Crypto for Advisors: What are tokenized deposits?
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Happy Thursday, advisors!
In today’s newsletter, Laurie Rosini, partner at McDermott Will & Schulte, explains why banks are moving deposits on-chain via permissioned environments.
Then, in “Ask an Expert,” Morva Rohani breaks down the differences between stablecoins and tokenized deposits.
Happy reading.
Tokenized deposits are going on-chain — but they won’t be permissionless
Blockchain may be reshaping the walled gardens of banking, but the walls are not coming down soon. Even on the same rails, deposits and stablecoins play by different rules: deposits remain more private, more permissioned and more anchored to traditional banking.
Why tokenized deposits are different
Banks are increasingly putting deposits on blockchain rails, but within permissioned environments. Citi and BNY are using private blockchain infrastructure, while JPMorgan has recently launched JPMD (JPMorgan Deposit Token), a permissioned deposit token on the public Base blockchain. Whatever the infrastructure, tokenized deposits remain permissioned because they are deposit liabilities of regulated banks.
This is a fundamental difference between tokenized deposits and stablecoins. Stablecoins are bearer-like instruments designed to circulate in secondary markets. The issuer's liability travels with the token, with no customer relationship formed with each successive holder. The GENIUS Act adds Bank Secrecy Act (BSA) and Anti-Money Laundering (AML) obligations for permitted issuers but does not change this basic point. It instead creates a regulated payment product built to circulate, backed at least one-for-one by specified liquid reserves.
Bank deposits, by contrast, are not backed dollar-for-dollar by a dedicated pool of cash or Treasuries. A deposit is instead a claim against the bank itself, whose assets include loans, securities, cash and other investments and whose condition is subject to prudential requirements. A deposit token therefore represents an ongoing relationship with a particular bank, not a fully reserved instrument that circulates independently of it, and that relationship shapes how the token can be transferred.
Why the walls aren’t going away
A bank’s BSA/AML and sanctions compliance obligations place practical limits on how broadly a tokenized deposit can circulate. Banks must know their customers, screen for sanctions, monitor for suspicious activity and meet recordkeeping and Travel Rule requirements. A deposit token cannot simply move to an unidentified wallet, through a decentralized exchange and on to unknown holders. The bank must retain enough control over who can hold and transfer it to satisfy these obligations.
Privacy provides another constraint, particularly on public blockchains. Transaction amounts, addresses and histories are publicly visible and blockchain analytics can often tie pseudonymous addresses to particular entities. Institutional customers are unlikely to want competitors or other observers identifying their treasury movements, trading activity or commercial relationships. Together, these considerations keep tokenized deposits permissioned, though not necessarily limited to a single bank’s customers.
Inside the walls: how settlement works
Between two customers of the same bank, no interbank settlement is needed, because the bank simply shifts its liability from one customer to the other. If the blockchain is the authoritative ledger, there is no separate off-chain transfer. If it mirrors the bank’s conventional ledger, the two records must be synchronized.
When a payment crosses bank balance sheets, however, the resulting interbank obligation still requires settlement. For domestic U.S. dollar payments, that can occur through Fedwire, moving reserve balances between banks, while cross-border payments may require correspondent accounts. Putting the customer-facing payment on a blockchain does not eliminate that settlement layer.
Expanding the garden through interoperability
Consortiums can make that walled garden larger. Participating banks can agree on customer eligibility, compliance standards, acceptance of each other’s tokenized deposits and netting and settlement. Interoperability protocols can connect separate permissioned networks without making either permissionless.
And that gets to the real reason banks are building this infrastructure.
Tokenized Treasuries, money market funds, securities and other traditional financial assets are increasingly moving onto programmable ledgers. Banks do not need their deposits to circulate freely through decentralized finance (DeFi) to join that future. They need commercial bank money that can interact with those assets, and with other regulated institutions, on compatible infrastructure.
The long-term vision is therefore not necessarily an open blockchain financial system. It may instead be a network of permissioned environments that can communicate with one another: bank money, securities, funds and collateral moving across interoperable rails while identity, compliance and privacy controls remain intact.
- Laurie Rosini, partner, McDermott Will & Schulte
Ask an Expert
Q. If tokenized deposits stay permissioned, where does that leave stablecoins?
Stablecoins are for the use cases permissioned networks cannot serve.Tokenized deposits work between customers of the bank that issues them. They do not work for payments between parties with no common bank: remittances, businesses in markets with limited correspondent banking, fintechs without direct access to bank rails and tokenized markets that settle around the clock. Those transactions need a settlement asset that moves without a customer relationship at each step.
The likely result is two systems running in parallel. Permissioned bank money handles institutional settlement. Stablecoins handle open networks and retail payments. Most clients will eventually touch both, so the practical issue is the connection point: how value converts between the two systems, at what cost and under whose compliance obligations. Converting between them today still means a fiat transfer between banks on traditional rails, which is one reason central banks are testing tokenized settlement of their own.
Tokenized deposits do not displace stablecoins. They show where bank money stops, and stablecoins pick up from there. For a client holding a tokenized product, the question that matters is which of the two systems it settles in.
Q. Where does Canada stand on regulating stablecoins and tokenized deposits?
They are on separate tracks. Stablecoins have a dedicated federal framework. The Stablecoin Act has passed, and the regulations that give it operational detail are in development. The objective is to allow domestic and foreign stablecoins to operate under Canadian oversight and give Canadians regulated options in Canadian dollars.
Tokenized deposits are at an earlier stage. A deposit token is still a deposit, so it falls under existing banking regulation. The open questions are how that framework applies: whether deposit insurance covers a tokenized claim, how the tokens move between institutions and how bank-issued tokens interact with the stablecoin regime. The Spring Economic Update 2026 started this work. The government committed to engage federally regulated financial institutions on their development and use of stablecoins and other tokenized assets, and on whether additional regulatory clarity is needed, with targeted discussions to follow with industry, regulators and the provinces and territories.
For advisors, the practical point is that both instruments will operate under federal oversight, but the rulebooks are arriving at different times. Stablecoin rules will likely come first, with draft regulations expected to be published in the Canada Gazette by this fall. The treatment of tokenized deposits has a less certain timeline, but Budget 2026 will likely provide more information on the potential policy approach from the current Liberal government.
- Morva Rohani, executive director, Canadian Web3 Council
Keep Reading
Citibank plans to launch bitcoin custody services through its Custody+ platform, offering 24/7 access, near-instant settlement and secure key management for institutional clients later this year.
Visa looking for new stablecoin settlement partner after BVNK sale to Mastercard.
The U.S. Securities and Exchange Commission has made its first major foray into crypto regulation, issuing a proposed rule meant to clear a path for offering crypto offerings without triggering certain regulatory demands as securities.
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