The Battle Between Tokenized Deposits and Stablecoins: The Future of Finance Is Not Replacement but Integration

Author: Simon Taylor Translation: Block unicorn

Banks create money, stablecoins drive money movement. We need both.

Proponents of tokenized deposits say: “Stablecoins are unregulated shadow banking. Once banks tokenize deposits, everyone will prefer banks.”

Some banks and central banks love this narrative.

Stablecoin advocates say: “Banks are dinosaurs. We don’t need them on-chain. Stablecoins are the future of money.”

Crypto natives especially love this narrative.

Both sides are missing the point.

Banks Provide Cheaper Credit to Their Biggest Clients

You deposit $100, which becomes $90 in loans (or more). That’s how fractional reserve banking works. It’s been the engine of economic growth for centuries.

• A Fortune 500 company deposits $500 million at JPMorgan.
• In return, they get a massive credit line at below-market rates.
• Deposits are the bank’s business model, and big companies know it.

Tokenized deposits bring this mechanism on-chain, but they only serve the bank’s own customers. You’re still under the bank’s oversight, still bound by banking hours, processes, and compliance.

For companies that need low-cost credit lines, tokenized deposits are a good option.

Stablecoins Are Like Cash

Circle and Tether hold 100% reserves, amounting to $200 billion in bonds. They earn a 4-5% yield but pay you nothing.

In return, your funds are outside any bank’s control. By 2025, $9 trillion is expected to move cross-border via stablecoins. As long as you have internet, you can use them anytime, anywhere, permissionless, 24/7.

No correspondent bank questions, no waiting for SWIFT settlement, no “we’ll get back to you in 3-5 business days.”

For companies needing to pay an Argentine supplier at 11 PM on a Saturday, stablecoins are a great option.

The Future Is Both

A company that wants a good credit line from a bank might also want to use stablecoins to access long-tail markets.

Imagine this scenario:

• A Fortune 500 company holds tokenized deposits at JPMorgan
• In return, it gets preferential credit lines for its US operations
• It needs to pay an Argentine supplier who prefers stablecoins
• So, it swaps JPMD for USDC

That’s an example of where we’re headed.

On-chain. Atomic.

Best of both worlds.

Use legacy rails where they work.

Use stablecoins where they don’t.

It’s not either/or—it’s both.

• Tokenized deposits → low-cost credit within the banking system
• Stablecoins → cash-like settlement outside the banking system
• On-chain swaps → instant conversion, zero settlement risk

Both have their pros and cons.

They will coexist.

On-Chain Payments > APIs for Payment Orchestration

Some big banks might say, “We don’t need tokenized deposits, we have APIs,” and in some cases, they’re right.

That’s the power of on-chain finance.

Smart contracts can build logic across many businesses and individuals. When a supplier’s deposit lands, a smart contract can automatically trigger inventory financing, working capital, FX hedging. Bank or non-bank, these can all be automated and instant.

Deposit → stablecoin → pay invoice → downstream payment completes.

APIs are point-to-point, while smart contracts are many-to-many. That makes them perfect for workflows that cross organizational boundaries. That’s the power of on-chain finance.

It’s a fundamentally different financial services architecture.

The Future Belongs On-Chain

Tokenized deposits solve the low-cost credit problem. Deposits are locked. Banks lend against deposits. Their business model stays the same.

Stablecoins solve the portability problem. Funds can move anywhere, permissionless. The Global South gets access to dollars. Companies get fast settlement.

Tokenized deposit advocates only want regulated payment rails.

Stablecoin advocates want to replace banks.

The future needs both.

Fortune 500 companies want huge credit lines from banks, plus instant global settlement. Emerging markets want local credit creation and dollar rails. DeFi wants composability and real-world asset backing.

Arguing over who will win misses what’s happening. The future of finance is on-chain. Tokenized deposits and stablecoins are both essential infrastructure.

Stop debating who will win. Start building interoperability.

Composable money.