UK Banks Tokenize Deposits on Blockchain Rails

Britain's biggest banks have successfully completed interbank transfers of tokenized deposits using blockchain rails within their regular banking system. The trial, part of UK Finance's Great British Tokenised Deposit project, involved Lloyds, NatWest, Barclays, and other lenders. They ran two mortgage transactions and a simulated marketplace purchase, with the aim of reducing fraud risk and improving efficiency.

Tokenized deposits are ordinary bank deposits represented as blockchain tokens, carrying the same legal status as money already sitting in an account. This approach keeps liability on the bank's balance sheet, allowing banks to modernize their own rails without ceding ground to privately issued stablecoins like Tether or Circle.

The Bank of England has expressed preference for tokenized deposits over stablecoins due to concerns that privately issued stablecoins could destabilize the financial system. BoE Governor Andrew Bailey has warned against bank-issued stablecoins, and the central bank has kept an issuance cap in place despite easing other restrictions this year.

UK Finance's managing director for Payments and Innovation, Jana Mackintosh, said the setup could reduce fraud risk and that interest from abroad has picked up. The project now moves toward setting up a company and a governing rulebook, with participating lenders planning to issue three digital bonds in the first quarter of 2027.