Over the past decade, the development of crypto finance has relied on two core asset types: native on-chain assets and stablecoins. Native assets created the structure of decentralized finance, while stablecoins became the “dollar engine” powering cross-chain liquidity and on-chain economic activity.
However, when RWAs (Real-World Assets) began to be discussed at scale by global financial institutions, a fundamental question emerged: the on-chain world lacks an endogenous instrument that can serve as bank-grade settlement money.
If stablecoins enabled on-chain finance to operate autonomously, then the emergence of tokenized deposits is what truly allows the banking system to cross the threshold into the on-chain world.
What Tokenized Deposits Are and Why They Matter
Tokenized deposits are not an upgraded version of stablecoins, nor are they a variant of cryptoassets. They represent, for the first time in banking history, the introduction of commercial bank money onto distributed ledgers in programmable form.
They retain the legal nature of bank money as a liability of the issuing bank, while gaining the real-time settlement, composability, and automation features of on-chain assets.
For investors, this is not merely an experiment in the banking market. It is the starting point for a thirty-year reconstruction of the global financial infrastructure.
RWA Inside Banks: Not New Assets, but a Digital Upgrade
To understand the significance of tokenized deposits, we must first understand the characteristics of RWA within the banking system. Unlike RWA on public chains, bank-internal RWA are not new asset classes; they are the digital upgrade of traditional financial assets.
On permissioned distributed ledgers (Permissioned DLT), banks have already begun issuing on-chain bonds, on-chain fund units, on-chain commercial paper, and on-chain structured products. In essence, these instruments are no different from their traditional securities counterparts; what changes is that registration, custody, and clearing are migrated onto the ledger.
This migration is not simply “turning a PDF into a token”. It makes the assets themselves programmable and triggers qualitative changes across the entire financial infrastructure stack: clearing, reconciliation, reporting, and supervision.
The Missing Piece: On-Chain Assets Need On-Chain Money
The problem is equally clear: on-chain assets must be matched with on-chain money in order to achieve true delivery-versus-payment (DvP) and atomic settlement.
If bonds are on-chain while money remains off-chain, markets cannot escape a fragmented T+2 structure. A genuinely digital capital market requires assets and money to reside on the same chain and settle in the same environment. Tokenized deposits have emerged precisely at this intersection of needs.
The banking system requires settlement arrangements that are stable, controllable and subject to a well-defined regulatory framework. Under current rules and practices, this makes most existing stablecoins poorly suited to act as core bank-grade settlement assets. Stablecoins are electronic money issued by private institutions (such as Circle), rather than by banks themselves. As a result, they are generally not used as the primary settlement leg in permissioned bank ledgers and often do not yet meet the legal and operational standards applied to systemically important settlement instruments.
By contrast, bank securities businesses, whether bond issuance or fund subscriptions and redemptions, must settle using bank money. Tokenized deposits were invented specifically to resolve the issue of “on-chain securities without on-chain bank money.”
Global Practice: Tokenized Deposits as Fuel for On-Chain Capital Markets
Looking at projects currently underway around the world, a common pattern is evident: leading jurisdictions and institutions seeking to build on-chain capital markets increasingly treat tokenized deposits or on-chain bank money as core infrastructure.
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JPMorgan’s Onyx platform uses JPM Coin to settle commercial paper and cross-border flows on-chain.
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Switzerland’s SIX Digital Exchange adopts bank-issued on-chain Swiss francs as the settlement asset for digital bonds.
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In Singapore’s Project Guardian, banks such as DBS are allowed to issue programmable deposits to complete DvP settlement for on-chain funds and on-chain bonds.
Tokenized deposits are the “fuel” that keeps these systems running, the key variable that allows them to move from concept to scaled, real-world deployment.
Redefining the Boundary of On-Chain Finance
From an investor’s perspective, the significance of tokenized deposits goes far beyond automating internal bank processes. They redefine the boundary of on-chain finance.
Historically, on-chain finance has been driven mainly by open DeFi, with participants including global retail users, DAOs, and crypto funds. In the future, on-chain finance is likely to evolve into a two-layer structure:
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Upper layer: open capital markets on public chains.
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Lower layer: permissioned, bank-internal on-chain markets.
Public chains drive innovation and global liquidity; permissioned chains anchor regulated finance and large-scale RWA allocation.
Tokenized deposits form the middle layer connecting the regulatory system with on-chain infrastructure. They enable banks to participate in the on-chain world using their own money, without sacrificing regulatory control.
