Banks pair deposits and stablecoins to create digital money

A recent report by a financial research team describes how banks can combine customer deposits and stablecoins to provide tokenized digital money that keeps bank liability features while enabling on-chain settlement and programmability.

The paper sets out two main models. In the first, banks issue tokenized versions of customer deposits that remain liabilities on the bank balance sheet but circulate on a permissioned or public ledger. In the second, banks partner with regulated stablecoin issuers to convert deposits into fiat-pegged tokens that can move across blockchain networks for payments and automated contracts.

Daily operations in the models involve on-chain wallets operated by customers or custodians, smart contracts that control token flows, and back-office links that reconcile on-chain transactions with bank ledgers used for reserve management and regulatory reporting. The report says near-instant on-chain settlement could reduce the timing lag found in traditional correspondent and retail payment systems.

The analysis covers compliance and risk controls. When tokens represent bank obligations, banks would keep those tokenized liabilities under existing supervisory regimes, preserving deposit accounting and potential insurance treatment where regulators permit. For stablecoins issued by separate entities, the report recommends transparent reserve arrangements, frequent attestation of backing assets, and strict KYC/AML procedures for on- and off-ramps.

The report contrasts tokenized deposit models with third-party stablecoins. Tokenized deposits are described as direct claims on a regulated bank that can be reconciled on the bank’s balance sheet. Stablecoins issued by non-bank entities are described as external liabilities of their issuers and, the paper says, may require additional oversight to meet banks’ prudential standards when used by bank customers.

The report documents pilot work by banks, including issuing tokenized short-term claims, integrating custody systems with distributed ledger technology, and building APIs to let corporate and retail clients move funds between deposit ledgers and tokenized wallets. It also identifies interoperability challenges, such as connecting permissioned bank networks to public blockchains and keeping liquidity available when customers convert between on-chain tokens and off-chain deposits.

On regulatory matters, the authors recommend that banks coordinate with supervisors to clarify whether tokenized deposits retain existing protections and how stablecoins used by bank clients should be supervised. The paper calls for auditability of reserve holdings, operational resilience for token infrastructure, and legal frameworks that recognize digital tokens as bank liabilities or transferable claims.

According to the report, “Combining deposit balances with tokenized instruments lets banks meet demand for programmable, low-latency payments while keeping core banking protections in place.”

The report concludes by advising banks to run controlled pilots, build reconciliation and custody capabilities, and engage with regulators on legal status and reserve requirements. It says industry standards for interoperability and reporting would speed adoption of combined deposit and stablecoin solutions.