Stablecoins vs. Tokenized Deposits: What's the Difference?

Two Ways to Put Fiat on a Blockchain

There is a quiet but consequential debate playing out across banking, fintech, and crypto: when you move fiat currency on-chain, should it be a stablecoin or a tokenized deposit?

Both represent dollars (or euros, or pounds) on a blockchain. Both settle faster than traditional rails. Both promise to reshape how money moves. But underneath the surface, the two models are built on very different foundations — and the choice between them has major implications for regulation, risk, and who controls the future of digital money.

“If history is any guide, tokenization is roughly where the internet was in 96.”

— Larry Fink, CEO of BlackRock (quoted in Episode 60)

That comparison from the world's largest asset manager captures the scale of what's coming. But just as the early internet had competing visions for how to build it, tokenized money has competing models. Understanding those models is essential for anyone working in finance today.

What Are Stablecoins?

Stablecoins are digital tokens pegged to a fiat currency — most commonly the US dollar — issued by non-bank entities. Circle issues USDC. Tether issues USDT. Agora issues AUSD. These are private companies, not banks.

The issuer holds reserves (typically a mix of cash, Treasury bills, and other short-term liquid assets) and mints tokens on a one-to-one basis against those reserves. When you hold USDC, you hold a claim on Circle's reserves, not a deposit at a bank.

This distinction matters more than most people realise. Stablecoins sit outside the banking system. They are not deposits. They are not covered by deposit insurance (such as FDIC in the US or FSCS in the UK). If the issuer fails, you are an unsecured creditor, not a protected depositor.

What stablecoins offer in return is speed, global reach, and accessibility. Anyone with a crypto wallet can hold and transfer USDC, anywhere in the world, 24/7. No banking relationship required. No KYC at the protocol level (though regulated on-ramps impose it). No correspondent banking delays.

The stablecoin market now exceeds $200 billion in circulation. It is the fastest-growing segment of digital assets and has attracted serious attention from both regulators and incumbents.

What Are Tokenized Deposits?

Tokenized deposits are the banking system's answer to stablecoins. Instead of a non-bank company issuing tokens backed by reserves, a regulated bank issues a token that represents an actual deposit held at that bank.

“We're seeing demand from banks across the world and some of the largest banks to represent fiat currency on a blockchain. There are many different designs — deposit tokens, where it's effectively the same as a deposit account but it's a token on a blockchain, and stablecoins, where it's a separate type of reserve composition that is different and outside of a core deposit.”

— Cuy Sheffield, Head of Crypto at Visa (Episode 7)

When you hold a tokenized deposit, you hold the same thing you'd hold with a normal bank account — a deposit liability of the bank — but in token form on a blockchain. The bank still has the same capital requirements, regulatory oversight, and (critically) deposit insurance obligations.

“This is a really great indication of what's typically thought of as one of the more old school kind of components of the financial services industry as moving into this space.”

— Elise Soucie, Executive Director of Global Digital Finance (Episode 4)

Tokenized deposits give banks a way to participate in on-chain finance without abandoning their existing regulatory framework. The deposit stays within the banking system. The innovation is the delivery mechanism, not the underlying financial product.

Key Differences: A Structured Comparison

For finance professionals evaluating the two models, the differences break down across several critical dimensions:

Issuer

• Stablecoins: Issued by non-bank entities (Circle, Tether, Agora, Paxos). These companies may hold money-transmitter licences or e-money licences, but they are not banks.
• Tokenized Deposits: Issued by regulated banks (JPMorgan, Citi, Société Générale, etc.). The issuer is a licensed deposit-taking institution.

What You Actually Hold

• Stablecoins: A claim on the issuer's reserves. You are effectively a creditor of the issuing company.
• Tokenized Deposits: A deposit at a bank, represented as a token. You are a depositor with the legal protections that entails.

Regulation

• Stablecoins: Regulated under evolving frameworks (MiCA in Europe, pending legislation in the US). Standards are still being defined.
• Tokenized Deposits: Regulated under existing banking law. Banks already know the rules because they are the same rules they follow today.

Deposit Insurance

• Stablecoins: Not covered. If the issuer fails, holders may face losses.
• Tokenized Deposits: Covered (up to applicable limits, e.g. $250,000 FDIC in the US). Same protections as a traditional bank account.

