Banks and financial institutions have begun experimenting with tokenized bank deposits, bank balances recorded on a blockchain, but the technology is doomed to be lost to StableCoins, according to Omid Malekan, an adjunct professor at Columbia Business School.
Overcollateralized StableCoin IssuersWho must maintain 1:1 cash or short-term cash equivalent reserves to back their tokens, is safer from a liability perspective than fractional reserve banks that will issue tokenized bank deposits, Malekan said.
Stablecoins are also composable, meaning they can be moved throughout the crypto ecosystem and used in a variety of applications, unlike tokenized deposits, which allow, have Know-your-customer (KYC) controls, and has restricted functionality.
Tokenized bank deposits are like a “checking account where you can only write checks to other customers of the same bank,” Malekan continued. He added:
“What’s the point? Such a token cannot be used for most activities. It is useless for cross-border payments, cannot serve the undefined, does not offer composability or atomic swaps with other assets, and cannot be used in decentralized finance (defi).”
The tokenized real-world asset (RWA) sector, physical or financial assets tokenized on a blockchain, which includes fiat currencies, real estate, equities, bonds, commodities, art, and collectibles, is It is expected to swell to $ 2 trillion by 2028, according to Standard Chartered Bank.
Related: BNY explores tokenized deposits to power $2.5T daily payment network: Bloomberg
StableCoin issuers will share one way or another
Tokenized bank deposits must also compete yield-bearing stablecoins or StableCoin issuers finding ways around the yield ban in the Genius Stablecoin Act, passing the yield in the form of various customer rewards, Malekan argued.
The banking lobby is Pushed back against yield-bearing stablecoins Over the fear that StableCoin issuers sharing interest with customers will erase the banking industry’s share.
The current average yield offered on a savings account at a retail bank in the US or the UK is well under 1%, making anything above attractive to customers.
The The fight against yield-bearing stablecoins From the banking lobby drew criticism from New York University professor Austin Campbell, who accused The banking industry uses political pressure to protect financial interests at the expense of retail customers.
