Tokenized Deposits Could Drain $580B from US Bank Lending
A recent research paper has quantified the impact of tokenized deposits on U.S. bank lending, estimating that widespread adoption could reduce lending capacity by $580 billion or as much as $1.2 trillion in a high adoption scenario.
The mechanism behind this reduction is straightforward: banks lend against stable deposits, and if deposits can move at blockchain speed, the deposit base becomes less stable, forcing banks to hold more liquid reserves and lend less.
The paper models three scenarios for tokenized deposit adoption in the U.S. banking system, with the low adoption scenario resulting in a modest impact of $120 billion on lending capacity.
In contrast, the moderate adoption scenario would lead to a contraction of $580 billion in lending capacity, which is roughly one third of all outstanding commercial and industrial loans.