Stablecoins vs Tokenized Deposits: New Competition in Digital Money?

In Sum

• Stablecoins and tokenized bank deposits are both digital fiat instruments on distributed ledgers, but stablecoins function like cash-like bearer assets while tokenized deposits remain tied to institutional bank accounts.
• Stablecoins rely on fully reserved backing (1:1 cash or Treasuries), whereas tokenized deposits operate within the fractional-reserve banking system as liabilities on a bank’s balance sheet.
• Stablecoins are broadly accessible to individuals and businesses with 24/7 liquidity, while tokenized deposits are currently limited to large institutions and often constrained by banking hours and closed networks.
• Regulators generally classify stablecoins as payment instruments under new frameworks, while tokenized deposits fall under traditional banking rules, making them potentially complementary rather than purely competitive.

Beyond crypto enthusiast spaces, stablecoins have successfully captured the attention of both regulators and financial institutions. Stablecoin regulatory frameworks have sprouted in the United States and in Canada in the last year. 

While the United States views prominent stablecoins as opportunities to reinforce USD supremacy, others worry about losing local currency relevance in favour of the American dollar with the advance of blockchain technology.

Similarly, many traditional financial institutions fear losing their share of the global payment system, given the unparalleled efficiency of blockchain payments. In response, in what some consider to be a “quiet war”,  they’ve created their TradFi equivalent of stablecoins: tokenized bank deposits.

Stablecoins and tokenized deposits are the same in some regards: both are digitized fiat currencies on distributed ledgers. Yet there are many essential differences between them. In this article, we take a look at how they compare and contrast, and we examine what the future might look like for the competing, yet in some aspects, complementary forms of digital money.

Comparison and Contrast

Nature: Cash-Like Transferability vs Account-Tied Deposits

Despite both being represented on distributed ledgers, tokenized deposits and stablecoins are different by their very nature. Stablecoins on public blockchains are exchanged as digital bearer instruments, meaning they move like cash from hand to hand, with the assumption that the hand currently holding them is the owner.

Many of the banks issuing tokenized deposits are using private distributed ledger technology with different addresses directly associated to client fiat accounts. The account-based nature of tokenized deposits reflects traditional banking databases, where funds are directly associated with an account number and an identity.

A notable game-changer is JP Morgan, the first major bank to issue a deposit token for institutional clients on a public blockchain. The JPMD token on Base has the particularity that it allows for interoperability between traditional payments infrastructure and on-chain settlement.

How It Works: Reserve-Based vs Fractional Reserve Banking

Stablecoins are digitally minted when the issuer acquires, via U.S. Treasuries or cash deposits, an equivalent amount of fiat currency to keep in their reserves—this is how stablecoins maintain their 1:1 peg with the currency in question.

On the other hand, tokenized deposits are issued on private chains (or in JPMD’s case, on Base) when equivalent fiat deposits are made in the client’s institutional bank account. Together, they work as a dual ledger with records synchronized across blockchain and traditional databases.

The deposit tokens are pegged to a deposit liability on the issuing bank’s balance sheet. Like with other types of fiat deposits, banks may lend the funds as part of standard fractional-reserve banking, but repayment is owed to the client’s account at withdrawal time.

For both stablecoins and token deposits, when the fiat-depositing client requests a redemption, the equivalent tokens are destroyed to maintain their 1:1 parity.

Acquisition and Custody: Personal and Enterprise vs Institutional Only

Stablecoins can easily be acquired by individuals or businesses in Canada by on-ramping CAD or USD through a centralized exchange for crypto custody or an OTC desk like EZO for non-custodial, one-to-one service. Depending on the chosen wallet custody model, ownership of the keys to your crypto holdings can either be a trusted exchange or in the case of non-custodial wallets, directly yours.

Self-custody wallets are pseudonymous in nature, given that anyone can create a wallet without identification, though KYC or KYB is required to purchase and sell cryptocurrency. On the other hand, custodial exchange wallets are directly linked to verified accounts.

On the other hand, acquiring deposit tokens has so far mostly been reserved for large institutions, though a first retail product has been announced in the U.S. late in 2025. A corporate bank account at an issuing financial institution and access to the token platform need to be secured following an extensive onboarding process.

Fiat deposits can then be converted to tokens on private chains. Custody of the funds and the tokens remain with the issuing financial institution, though your identity is clearly linked to both. In Canada, access to tokenized deposits is very limited, with none of the Big Five banks having announced any plans for issuance.