Three Structural Shifts
This evolution follows three clear lines of logic:
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On-chain is likely to become the ‘new normal’ for bank securities businesses.
Bonds, funds, and notes will be comprehensively digitized, with tokenized deposits as their settlement asset. Capital markets will evolve from T+2 to T+0, achieving real-time, irreversible, and fully auditable settlement structures. -
The on-chain monetary system will become multi-layered.
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CBDCs will support settlement at the sovereign level.
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Tokenized deposits will support settlement at the commercial bank level.
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Stablecoins will provide liquidity for open on-chain finance.
These are not pure competitors, but layers in a hierarchy, each serving a different role.
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RWA will become the benchmark asset class for scaling on-chain finance.
Much as content once drove user growth on the internet, RWA will drive balance-sheet expansion and volume growth in on-chain finance.-
Bank RWA on permissioned ledgers will provide stable, high-quality assets.
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RWA on public chains will provide composability and innovative funding structures.
Together, they will form the primary asset supply of future financial markets.
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Where Investment Opportunities Will Concentrate
For investors, this implies that the major opportunities over the next decade will concentrate in three areas:
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Bank-grade RWA infrastructure
Investments in permissioned chains, on-chain clearing, on-chain custody, and on-chain accounting and audit. These are the foundational components of a future multi-trillion-dollar market. -
Global expansion of open RWA
This includes on-chain sovereign bonds, trade finance, and private credit. Such assets will become the entry point for institutional investors seeking yield in the on-chain world. -
Bridges and compliant connectivity layers
Infrastructure that connects tokenized deposits, stablecoins, CBDCs, and multi-chain assets, forming the interoperability layer of the future financial network.
Tokenized Deposits as Institutional Infrastructure, Not Just Another Product
Tokenized deposits are not simply another financial product; they are institutional infrastructure.
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Give banks a native on-chain form of commercial bank money.
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Provide on-chain finance with a settlement asset that meets institutional standards.
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Offer RWA the technical foundation required to scale in a regulated environment.
From a macro perspective, this is not an IT upgrade, but a rebuild of the clearing layer of modern finance.
From an investment perspective, it signals the strategic direction of future capital-market development.
From an industry perspective, it is a necessary precondition for RWA to mature into a truly global asset class.
Looking Ahead: Two Engines, One Market
Over the next thirty years, on-chain money and on-chain assets will jointly reshape financial markets.
Tokenized deposits mark the starting point of this new structure, and RWA will be the main driver of its growth. Bank-led on-chain finance and open DeFi will form a layered ecosystem, while tokenized deposits and stablecoins will become the two engines of the future financial system.
Taken together, these trends point to a clear blueprint:
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On-chain finance will no longer be confined to cryptoassets; it will become the backbone of global capital markets.
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RWA will no longer be experimental instruments at the periphery of crypto; they will be mainstream assets in future financial markets.
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And tokenized deposits will be the foundational infrastructure that makes all of this possible.
Further Reading
Deposit Tokens vs. Tokenized Money Market Funds
Deposit tokens (Tokenized Deposits) are bank liabilities, economically equivalent to bank deposits represented on-chain. They function as payment and settlement money.
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They are directly governed by the banking regulatory framework.
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They can be used for DvP settlement of on-chain securities.
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They provide settlement finality.
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They do not circulate freely on public chains and do not generate yield.
They are settlement-layer assets and form part of the core infrastructure of the banking system.
Tokenized money market funds, by contrast, are fund units, investment products, not money.
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Their underlying assets are short-term government securities and repurchase agreements.
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Returns are driven by money-market interest rates.
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On-chain, they function as “transferable fund claims” that can be held and transferred on public chains.
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They cannot serve as bank-grade settlement money.
In short: deposit tokens are for settlement and do not yield; tokenized money market funds are for investment and do not qualify as settlement money.
Deposit Tokens vs. Central Bank Digital Currency (CBDC)
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Issuer
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Deposit tokens are issued by commercial banks and are bank liabilities.
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CBDCs are issued by central banks and are sovereign money.
The former belong to a competitive commercial banking system; the latter belong to a state-level, monopolistic issuance framework.
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Legal Nature
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Deposit tokens are essentially “bank deposits on-chain” , debt obligations of commercial banks.
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CBDCs are liabilities of the state and represent legal tender with the highest credit quality.
Their legal standing and the entities bearing settlement obligations are fundamentally different.
