When people ask Shawn Main why he sees tokenized deposits as essential to the future of banking, he likes to tell them about an attorney he once met who facilitates payments for a number of logistics companies.
“The logistics company deposits fiat (currency) with the lawyer. The lawyer goes out and buys USDC (the stablecoin issued by Circle). He then goes out and pays the suppliers and drivers in USDC. This is all happening outside the banking system,” emphasizes Main, chief business architect for Vantage Bank Texas, a $4.9 billion subsidiary of VBT Financial Corp. headquartered in San Antonio.
While stablecoins may be in a hype cycle right now, some believe the threat to banking is real, because stablecoins could facilitate faster transactions at a cheaper cost than most bank transfers. U.S. Treasury Secretary Scott Bessent on Nov. 12 told attendees of the Treasury Market Conference the stablecoin market is already valued at $300 billion, and could grow tenfold by 2030. Main says that means $3 trillion could drain out of the banking system over the next five years. “While that doesn’t sound like a lot across a large swath of banks, that can be anywhere between 10-20% of their actual revenue and deposit base over time,” Main says.
That concern prompted Vantage Bank Texas to become a pioneer among community banks, piloting three tokenized deposit initiatives since March. Why? Because unlike stablecoins, tokenized deposits are digital assets that sit inside the banking system.
A Key Distinction
There are some similarities between stablecoins and tokenized deposits that can lead to confusion, like with so many other things related to digital assets. For instance, both are considered ”tokenized assets” because they both represent real-world, dollar-for-dollar value on a blockchain and can both be used to make instant, real-time payments. Both are also “minted” into existence. In the case of tokenized deposits, a bank or credit union mints each deposit token on a blockchain to represent one dollar held in an actual deposit account. A bank can set up a subsidiary to mint a stablecoin, but most are minted by third-party issuers like Circle (USDC) or Tether (USDT), which then provide them to financial institutions for use. And this is where one key distinction between the two instruments lies. Tokenized deposits are digital representations of actual deposits, which sit on a financial institution’s balance sheet. While the GENIUS Act created a framework for the regulation of U.S. stablecoins backed by the U.S. dollar or Treasuries, that collateral won’t necessarily sit on bank balance sheets. That makes stablecoins highly unattractive to Christopher Williston, CEO of the Independent Bankers Association of Texas (IBAT). “It effectively creates dead money on your balance sheet,” Williston says.
Headquartered in Austin, just 90 miles up Interstate 35 from Vantage Bank Texas, Williston and his team at IBAT also feared what increased stablecoin use could mean for the industry. “So, that led us to the path of tokenized deposits and then wanting to bring together a group of banks to realize some of the promises of distributed ledger technology,” says Williston, who in October put out a call to member institutions to develop a tokenized deposit consortium.
One of IBAT’s goals for the consortium is to develop a network that would allow participating banks to send deposit tokens among one another without an intermediary. That type of bank interoperability is currently very limited, making it difficult to perform transactions without converting those deposit tokens into stablecoins or actual fiat currency first. Williston hopes such a network can be a model for the rest of the sector.
Main applauds IBAT for its efforts, because he says most small financial institutions don’t see the road ahead. “Our biggest concern when we started to talk to people about this was — they had no clue,” he says. “They don’t really understand the threats that are coming their way.” And according to statistics from Bank Director’s 2026 M&A Survey, many financial institutions aren’t even taking this into consideration. Just 21% of those surveyed say their institution is looking into providing digital asset services, while 44% have not even discussed it.
Enrico Camerinelli, a strategic advisor at Datos Insights who wrote an October report entitled Growing Deposits with Stablecoins and Tokenized Deposits, says financial institutions have to change their mindset or risk losing the ability to compete in the future. “Inevitably if banks don’t do it, somebody else is going to do it,” Camerinelli says of offering digital assets. “I think banks would make the wrong decision if they say, ‘We’ll do it only if there is an ROI, only if we can price it.’ Sometimes, you have to do it just because that’s where the market is going and you want to make sure that your clients can still stay with you.”
There are already many tangible use cases for tokenized deposits. Main believes the ability to offer 24/7, 365 payments is especially attractive for business customers. “It really can solve a lot of the needs that these companies have, specifically if you’re moving funds cross-border,” he says. One-third of Vantage Bank’s customer base is comprised of foreign nationals, which is why one of its tokenized deposit pilots focused on successfully completing a cross-border payment.
Williston says the most exciting thing to him is how tokenized deposits could be used to automatically facilitate complex transactions in areas such as international shipping or agricultural lending, where things like escrow and liens come into play. “You have different people with financial interests along the way, and right now those are just highly complicated transactions to manage. It’s a lot of paperwork, it’s a lot of fuzziness,” he says. “I think we all look at — is there real potential with this technology to help simplify that?”
But along with the current limitations on interoperability, those future use cases are also being delayed by a lack of regulatory guidance.
The Risks Are Mostly Regulatory in Nature
Both experts and industry professionals see the risks of tokenized deposits as somewhat minimal. While they present new cybersecurity concerns, most consider them to be no more dangerous than those currently posed by Automated Clearing House or application programming interface technologies. And many third-party vendors can help institutions through this process.
But Williston does see tokenized deposits as presenting a bit of a liquidity risk. “It is the same exact conversation we have when we talk about FedNow. It’s how fast can money leave the bank and what are the means by which it does that? That’s the reason why almost no banks are senders with FedNow, because they’re like, ‘I’ll receive all day long, but I don’t want the liquidity risk of 24/7, 365,’” he says.
Liquidity risk management is just one issue the Conference of State Bank Supervisors (CSBS) raised in a Nov. 4 letter it sent to the heads of the Federal Reserve, Federal Deposit Insurance Corporation (FDIC) and Office of the Comptroller of the Currency, specifically asking for more guidance on tokenized deposits. “Stablecoin is obviously front and center because of the GENIUS Act, and all the required rulemakings that are going to come from that. There’s not the similar legislative push for tokenized deposits,” says Nathan Ross, vice president of policy for the CSBS.
Main agrees there are still too many gray areas where regulations are concerned, including whether tokenized deposits are actually insured by the FDIC. “The thesis right now, and everything that’s been said, is that tokenized deposits will have no different legal treatment,” he says. “They will be exactly like deposits today. However, no one has explicitly stated that in guidance or rules.”
The CSBS provided the regulators with a full list of the concerns state supervisors are hearing from banks, including those related to Bank Secrecy Act and anti-money laundering compliance. “I think everyone would benefit from understanding when a state, when the Fed, the OCC or FDIC come in the doors, what questions are they going to ask you?” says Ross, who believes financial institutions will need clear risk management expectations for tokenized deposit offerings.
Williston is convinced regulators will ensure that clarity is developed in coordination with the GENIUS Act. “I can tell you that, in conversations with senior regulators, they have signaled to me deep concern that community banks should not be left behind in the implementation of this technology, and I do believe that they have signaled a commitment to make sure that regulatory clarity is put forth for the industry,” he says.
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