Regulatory Status: Payment Instruments vs Bank Deposits

Stablecoin issuance is regulated by stablecoin-specific legislation like the GENIUS Act in the United States or the Canadian Stablecoin Act from Budget 2025. Both legislations are generally aligned on most things—with Canada being more strict than its southern neighbour with its ban on yield pay-out including indirect benefits. Both the Canadian and American regulatory frameworks treat stablecoins as payment instruments, and have strict 1:1 reserve requirements, which along with account segregation, act as alternative protection mechanisms to FDIC or CDIC insurance.

The GENIUS Act explicitly excludes deposit tokens from falling under stablecoin regulation, falling instead under banking regulations, which enables FDIC insurance and interests to be paid to holders via native banking functionality. Different compliance expectations exist as well between stablecoins and tokenized deposits. As previously mentioned, the fractional reserve banking model allows banks to lend deposits, whereas stablecoins have strict 1:1 reserves requirements.

Canada’s stablecoin proposed law does not explicitly distinguish tokenized deposits from payment stablecoins—perhaps because not many Canadian deposit tokens projects have been announced yet, with attention mostly being on retail stablecoins for payment use cases. C.D. Howe however recommends Canada adopt a framework similar to that of the U.S. where tokenized deposits and payment stablecoins would fall under different categories and follow different regulations. They argue this ensures innovation can continue as financial stability and consumer protection is preserved.

Liquidity: Crypto Market Hours vs Bank Hours

Stablecoins benefit from 24/7 crypto liquidity. Redemption in CAD or USD can be done around the clock on exchanges and apps, and wallet-to-wallet transactions take mere minutes to settle regardless of geographical location.

On the other hand, tokenized deposits are still tied to regular banking hours. Furthermore, the movement of funds is limited to the issuing bank’s infrastructure. This model is not scalable for interbank transfers. JPMD, which is issued on the Base public chain, is available on a 24/7 basis.

Use Cases: P2P Across the Globe vs Large Value Institutional Payments

Stablecoins are ideal for P2P cross-border payments with broad geographic reach and around-the-clock accessibility and liquidity. The convenience these core characteristics of stablecoins provide make them relevant for businesses of all sizes seeking to optimize their liquidity.

On the other hand, tokenized deposits, as they are presently structured, are better suited to institutional large-value payments between major corporations within the same banking ecosystem, as interoperability remains limited.

Philosophy: DeFi vs TradFi

Whereas stablecoins are settled on open and public blockchains, most deposit tokens are issued on private chains. In terms of ideology, stablecoins, like other cryptocurrencies, offer consumers the choice in regards to custody. Exchanges can hold private keys on clients’ behalf, while others may instead choose to hold them autonomously, though this comes with an added layer of responsibility for their security.

On the other hand, tokenized deposits are bank-held and bank-controlled, privileging regulatory protection over independence.

What the Future Holds

A current problem shared across tokenized deposits is the lack of interbank interoperability, fragmented with each bank promoting their own token platform and private blockchain—though JP Morgan’s Kinexys and DBS are developing a framework that would enable interbank tokenized deposit transfers to move across multiple blockchains.

Despite the proliferation of deposit tokens in the U.S., a EY-Parthenon study found 54% of institutional actors who haven’t yet used stablecoins intend on adopting stablecoins within the year.

Where some see an ongoing fight for control, with banks trying to prevent stablecoins from being the default settlement layer, others see tokenized deposits and payment stablecoins as complementary with the different use cases they serve—tokenized deposits are ideal for major institutions who required a rigorous bank environment, whereas payment stablecoins provide better accessibility across the planet and around the clock.

EZO

EZO helps Canadian clients and businesses acquire stablecoins like USDC at the market rate, with no spread, enabling you to pay your suppliers and friends internationally without friction directly on-chain. Our OTC Desk is fully compliant and is designed to handle large transaction volumes. Contact us today and learn all that EZO can do for you.

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Frequently Asked Questions

What are stablecoins?‍

Stablecoins are blockchain-based digital currencies pegged 1:1 to fiat money, typically backed by reserves like cash or U.S. Treasuries.

What are tokenized bank deposits?‍

Tokenized deposits are digital representations of bank deposits issued by financial institutions, usually tied to a client’s account and governed by banking regulations.

Are tokenized deposits regulated the same way as stablecoins?

No. Stablecoins are regulated as payment instruments under specific stablecoin laws, whereas tokenized deposits fall under traditional banking frameworks.