During the Goethe University ILF conference, one of the speakers made a comment that some might find controversial. “I argue that stablecoins are unlikely to compete against what are no less digital, tokenized deposits,” said Stephen Cecchetti from Brandeis Business School, and a former senior executive at the BIS. He added a caveat: that stablecoins will remain more popular in the crypto world.
Tokenized deposits certainly have some advantages, the obvious ones being that banks have (mostly good) reputations, scale from large customer bases and geographic reach. So, the larger the bank, the bigger the benefit. We’ll come back to Mr Cecchetti’s views. While banks are now launching tokenized solutions, apart from JP Morgan and a handful of others, they have been slow to lean in, as highlighted by other speakers. Many of the current tokenized deposit solutions are single bank offerings, which are not interoperable, partially contradicting the singleness of money argument. “Partially”, because the banks have access to central bank money. Ultimately the tokenized deposits can be easily converted to fiat money and transferred via the banking system. Single bank solutions are mainly used for ‘on us’ payments, where both the payer and payee are clients of the bank.
On the same panel, Julio Faura, co-founder and Chair of Adhara, highlighted the real obstacle in bank adoption has not been technical, but the existence of use cases that make business sense. Those have now crystallized. One is to enable intraday and 24/7 liquidity, especially between the branches of the same bank. “By using deposit tokens as a means to do internal settlements, they can actually net the internal and external flows, and they can reduce the amount of funding that they need by 80%,” he said.
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