldn’t do so. Speed, programmability and cross-platform settlement exposed the limits of correspondent banking and batch-based systems. That phase is ending. Banks are now pushing tokenized deposits to reassert control over money creation, liability structure, and regulatory alignment.
This is not a reversal of innovation. It is a containment strategy.
Stablecoins expanded their capacity outside the banking perimeter
Stablecoins function as privately issued settlement assets. They are generally liabilities of non-banking entities, backed by reserve portfolios whose composition, custody and liquidity treatment vary depending on the issuer. Even when fully secretive, they are outside the deposit insurance frameworks and direct prudential supervision applied to banks.
The technical gain was real. The structural consequence was material. The transfer of value began to migrate beyond regulated balance sheets. The liquidity that once bolstered the banking system began to accumulate in parallel structures governed by disclosure regimes rather than capital rules.
That change is inconsistent with the way banks, regulators and central banks define monetary stability.
Tokenized deposits preserve deposit, change lane
Tokenized deposits do not introduce new money. They repackage existing repositories using a distributed ledger infrastructure. The asset remains a bank liability. The claims structure remains unchanged. Only the settlement and programmability layer evolves.
This distinction is decisive.
A tokenized deposit sits 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 about seniority in the event of insolvency. There is no reservation opacity problem. There is no new issuer risk to subscribe to.
Banks do not compete with stablecoins solely on speed. They compete in matters of legal certainty.
Balance control is the central issue
The real flaw is the location of the balance.
Stablecoins externalize settlement liquidity. Even when reserves are held in regulated institutions, the liability itself does not belong to the bank. Monetary transmission weakens. Monitoring visibility snippets. Stress propagates through structures that are not designed for systemic loading.
Tokenized deposits maintain settlement liquidity within the regulated perimeter. Faster movement does not equate to a loss of balance. Capital remains measurable. Liquidity remains monitorable. Risk remains assignable.
This is why banks support tokenization and at the same time resist replacing stablecoins. The technology is acceptable. Disintermediation is not.
Consumer protection is not a feature, it is a limitation
Stablecoins require users to evaluate issuer credibility, reserve quality, legal enforceability, and operational resilience. These are institutional-level risk judgments that are imposed on end users.
Tokenized deposits remove that burden. Consumer protection is inherited, not rebuilt. Dispute resolution, insolvency treatment and legal remedies follow current banking legislation. The user does not become a credit analyst out of necessity.
For advisors, this difference defines suitability. The digital form does not nullify the quality of responsibility.
Narrative recovery is strategic, not cosmetic.
Banks are repositioning digital money as an evolution of deposits, not a replacement. This reframing centers authority over money within authoritative institutions while absorbing the functional gains demonstrated by stablecoins.
The result is convergence: blockchain rails carry bank money, not private substitutes.
Stablecoins forced the system to confront its architectural limits. Tokenized deposits are how holders approach them without giving up control.
Digital money will persist. The unresolved variable is the primacy of the issuer. Banks are taking steps to close that gap now.
–Sam Boboev, founder of Fintech Wrap Up
ask an expert
Q. Banks are increasingly framing stablecoins not as speculative cryptoassets, but as infrastructure for settlement, collateral, and programmable money. From your perspective, working on blockchain infrastructure, what is driving this shift within large financial institutions and how different is this moment from previous stablecoin cycles?
A. The significant distinction between a stablecoin and a traditional fiat currency is that the stablecoin exists on-chain.
That on-chain nature is precisely what makes stablecoins interesting to financial institutions. Once money is natively digital and programmable, it can be used directly for settlements, payments, collateralization, and atomic execution across systems, without relying on fragmented legacy rails.
Historically, we have seen concerns around stablecoins focused on technical and operational risk, such as smart contract failure or insufficient resilience. Those concerns have largely been allayed. The stablecoin’s core infrastructure has been tested in multiple cycles and sustained real-world use.
Technically, the risk profile is now well understood and is often lower than commonly assumed. The remaining uncertainty is predominantly legal and regulatory rather than technological. Many jurisdictions still lack a clear framework that fully recognizes stablecoins or CBDCs as first-class representations of sovereign currency. This ambiguity limits its adoption at scale within regulated financial systems, even when the underlying technology is mature.
That said, this moment feels structurally different from previous cycles. The conversation has moved from “should this exist?” to “how do we safely integrate it into the monetary system?”
I expect 2026 to bring significant regulatory clarification and pathways to formal adoption in multiple countries, driven by the recognition that on-chain money is not a competing asset class, but rather an improvement to financial infrastructure.
Q. As banks move towards tokenized deposits and on-chain settlement, identity, compliance and verifiable credentials become central. Based on your work with institutions, what infrastructure gaps still need to be resolved before banks can safely scale these systems?
A. For these systems to work naturally, we must match the speed of fulfillment and identity with the speed of the assets themselves. Right now, settlement is done in seconds, but verification still relies on manual work. The first step to solving this is not decentralization. It is simply a matter of digitizing these records so that they can be accessed on-chain. We are already seeing many countries actively working to move their core identity and compliance data to the blockchain.
In my opinion, there is no single “gap” that, once closed, will suddenly allow everything to grow perfectly. Rather, it is a process of solving one bottleneck at a time. It’s like a “left hand pushing the right hand” forward. Based on our conversations with various governments and institutions, the immediate priority is to convert 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 towards a model where identity is a verifiable digital credential. Once you can extract this data instantly without a human having to manually check and verify a document, the system will be able to keep up with the speed of a stablecoin. We are building the bridge between the old way of submitting documents and the new way of instant digital proof. It is a gradual improvement where we fix each short board to 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 that reframe the long-term role of stablecoins as banks increasingly place them alongside traditional payment avenues?
A. The future of the world is going to be completely digitalized. It doesn’t matter whether they are dollar-backed stablecoins, tokenized deposits, or central bank digital currencies. In the end, they are all part of the same thing. This is a massive improvement of the entire global financial system. Reframing stablecoins as infrastructure is a very positive move because it focuses on removing the friction that slows down the movement of assets today.
When we work on digital identity systems or blockchain networks at the national level, we see it as a necessary technical evolution. In fact, if we do our job right, the general public shouldn’t even know that the underlying system has changed. They won’t care about the “blockchain” or the “token”. You will simply notice that your businesses run faster and your money moves instantly.
The real goal of this rethinking is to accelerate capital turnover throughout the economy. When money can move at the speed of the Internet, the entire engine of global commerce will begin to run more efficiently. We are not simply creating a new investment product. We are building a smoother path for everything else to travel. This long-term role is to make the global economy more fluid and remove old barriers that keep value trapped in slow, manual processes.
–Xin Yan, co-founder and CEO of Sign
