As blockchain-based payments move closer to everyday banking, community banks and credit unions are hearing two terms more often than ever: tokenized deposits and stablecoins.
They sound similar. They both involve digital ledgers. And they both promise faster movement of money.
But legally, operationally, and from a risk perspective, they are not the same thing.
To help separate hype from reality, we sat down with regulatory attorney Brent Farley, who advises banks and fintechs, to walk through what tokenized deposits really are, how they differ from stablecoins, and what strategies and considerations community financial institutions can explore to benefit from new blockchain technology without overcommitting.
A tokenized deposit is:
A real bank deposit
Recorded on a digital ledger
Transferable using blockchain-style rails
Still governed by normal banking rules
As Farley puts it, “It really is the deposit itself, just represented on a different ledger.”
Farley explains tokenized deposits with a simple analogy.
Think about an old-school arcade: you put a dollar into a machine and get tokens in return. The token isn’t money on its own; it simply represents the dollar you deposited inside the machine. You could use the token to play games, but you couldn’t take it across the street and buy lunch.
Tokenized deposits work the same way.
“Instead of receiving a metal token, you receive a ledger entry on a blockchain that represents a dollar already sitting in your bank account. The deposit itself never leaves the bank. What changes is how it moves,” Farley says.
Farley summarizes it simply: tokenized deposits stay closely tied to the bank and its ledger. Stablecoins sit one step removed. At first glance, tokenized deposits and stablecoins can sound like semantics. But the difference matters.
A stablecoin is also a digital representation of a dollar. But it is issued separately from the deposit itself.
With most stablecoins:
The issuer holds cash or treasuries somewhere
The token represents a claim on that reserve
Redemption requires a separate process
The token itself is not the deposit
With tokenized deposits, there is no separate redemption step. The token is the deposit. That distinction affects deposit insurance, liquidity treatment, and regulatory oversight.
Read more about stablecoins after the Genius Act:
Yes, to the same extent the underlying deposit would be insured.
If the deposit qualifies for FDIC coverage today, a tokenized version of that deposit does as well, subject to the same limits and ownership rules. Stablecoins, on the other hand, are not automatically insured, even if the reserves are held at insured banks. That difference is a major reason banks are interested in tokenized deposits.
Speed and flexibility top the list. Today, most dollar movement inside banks still relies on batch processing. Even when money appears to move instantly in online banking, settlement often happens later, and sometimes overnight.
Putting deposits on a blockchain-style ledger allows:
Near-instant transfers
24/7 movement
Fewer settlement delays
Better interoperability between systems
For customers, that can mean faster payroll, quicker vendor payments, and tighter links between delivery and payment. For banks, it offers new payment capabilities without leaving the banking regulatory framework.
From a consumer and bank perspective, Farley believes they often are. Tokenized deposits sit at regulated banks and operate on ledgers run by or closely tied to those banks, so they fall under familiar supervision and controls.
Stablecoin issuers may operate internationally and under varying regulatory regimes. While many are well-run, history has shown cases where stablecoins were issued without sufficient backing. That doesn’t mean stablecoins have no role, but the trust model is different.
How are tokenized deposits regulated today?
This is where things get murky. Regulatory guidance around tokenized deposits is still taking shape. As Brent Farley puts it, tokenized deposits are “a little bit like stablecoins were last year prior to the GENIUS Act,” adding that in some respects, “it’s a little bit of the Wild West” as banks and regulators work through how existing rules apply.
For now, banks are applying existing deposit rules, FDIC insurance frameworks, and standard BSA, AML, and KYC obligations to these products. At the same time, blockchain introduces new questions that regulators and banks are still working through, including how far down the transaction chain banks are expected to monitor activity, what additional responsibilities come with increased visibility into payment flows, and how faster, near-instant withdrawals may affect liquidity planning and internal controls.
Regulators are actively studying these issues, and guidance is expected, but not all answers are settled yet.
| Feature | Tokenized Deposits | Stablecoins |
|---|---|---|
| What it is | A traditional bank deposit represented on a digital ledger | A digital token designed to track the value of $1 |
| Who issues it | A regulated bank | A bank, trust company, or nonbank issuer |
| Is it a deposit? | Yes: it is the deposit | No, unless explicitly structured and recognized as one |
| Where the money sits | On the bank’s balance sheet | In reserve accounts (cash, treasuries) held separately |
| FDIC insurance | Yes, to the extent the deposit would normally be insured | No, the token itself is not insured |
| How it moves | Typically on permissioned or bank-controlled ledgers today | Mostly on public blockchains |
| Settlement speed | Near real time | Near real time |
| Primary use cases today | Institutional settlement, treasury management, interbank payments | Payments, trading, remittances, programmable money |
| Regulatory treatment | Existing bank regulation and supervision | Varies by structure and jurisdiction |
| Main benefit for banks | Faster payments while keeping deposits inside the banking system | Interoperability with global and crypto-native platforms |
Farley highlights several key risk areas that community FIs should consider when they are evaluating tokenized deposits.
Tokenized deposits move fast. Very fast. That means banks must plan for faster outflows, different deposit behavior, and stronger internal liquidity controls. Poor planning here can be dangerous. Farley points to recent bank failures as reminders of how quickly digital withdrawals can accelerate stress.
Traditional payments sometimes give banks a day or two to reverse mistakes. Blockchain-based transfers may not. That raises the stakes for controls, customer education, and monitoring.
Blockchain provides deeper visibility into transactions, which is both a benefit and an added responsibility. Seeing more of the payment trail can improve monitoring, but it also raises questions about how much action is required once suspicious activity is visible.
Farley points to two developments worth watching:
Large banks like JPMorgan are piloting tokenized deposits, primarily for institutional clients and internal settlement.
Custodia and Vantage have launched a tokenized deposit infrastructure aimed at making tokenized deposits more accessible to smaller institutions.
Beyond those, many vendors and fintechs are building pieces of the puzzle. Community banks don’t need to build everything themselves, but they should understand who is building what.
Farley recommends that community banks stay close to trade associations such as state banking associations and the ABA, which are actively gathering information and engaging regulators, and to consult with a trusted law firm that is developing experience in digital-asset and tokenization issues. He also suggests engaging with state regulators, many of which have innovation or sandbox programs that can point banks toward credible vendors and peer institutions already working in this area, noting that no single organization will have all the answers in this fast-moving space.
How should community FIs approach tokenized deposits?
So, where can community FIs start exploring this new technology? Farley suggests they start by asking key questions.
Start with your customers:
Do they need faster payments?
Are they paying contractors or employees frequently?
Do they operate internationally or manage complex treasury flows?
Then assess internal readiness:
Capital and liquidity planning
Risk and compliance frameworks
Technology capacity
Most community banks will rely on partners and vendors, not in-house builds. The key is aligning solutions with real customer needs and not chasing technology for its own sake.
It depends, Farley says.
If your bank wants to support stablecoin ecosystems, holding reserves and facilitating flows may make sense.
If your goal is faster payments while keeping deposits insured, tokenized deposits may be the better fit.
For many institutions, the right answer may involve both, in different roles.
Bottom line: Tokenized deposits are not just “crypto for banks.” They are a new way to move traditional deposits using modern rails, with real implications for payments, liquidity, and competition.
“Community banks don’t need to act immediately, but they should not ignore the shift,” he says.
As Farley puts it, this is a new payments infrastructure with capabilities that go beyond ACH, wires, and even real-time payments. Understanding it now puts banks in a better position to decide if, when, and how to engage.