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Functions and Use Cases
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Deposit tokens are designed as bank-level on-chain payment and securities settlement money, mainly for financial-market infrastructures on permissioned ledgers.
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CBDCs are more oriented toward retail payments, government account systems, and cross-border central-bank settlement.
They correspond to commercial-layer versus sovereign-layer monetary needs, respectively.
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Settlement Tier
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CBDCs sit at the top of the settlement hierarchy and enable direct settlement at the central bank.
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Deposit tokens operate at the commercial-bank settlement layer and are ultimately settled back into the central-bank system via interbank networks.
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Deposit tokens are the on-chain upgrade of commercial bank money; CBDCs are the digital form of sovereign money. One is optimized for financial-market settlement, the other for national-level monetary issuance and payments.
The Deeper Strategic Significance of Deposit Tokens
Deposit tokens represent the banking sector’s strategic response to the emerging monetary order.
In a future where stablecoins, crypto markets and CBDCs jointly shape a new monetary system, banks that lack their own on-chain money risk losing initiative within tomorrow’s settlement networks. The launch of deposit tokens is a critical strategic move for banks along three dimensions: monetary sovereignty, settlement-system control and positioning within the future monetary architecture.
First, banks are keenly aware of the growing influence of dollar-denominated stablecoins. Stablecoins, especially USDC and USDT, are in essence an extension of the US dollar onto public chains, and they currently dominate settlement in many open on-chain markets. Whether in on-chain lending, cross-chain payments, tokenized commercial paper or a large share of DeFi and RWA protocols, settlement is overwhelmingly conducted in dollar stablecoins. This trend risks hard-wiring global on-chain economic activity into a “dollar stablecoin system”, and has raised concerns among some policymakers about the longer-term role of domestic banking systems and local currencies in the digital realm. Tokenized deposits give banks a way to issue their own on-chain money, helping to preserve the relevance of domestic bank money within this emerging environment.
Second, banks need to safeguard their settlement systems. The resilience of today’s traditional financial system rests on the fact that payments, clearing and custody are anchored within banks and core financial market infrastructures. The on-chain world challenges this structure.
If tokenized deposits did not emerge and on-chain asset trading remained heavily dependent on stablecoins, there would be a risk that key parts of the future settlement network could tilt toward large stablecoin issuers. In such a scenario, private issuers might gain significant influence over cross-border settlement flows, while banks’ role could become more concentrated in providing fiat on- and off-ramps rather than operating at the core of the settlement infrastructure.
Tokenized deposits can be seen as banks’ way of signalling to the market that, for systemically important settlement, they expect bank money to remain central, rather than relying exclusively on privately issued electronic dollars.
Finally, deposit tokens are intended to serve as an intermediate layer in the future monetary architecture. When CBDCs, stablecoins, bank deposits and RWA all migrate on-chain, they will require a unified interoperability framework. CBDCs will anchor the central-bank settlement layer; stablecoins will continue to serve as transactional and liquidity instruments on open chains; and bank deposits will remain the core liability structure of commercial banks.
The interoperability among these elements will not arise automatically; it will require a technical and institutional intermediary that can connect policy, commercial and market layers. Stablecoins alone are unlikely to fulfil this function, and CBDCs by themselves may not be designed to cover the full range of commercial use cases. Tokenized deposits are well positioned to help bridge these requirements, combining alignment with bank regulation, on-chain programmability and support for day-to-day financial activity.
In this sense, deposit tokens are not merely a digitalization experiment. They are a proactive defence by banks of their future role in monetary governance, settlement control and market participation. They open a new path for banking sovereignty in the on-chain era:
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Preserving monetary leadership
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Safeguarding control over financial infrastructure
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Securing a pivotal position in a multi-layered monetary system
Deposit tokens may appear to be a technical innovation, but in substance they form part of the strategic foundation of the banking system in the next phase of financial transformation.
References:
- Bank for International Settlements – Project Guardian reports
- International Monetary Fund – Digital Money and Tokenized Deposits
- Monetary Authority of Singapore – Project Guardian updates
- Bank of England – Digital Settlement Assets
- BIS Innovation Hub – Tokenization and the Future of Finance
- European Commission – DLT Pilot Regime framework papers
- World Economic Forum – The Tokenized Asset Ecosystem
- JPMorgan Onyx – technical whitepapers
- SIX Digital Exchange – market infrastructure documentation
- OECD – Institutional Adoption of Digital Securities