In today’s newsletter, Sam Boboev, founder of Fintech Wrap Up, looks at how banks are embracing stablecoins and tokenization to upgrade bankrails.
Then Xin Yan, co-founder and CEO of Sign, answers questions about banks and stablecoins in Ask an Expert.
-Sarah Morton
From stablecoins to tokenized deposits: why banks are reclaiming the narrative
Stablecoins dominated the early digital money discourse because they solved a narrow technical flaw: moving value natively on digital rails when banks could not. Speed, programmability and cross-platform settlement revealed the limits of correspondent banking and batch-based systems. That phase is coming to an end. Banks are now promoting tokenized deposits to restore control over money creation, liability structure and regulatory alignment.
This is not a reversal of innovation. It is a containment strategy.
Stablecoins expanded capacity beyond the banking perimeter
Stablecoins act as privately issued settlement assets. They are typically liabilities of non-bank entities backed by reserve portfolios, the composition, custody and liquidity treatment of which vary from issuer to issuer. Even when fully reserved, they sit outside deposit insurance frameworks and outside the direct supervision of banks.
The technical gain was real. The structural consequence was significant. The transfer of value began to migrate beyond regulated balance sheets. Liquidity that once bolstered the banking system began to accumulate in parallel structures governed by disclosure regimes rather than capital rules.
That shift is inconsistent with how banks, regulators and central banks define monetary stability.
Tokenized deposits retain the deposit, change the rail
Tokenized deposits do not introduce new money. They repackage existing deposits using distributed ledger infrastructure. The asset remains a bank liability. The damage structure remains unchanged. Only the execution and programmability layer evolves.
This distinction is crucial.
A tokenized deposit sits on a regulated bank balance. It remains subject to capital requirements, rules for liquidity coverage, settlement arrangements and – where relevant – deposit insurance. There is no ambiguity about seniority in case of insolvency. There is no problem with fallback opacity. There is no new issuer risk to underwrite.
Banks do not compete with stablecoins on speed alone. They compete on legal certainty.
Balance control is the core issue
The actual fault line is the location of the balance.
Stablecoins externalize settlement liquidity. Even when reserves are held with regulated institutions, the liability itself does not belong to the bank. The monetary transmission weakens. Visibility fragments. Stress propagates through structures not designed for systemic loads.
Tokenized deposits keep settlement liquidity within the regulated perimeter. Faster movement does not equal balance flight. Capital remains measurable. Liquidity remains subject to supervision. The risk can still be allocated.
This is why banks support tokenization while resisting stablecoin substitution. The technology is acceptable. The disintermediation is not.
Consumer Protection is not a feature, it is a limitation
Stablecoins require users to assess issuer credibility, reserve quality, legal enforceability and operational resilience. These are institutional level risk assessments pushed to end users.
Tokenized deposits remove that burden. Consumer protection is inherited, not reconstructed. Settlement of disputes, insolvency proceedings and remedies follow existing banking legislation. The user does not become a credit analyst out of necessity.
For counselors, this difference defines suitability. Digital form does not override responsibility quality.
Narrative reclamation is strategic, not cosmetic
Banks are repositioning digital money as an evolution of deposits, not a replacement. This reformulation of recent authority over money within licensed institutions while absorbing the functional gains that stablecoins exhibit.
The result is convergence: blockchain rails that carry bank money, not private substitutes.
Stablecoins forced the system to confront its architectural limits. Tokenized deposits are how incumbents address them without relinquishing control.
Digital money will endure. The unsettled variable is issuer priority. Banks are moving to close this loophole now.
–Sam Boboev, Founder, Fintech Wrap Up
Ask an expert
Question. Banks are increasingly manufacturing stablecoins not as speculative crypto-assets, but as infrastructure for settlement, security and programmable money. From your perspective, working on blockchain infrastructure, what is driving this shift in large financial institutions and how different is this moment from previous stablecoin cycles?
A. The meaningful distinction between a stablecoin and traditional fiat is that the stablecoin exists on the chain.
The on-chain nature is precisely what makes stablecoins interesting for financial institutions. Once money is natively digital and programmable, it can be used directly for settlement, payments, collateral and atomic execution across systems without relying on fragmented legacy rails.
Historically, we have seen concerns around stablecoins focus on technical and operational risk, such as smart contract failure or insufficient resilience. These concerns have largely disappeared. Core stablecoin infrastructure has been battle-tested across multiple cycles and sustained real-world use.
Technically, the risk profile is now well understood and often lower than commonly assumed. The remaining uncertainty is predominantly legal and regulatory rather than technological. Many jurisdictions still lack a clear framework that fully recognizes stablecoins or CBDCs as first-class representations of sovereign currency. This ambiguity limits their use at scale within regulated financial systems, even when the underlying technology is mature.
That said, this moment feels structurally different from previous cycles. The conversation has shifted from “does this exist?” to “how do we securely integrate it into the monetary system?”
I expect 2026 to bring significant regulatory clarification and formal adoption pathways across multiple countries, driven by the realization that on-chain money is not a competing asset class, but an upgrade to financial infrastructure.
Q. As banks move towards tokenized deposits and on-chain settlement, identity, compliance and verifiable credentials are becoming central. From your work with institutions, what infrastructure gaps still need to be addressed before banks can safely scale these systems?
A. For these systems to run natively, we need to match the speed of compliance and identity with the speed of the assets themselves. Right now, settlement takes place in seconds, but verification still relies on manual work. The first step to solving this is not decentralization. It is simply to have these records digitized so that they can be accessed on-chain. We are already seeing many countries actively working to move their core identity and compliance data to the blockchain.
In my opinion, there is not a single “gap” that, when closed, will suddenly allow everything to scale perfectly. Instead, it is a process of fixing one bottleneck at a time. It’s like a “left hand pushing the right hand” forward. Based on our discussions with various governments and institutions, the immediate priority is to transform identity and device proofs into electronic formats that can be stored and retrieved across different systems.
Currently, we rely too much on manual verification, which is slow and error-prone. We need to move towards a model where identity is a verifiable digital credential. When you can pull this data instantly, without a human having to manually check and verify a document, the system can actually keep up with the speed of a stablecoin. We build the bridge between the old way of filing paperwork and the new way of instant digital proofing. It is a gradual improvement where we fix each short plank in the barrel until the whole system can hold water.
Q. Many politicians are now talking about stablecoins and tokenized deposits as payment infrastructure rather than investment products. How does it reframe the long-term role of stablecoins as banks increasingly place them alongside traditional payment rails?
A. The future of the world will be completely digitized. It doesn’t matter if you’re talking about dollar-backed stablecoins, tokenized deposits or central bank digital currencies. In the end, they are all part of the same thing. This is a massive upgrade of the entire global financial system. Reframing stablecoins as infrastructure is a very positive move because it focuses on removing the friction that slows the movement of assets today.
When we work on digital identity systems or blockchain networks at the national level, we see it as a necessary technical development. In fact, if we do our job well, the public shouldn’t even know that the underlying system has changed. They will not care about “blockchain” or “token”. They will simply notice that their businesses run faster and their money moves immediately.
The real goal of this reframe is to accelerate the turnover of capital across the entire economy. When money can move at the speed of the Internet, the entire global trade engine begins to run more efficiently. We are not just creating a new investment product. We build a smoother road for everything else to travel on. This long-term role is about making the global economy more fluid and removing the old barriers that keep value trapped in slow, manual processes.
–Xin Yan, Co-Founder and CEO, Sign
