It’s been a while since we sent one of these. We’re bringing the newsletter back, and this felt like the right story to restart with.
Last week there were two consequential stories linked to tokenized deposits that didn’t feature household names, so may not have received the attention they deserve.
Corporate treasuries use tokenized deposits to sweep into MMFs
For years there have been discussions about blockchain wallets enabling corporates or individuals to move seamlessly and 24/7 from low earning cash used for payments into tokenized money market funds or other higher yielding assets.
There have been some institutional plays with BNY and Goldman collaborating to enable this for institutions via BNY’s LiquidityDirect. But last week saw this morph into a quick switch from tokenized deposits into MMFs and back.
Many global systemically important banks now offer tokenized deposits. For many of them the initial client was Ant International, the operator of Alipay+ and spinoff from the Chinese parent Ant.
Ant has been integrating these solutions with its blockchain based treasury management platform Whale, which leverages tokenized deposits to move money around the world 24/7.
Now we’ve long suspected that Whale is already doing what some of the stablecoin clearing startups are aiming to accomplish. In other words, enabling interoperability between incompatible tokenized deposit solutions.
Last week Ant International revealed a new leg of its strategy. All that pooled liquidity enabled by tokenized deposits can now earn a higher return by being parked in tokenized money market funds.
The announcement was simply a follow up to its deal last year with Credit Agricole, under which it started using so|cash for tokenized deposits. This time it involved the French bank’s securities services arm CACEIS, and asset management arm Amundi, the largest asset manager in Europe that is providing the tokenized fund share class.
The takeaway is that for large international corporates, tokenized deposits are a useful service, but they also help to divert cash balances out of banks. We explored this and other implications for banks in our coverage.
Do stablecoins make tokenized deposits more usable?
The other story is about Vantage Bank and Custodia Bank unveiling their whitepaper for Hazel Network tokenized deposits. In comparing stablecoins and tokenized deposits, stablecoins have a key advantage of being more open.
If you hold a stablecoin you can transfer it to any other wallet on the same blockchain, and potentially other blockchains. If you hold a tokenized deposit, you can only use it to pay someone who banks with a deposit network participant. That’s a massive drawback compared to stablecoins.
Yes, there are emerging solutions to offer clearing and settlement, but that adds another layer of intermediaries. What the Hazel Network does is quite elegant. Custodia Bank has an Avit stablecoin. When a bank client attempts to send money to a wallet outside the network, the recipient receives a stablecoin. If someone outside the network sends a stablecoin to a banking client, the stablecoin switches to a tokenized deposit.
This simultaneously solves the reach problem of tokenized deposits and the singleness of money argument regarding stablecoins.
How popular the Avit stablecoin becomes remains to be seen. And the banks have incentives because the more they use the network, the lower the already small costs. It could even become revenue generating.
But what if instead of an Avit stablecoin there were a multibank stablecoin, such as Europe’s Qivalis. Or the Zelle stablecoin which is currently only aiming to be used for remittances. Or Japan’s “3 Mega SC”, the stablecoin being developed by the big three banks MUFG, SMBC and Mizuho.
A tokenized deposit network combined with a multibank stablecoin starts to look far more practical.
And here the two stories connect. Ant International has an EU license as an e-money token issuer, meaning its stablecoins could bridge between separate tokenized deposit networks.
We’ll be back soon.