Deposit Tokens: The Banking Response to Stablecoins
Deposit Tokens: The Banking Response to StablecoinsLink opens in a new window
Rhomaios Ram
September 2025
Summary:
This paper argues that the true innovation of stablecoins is the public blockchain platform itself and asserts that commercial banks can directly compete by issuing their own deposit tokens on these networks, combining the efficiency of digital assets with the inherent trust, regulatory compliance, and yield-bearing nature of traditional bank deposits.
Key Points:
- Public blockchain as the true innovation: The paper posits that stablecoins have primarily proven the value of the underlying public blockchain, which offers a new, efficient platform for financial services that banks can and should leverage.
- Deposit tokens as a direct banking response: Banks can issue deposit tokens—digital representations of commercial bank deposits—on public blockchains to match the speed, 24/7 availability, and programmability offered by stablecoins.
- Banks' native competitive advantages: Unlike most stablecoins, deposit tokens can leverage banks' existing trust and regulatory frameworks, and crucially, they can natively pay interest to the holder without requiring complex intermediary structures to distribute yield.
- A converging regulatory landscape: The principle of "same activity, same rules," particularly concerning Anti-Financial Crime (AFC) and the FATF Travel Rule, is creating a level playing field where both banks and stablecoin issuers must meet similar high standards for compliance.
- Key hurdles for bank adoption: To succeed, banks must overcome significant challenges, including adapting compliance frameworks for DLT, clarifying the capital treatment of tokenized deposits, and integrating new technology with legacy systems.
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