Proponents of non-bank stablecoins have dominated much of the on-chain dollar narrative in the past three years, with monthly transfer volumes averaging over $1.26 trillion; with annual flows exceeding even that of Visa and Mastercard combined. Strong statements from leading players such as Circle, Tether and PayPal's PYUSD have helped support perceptions of non-bank issuers ultimately "owning" the digital cash layer of the world's financial system. The usage of stablecoins has not finished, but a second phase of development that was originally intended to compete with stablecoins has begun. Financial institutions are beginning to move their tokenized deposits onto blockchain rails, and the most impactful digital finance story of 2026 will be the infrastructure race that establishes the financial infrastructure that allows banks to compete with tokenized stablecoins.<h2>What Tokenized Deposits Actually Are</h2>The differences between these two types of money (stablecoins and tokenized deposits) are significant, but much of the coverage of this topic fails to recognize the distinctions between them. A stablecoin is a liability of the issuer (the issuer being Circle, Tether, or PayPal), not a liability of any bank as it exists outside the regulated banking system. It does not have deposit insurance associated with it and can only earn yield if it is passed through to the stablecoin holder via the issuer. On the other hand, a tokenized deposit is different from a stablecoin at every structural level. The issuing bank is directly liable to the holder of the tokenized deposit, as the funds backing the tokens are one-for-one with funds on the issuing bank's balance sheet. The tokenized deposits are subject to the issuing bank's capital requirements, anti-money laundering regulations, know your customer controls, and deposit insurance framework. The underlying technology is blockchain technology, but the underlying instrument is regulated bank money. Because of these structural differences, institutional investors are choosing to invest in tokenized deposits instead of stablecoins. The fact that a dollar is "on-chain" but can also be treated as a dollar by the existing bank frameworks means there is no need for legal teams to determine how they should be treated in a new regulatory environment. There also is no need for new regulatory approvals to be obtained, nor does the use of a stablecoin introduce counterparty risk from an issuer that is a non-bank. The utilization of tokenized deposits by wholesale markets that process trillions of dollars on an annual basis will create tremendous value through the regulatory simplicity of that structure when compared to the smaller yield spread that exists between traditional bank deposits and tokenized deposits.<h2>BNY, Cari, and the Institutional Infrastructure Building Out</h2>In January 2026,<a href="https://www.bny.com/corporate/global/en/about-us/newsroom/company-news/bny-extends-digital-cash-capabilities-for-institutional-clients.html" rel="noopener noreferrer" target="_blank"> </a>BNY launched its tokenized deposits for institutional clients, enabling clients to have on-chain mirrored representations of their deposit balances on its own private blockchain. Early adopters include<a href="https://www.theblock.co/post/384930/bny-activates-tokenized-deposit-service-payments-collateral" rel="noopener noreferrer" target="_blank"> </a>Ripple Prime (cashflow management and liquidity optimization), Galaxy (collateral workflow) and ICE (clearing infrastructure). Carolyn Weinberg, BNY's Chief Product &amp; Innovation Officer, accurately stated, "As the institutional market moves to a perpetual operating model, this is the way cash will travel across the modern financial system." The Cari Network was launched on March 17. It is a tokenized deposit network built on ZKsync, a Layer-2 network, cooperatively developed with five regional US banks — Huntington Bancshares, First Horizon, M&amp;T Bank, KeyCorp, and Old National Bancorp.<a href="https://www.cnbc.com/2025/04/08/crypto-firm-ripple-to-buy-primer-broker-hidden-road-for-1point25-billion.html" rel="noopener noreferrer" target="_blank"> </a>CNBC Led by Gene Ludwig (the former US Comptroller of the Currency), the design of the Cari Network is specific: tokenized deposits will be created against a deposit on an on-chain basis (in token/binary form), can be instantly transferred from one institution to another, and can be converted back to traditional US dollars at any time, without ever leaving the regulated banking system. Plans include the launch of a pilot program in Q3 2026 and customer access in Q4 2026.<a href="https://forklog.com/en/ripple-completes-1-25-billion-acquisition-of-prime-broker-hidden-road/" rel="noopener noreferrer" target="_blank"> </a>ForkLog Ludwig's stated objective, as well as the business value for the five previous banks, is to support the regulated banking system with innovations surrounding digital assets rather than competing with the regulated banking system.<h2>Europe and the ECB Are Running Parallel Infrastructure</h2>This week's RWA.io report states that there is an increase in tokenized deposits along with stablecoins and central bank digital currencies as part of a larger on-chain cash system. Tokenized deposits are not a replacement for the traditional commercial banking system, but rather will be a complement to it. Marko Vidrih, COO of RWA.io, made it clear that the worldwide finance system still functions through commercial bank money, but that digital cash will be the future of digital finance. In January 2026,<a href="https://www.ledgerinsights.com/lloyds-archax-canton-network-tokenized-deposit-uk/" rel="noopener noreferrer" target="_blank"> </a>Lloyds Banking Group and Archax executed the first public blockchain transaction with tokenized deposits using the Canton Network in the UK. Also, UK Finance is testing person-to-person transfers as part of the Great British Tokenized Deposit pilot. The European Central Bank launched its long-term vision for a tokenized European financial market with Appia, and introduced a system for settling tokenized deposits (called<a href="https://www.ecb.europa.eu/press/pr/date/2026/html/ecb.pr260219~pontes-target-tokenized-settlement.en.html" rel="noopener noreferrer" target="_blank"> </a>Pontes) that can connect the Eurozone's existing TARGET Services system to blockchain-based systems. Pontes will be live in Q3 of 2026. Therefore, European banks will use their traditional commercial bank systems and their own respective payment systems in conjunction with the ECB to issue tokenized deposits on private networks.<h2>The Interoperability Problem Nobody Has Solved Yet</h2> A March 2026 report prepared by the<a href="https://www.aba.com/advocacy/policy-analysis/aba-tokenized-deposits-interoperability-report-2026" rel="noopener noreferrer" target="_blank"> </a>American Bankers Association highlighted this conclusion as well as supporting the need for interoperability between banks. Without an ability to interoperate between institutions, each bank's tokenized deposits create individual "cash islands." If a BNY tokenized deposit cannot transfer easily to a JPMorgan system, it undermines the advantage of 24/7 settlement that tokenized deposits are meant to provide. The Cari Network has integrated cross-network interoperability into its development plan. Meanwhile,<a href="https://www.swift.com/news-events/news/swift-advances-tokenised-assets-interoperability-global-scale" rel="noopener noreferrer" target="_blank"> </a>Swift is creating a blockchain orchestration layer meant to interoperate with CBDCs, tokenized deposits, and regulated digital assets across its existing network of 11,500 financial institutions. Both projects agree that there is an underlying architectural principle: the on-chain cash market will only work at scale when cash can flow freely between networks. Stablecoins have addressed the issue of interoperability by existing on public blockchains and providing access to everyone wishing to transact. Conversely, tokenized deposits are focused on creating interoperability through a consortium-based framework which is slower to construct but will produce a more compliant solution better suited for the institutional services that handle quadrillions of dollars each year. The competition will not be won by developing superior products; it will be won by establishing superior networks.

Banks are issuing tokenized deposits on-chain, offering insured, regulated dollars with instant transfers for institutions, aiming to compete with stablecoins and build the future of digital finance.

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