Banks Tokenize Deposits to Compete with Stablecoins

The banking industry is moving towards tokenized money on the blockchain, creating a potential competitor to USDT and USDC stablecoins. In the UK, seven major banks are testing tokenized deposits as part of the Great British Tokenized Deposit (GBTD) project. These banks include Barclays, HSBC UK, Lloyds Banking Group, Monzo, Nationwide, NatWest, and Santander.

The GBTD project aims to create a digital representation of regular money that customers already hold in bank accounts. This tokenized deposit is not a separate cryptocurrency but rather a digital representation of existing funds. The banks continue to bear the obligation to their customers, and the funds retain the legal status of traditional bank deposits.

The main advantage of this model lies in its ability to retain regulatory guarantees while acquiring the properties of digital money, such as programmability, faster settlements, and automatic execution of payments. This could lead to a reduction in intermediate transactions and risk.

Meanwhile, Citi is building infrastructure that allows corporate clients to work with stablecoins via Coinbase. This partnership combines traditional banking infrastructure with stablecoins, enabling companies to accept payments in stablecoins without having to build their own crypto asset management infrastructure.