Credit Risk

• Stablecoins: You bear the credit risk of the non-bank issuer and the quality of its reserve assets.
• Tokenized Deposits: You bear the credit risk of the issuing bank, mitigated by prudential regulation and deposit insurance.

Accessibility

• Stablecoins: Open and permissionless. Anyone with a wallet can hold them. Global reach, no banking relationship required.
• Tokenized Deposits: Permissioned. You must be a customer of the issuing bank. KYC is mandatory at the token level.

Interoperability

• Stablecoins: Designed to move across chains and protocols. High composability with DeFi.
• Tokenized Deposits: Typically restricted to specific networks or consortia. Cross-bank interoperability is still being developed.

Visa's VTAP: Helping Banks Issue Fiat Tokens

Visa has positioned itself at the centre of this transition with VTAP — the Visa Tokenized Asset Platform. Rather than choosing sides in the stablecoin-vs-deposit debate, Visa is building infrastructure that lets banks issue their own fiat-backed tokens on blockchain networks.

VTAP allows banks to mint, burn, and transfer fiat-backed tokens using Visa's existing infrastructure and settlement network. For banks that want to participate in on-chain finance but lack the in-house blockchain engineering capacity, VTAP provides a turnkey solution.

The strategic logic is clear: Visa's network connects over 14,000 financial institutions. If even a fraction of those institutions issue tokenized deposits or bank-backed stablecoins through VTAP, Visa becomes the connective tissue of on-chain fiat — the same role it plays in card-based payments today.

Why Banks Prefer Tokenized Deposits

Banks have strong reasons to favour tokenized deposits over stablecoins. The regulatory framework is familiar. The deposit stays on the bank's balance sheet, which means the bank retains the funding advantage that deposits provide (deposits are the cheapest form of funding for a bank). And the bank maintains the customer relationship.

“We strongly believe that the future of economy will be tokenized, everything from real estate to equity to deposit.”

— Bhaji Illuminati, CEO of Centrifuge (Episode 46)

For banks, the appeal is also defensive. If stablecoins grow to hundreds of billions or trillions of dollars and banks don't offer a competing product, they risk deposit disintermediation — customers moving money out of bank accounts and into stablecoin wallets. Tokenized deposits let banks offer the same speed and programmability while keeping deposits inside the banking system.

Why Fintechs and Crypto Firms Prefer Stablecoins

On the other side, fintechs, exchanges, and crypto-native firms prefer stablecoins for their openness and composability. A fintech building cross-border payments doesn't want to integrate with dozens of bank-specific deposit token systems. It wants a single, widely accepted token that works everywhere.

Stablecoins are permissionless at the protocol level. They integrate natively with DeFi protocols for lending, trading, and yield. They work across chains. They settle in seconds. And critically, you don't need a banking licence to use or build with them.

For emerging markets where banking infrastructure is limited, stablecoins offer dollar access that tokenized deposits simply cannot match. A merchant in Lagos or Jakarta can receive USDC without having a US bank account. That is a fundamentally different value proposition than a tokenized deposit at JPMorgan.

The Coexistence Thesis

The question “stablecoins or tokenized deposits?” is the wrong question. The answer is both.

“You're really going to only achieve the dream of tokenization when everyone is ready to go.”

— Nick Van Eck, CEO of Agora (Episode 60)

Different use cases demand different instruments. Institutional settlement between banks will likely favour tokenized deposits — regulated, insured, and fitting neatly within existing legal frameworks. Retail cross-border payments, DeFi, and emerging-market access will likely favour stablecoins — open, composable, and globally accessible.

Treasury operations may use both: tokenized deposits for domestic settlement and regulatory compliance, stablecoins for international transfers and 24/7 liquidity.

The most likely outcome is a multi-token world where stablecoins, tokenized deposits, and potentially central bank digital currencies (CBDCs) all coexist — each serving the use cases they are best suited for, connected by interoperability layers and settlement networks like Visa's VTAP.

The Bottom Line

Stablecoins and tokenized deposits are not competing to be the same thing. They are different instruments solving different problems for different participants in the financial system.

Stablecoins offer open, global, permissionless access to digital dollars. Tokenized deposits offer regulated, insured, bank-issued digital money. The regulatory frameworks, risk profiles, and use cases are distinct.

For finance professionals, the key is understanding which model fits which context — and recognising that the future of on-chain fiat is not a winner-take-all contest. It is an expanding ecosystem where both models will play critical and complementary roles.