$700 Billion Risk: Tokenized Deposits Could Disrupt Banking System

The Dallas Federal Reserve has issued a warning about the increasing prevalence of tokenized deposits in the banking sector. According to researchers, this could lead customers to move their money between banks faster in search of higher returns, weakening banks' liquidity management and lending capacity.

Tokenized deposits are blockchain-based products that offer features such as instant settlement and programmable payments. Unlike stablecoins like USDT and USDC, these products are issued by regulated banks and retain the characteristics of traditional bank deposits.

The study estimates that if deposits become more sensitive to interest rates, the banking system's interest rate risk could decrease by approximately $700 billion on a 10-year equivalent basis. This could make it harder for banks to sustain their current loan portfolios and may lead them to resort to more expensive wholesale financing sources.

The Fed also notes that tokenized deposits could be one of the significant responses the banking sector can give to stablecoins, but widespread adoption could affect many areas of the financial system. The study was published on August 25th and suggests that blockchain technology could become a fundamental payment infrastructure for both the cryptocurrency market and traditional banks.