Cross-border transactions weapon of choice: The silent battle between Tokenized Deposits and Stablecoins
The United States Senate's recent advancement of the Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act signals a growing recognition of the increasing importance of privately issued dollar tokens. Singapore's Monetary Authority (MAS) also expanded its Project Guardian pilot in July 2024, inviting DBS, HSBC, and Standard Chartered to issue on-chain versions of customer deposits for foreign-exchange and repo trades.
Two jurisdictions employ differing strategies, yet their shared objective is clear: who will control the infrastructure of programmable money?
The Dual Nature of Stablecoins and Tokenized Deposits
Both traditional deposits and fiat-backed stablecoins offer 24/7 settlement, atomic delivery-versus-payment, and smart-contract programmability. However, their designs vary. Tokenized deposits encase existing commercial-bank liabilities within a cryptographic shell, inheriting deposit insurance, Basel capital requirements, and lender-of-last-resort support. Stablecoins, on the other hand, are the obligations of non-bank issuers, circulate on public chains, and are secured by segregated reserves, typically short-dated Treasuries. Regulators lean towards the former due to its guardrails, while markets favor the latter for its unrestricted liquidity.
The Key Players
The tension between these models is stark. J.P. Morgan's Kinexys (formerly JPM Coin) exceeded US $1.5 trillion in cumulative value this spring, after settling a tokenized Treasury ETF against a deposit token on a public test-net. Meanwhile, Tether's USDT surpassed US $150 billion in market cap, Circle launched a nine-chain Circle Payments Network, and PayPal's PYUSD secured a Coinbase listing. The growing liquidity of stablecoin rails makes them difficult for treasurers to ignore.
Regulation is shaping the competitive landscape. The GENIUS Act in the United States would require issuers to hold segregated Treasuries and operate bankruptcy-remote trusts, a half-step towards the banking tent without deposit insurance. Europe's MiCA caps daily turnover unless a coin issuer becomes an e-money institution, while MAS discusses a three-pillar world encompassing retail CBDC, regulated stablecoins, and tokenized deposits. The Bank for International Settlements (BIS) has convened seven central banks and 41 financial institutions for Project Agora, aiming to intertwine tokenized deposits and wholesale central bank digital currencies (CBDC) on a "unified ledger."
Economic Implications and Future Prospects
Regulation is crucial, but economics also matter. Stablecoin issuers reap the spread between T-bill yields and the zero interest they pay holders, such as Tether's US $5 billion in earnings in the first half of 2024. Banks capitalize on deposit tokens by offering compliance certainty and embedding programmable workflows, areas where off-the-shelf stablecoins still lag behind. Corporate treasurers are already dividing their investments between deposit tokens for internal liquidity and stablecoins for international transactions.
Real-world proofs of concept are burgeoning, with MAS exploring smart contracts for instantaneous, counter-party risk-reducing swap settlements under Project Guardian. Circle's new network facilitates multinational payments on Solana, Stellar, and New York-based regulated custodians, while trade-finance platforms test tokenized deposits as real-time collateral for letters-of-credit. Nigerian fintech remitters already use USDC for timely payroll flows, favoring it over correspondent wires that may take several days or face de-risking.
Despite the technological advancements, risks persist. Fragmentation looms if every bank launches on a different private chain with bespoke standards. Stablecoins face run dynamics, as demonstrated by USDC's brief de-pegging during the 2023 Silicon Valley Bank panic. Both camps grapple with capital questions. Higher Basel weights for tokenized liabilities could curb issuance, while falling Treasury yields could squeeze the stablecoin profit engine.
The Way Forward: BIS Anticipates Limited-Scale Agora Pilots by Early 2026
Despite these challenges, J.P. Morgan plans to extend Kinexys to third-party banks later this year, while Circle lobbies U.S. regulators to classify USDC as cash equivalents for federally chartered banks. The battle for control of the "plumbing" of programmable money is intensifying, focusing on who can scale liquidity, fulfill regulatory requirements, and seamlessly integrate programmable dollars into everyday commerce most quickly.
The stakes are high: McKinsey estimates annual cross-border friction at US $120 billion. If even a third could be reduced, the savings would rival the revenue of a top-ten global bank. It is not a contest between VHS and Betamax, but more like Wi-Fi and Ethernet, with competing, interoperable technologies becoming increasingly unnoticeable to end-users, governed by evolving standards rather than a single victor. Whether banks or fintech issuers secure the lion's share depends on their ability to quickly scale liquidity, satisfy regulators, and embed programmable dollars into everyday transactions. The tacit war for financial infrastructure is already underway, with the impact felt directly on corporate balance sheets.
In the Asia Pacific and Southeast Asia regions, Singapore's Monetary Authority (MAS) and the United States Senate are both exploring the regulation of programmable money, signifying a competition to control the infrastructure of this technology-driven financial system.
The strategies may differ, with MAS discussing a three-pillar world encompassing retail central bank digital currencies (CBDC), regulated stablecoins, and tokenized deposits, while the GENIUS Act in the United States leans towards the banking tent without deposit insurance. However, the key players, such as J.P. Morgan, Tether, Circle, and PayPal, are already making significant strides in the stablecoin and tokenized deposit markets, with growing liquidity making them difficult for treasurers to ignore.
