Banks Join the Blockchain Revolution with Tokenized Deposits
The largest banks are creating tokenized versions of traditional bank money, raising questions about the future of stablecoins like USDT and USDC. In the UK, banks such as Barclays, HSBC, Lloyds, and Santander are testing tokenized deposits, while Citi is building infrastructure to allow corporate clients to work with stablecoins via Coinbase. The British banks' efforts aim to create a programmable digital infrastructure for traditional bank deposits, with the goal of retaining the regulatory guarantees of traditional bank deposits while acquiring the properties of digital money.
The difference between tokenized deposits and stablecoins lies in their legal nature. Tokenized deposits are a digital representation of regular money that the customer already holds in a bank account, while stablecoins are issued by companies like Tether and Circle and require the user to exchange regular money for a digital token. The UK Finance industry association has announced the completion of the first real-world customer transactions involving tokenized deposits in pounds sterling as part of the Great British Tokenized Deposit (GBTD) project.
The tokenized deposits were used in two live mortgage refinancing transactions, demonstrating the ability to transfer tokenized bank funds between customers of different banks via a shared infrastructure. The main advantage of tokenized deposits is their ability to retain the regulatory guarantees of traditional bank deposits while acquiring the properties of digital money, such as programmability and faster settlements. The next phase of the British project will involve using tokenized deposits to settle payments for digital assets.
However, the scale of the existing stablecoin market is incomparable to the banks' experiments. According to CoinGecko data, the market capitalization of USDT alone is approximately $184 billion, while that of USDC is approximately $74 billion. The total stablecoin market already exceeds $300 billion. The Bank of England is taking this risk into account as it develops new regulations for digital currencies, proposing a model under which at least 40% of a systemic stablecoin's reserves must be held directly at the Bank of England.