Tokenized Bank Deposits Fall Short Compared to Stablecoins: Expert Opinion

Tokenized Bank Deposits Face Challenges

Banks and financial institutions are exploring tokenized bank deposits, which record bank balances on a blockchain. However, Omid Malekan, an adjunct professor at Columbia Business School, argues that these will ultimately be outpaced by stablecoins.

Stablecoins Offer More Security

Stablecoin issuers maintain 1:1 cash or cash-equivalent reserves, making them more secure than banks that issue tokenized deposits with fractional reserves, according to Malekan.

Flexibility and Composability

Stablecoins are composable and can be used across various applications in the crypto ecosystem, unlike tokenized deposits, which are restricted by permission and KYC controls.

Tokenized deposits are akin to "a checking account where you could only write checks to other customers of the same bank," said Malekan, highlighting their limited utility.

Future of Real-World Assets

The sector of tokenized real-world assets (RWA) is projected to grow to $2 trillion by 2028, encompassing fiat currencies, real estate, and more, according to Standard Chartered.

Competition with Yield-Bearing Stablecoins

Tokenized deposits must compete with yield-bearing stablecoins, which may offer customer rewards that circumvent yield prohibitions, as noted by Malekan.

The banking industry has resisted yield-bearing stablecoins, fearing market share erosion, a stance criticized by NYU professor Austin Campbell for prioritizing financial interests over retail customers.