The next phase of the "digital dollar" revolution will not belong exclusively to cryptocurrency issuers. Traditional banks are beginning to move customer deposits onto blockchain networks, potentially challenging stablecoin issuers while borrowing some of the technology that made cryptocurrencies popular.
JPMorgan Chase (NYSE:JPM) and Citigroup (NYSE:C) are two of the most obvious traditional financial institutions (TradFi) that are developing blockchain-based payment infrastructure that allows money to move around the clock. For now, this debate is yet to be settled, giving decentralized finance and stablecoin issuers a chance to live another day.
But, TradFi is surely moving in on the crypto native’s turf. Arguably, the stablecoin market is all the rage within the broader crypto universe because of TradFi.
For example, in August, Pablo Hernández de Cos, general manager of the Bank for International Settlements (BIS), challenged the idea that stablecoins would ever become widely accepted payment instruments. But during his speech at the Federal Reserve’s Jackson Hole meeting, Cos said that tokenized bank deposits were more promising for TradFi’s digital assets push.
Unlike conventional stablecoins, which typically represent claims on an issuer backed by reserve assets, tokenized deposits represent money held at regulated banks. Both can use blockchain technology, but they operate under different legal, regulatory and financial arrangements.
The distinction matters because bank deposits are the foundation of traditional lending and payments. If consumers and businesses increasingly move their money into stablecoins, banks could face greater competition for deposits.
Tokenizing those deposits offers another possibility: adopting blockchain technology without surrendering the customer relationship. This is the TradFi trend today.
A good example here is Circle Internet Group (NASDAQ:CRCL), one of the top two stablecoins in circulation with trillions in volume. Circle wants to exist alongside TradFi, or become part of it.
8 trillion in quarterly onchain transaction volume, an increase of 151% from the same period a year earlier. Their financial performance remains heavily dependent on income generated from the assets backing its stablecoins.
Reserve income represented more than 95% of its second-quarter revenue. Traditional banks have different, more diverse business models.
They can build blockchain payment systems around their existing balance sheets and customer relationships, but must also consider existing compliance, operating costs and whether competing networks can interact without hiccups that frustrate customers, and turn them off to this new blockchain-bank model they are building. Banks Enter The Blockchain Business “Everyone assumes this is just about stablecoins.
It’s not. “They already hold the deposits, and if they put those same dollars onchain, they keep the customer while getting the exact things stablecoins offer; money that moves 24/7, settles instantly, and plugs into onchain markets and tokenized assets,” Ault said.
His argument is that the banks already possess something stablecoin issuers must compete to attract, and that is established deposit relationships, let alone brand name recognition and trust. “A bank does not have to lose those deposits to Circle or Tether if it tokenizes them first,” Ault said.
JPMorgan is pursuing that model. In November 2025, the bank made JPM Coin, its dollar-denominated deposit token known as JPMD, available to institutional clients on Base, the pro-trader blockchain network run by Coinbase (NASDAQ:COIN).
The service enables eligible institutional customers to transfer tokenized bank deposits around the clock, bringing elements of blockchain settlement into regulated banking. Citi is pursuing a related strategy through Citi Token Services, which enables institutional customers to move liquidity across participating markets using blockchain infrastructure.
For example, last month Citi and Singapore-based DBS Bank reported completing a weekend cross-border payment using tokenized deposits on Swift’s digital ledger. The transaction, completed in minutes, demonstrated how banks will use blockchain-based systems to overcome some of the restrictions imposed by traditional banking hours, and moving money globally – a foundational argument of cryptocurrencies.
For now, these beta test drives are only for institutional customers. Stablecoins vs Tokenized Deposits Not everyone sees tokenized deposits displacing stablecoins.
Aurélien Roussel, CEO and co-founder of Frgmnt in Montpelier, France argues that the two models are better understood as different approaches to bringing money onto blockchain networks. “Tokenized deposits may be highly relevant for existing banking relationships and institutional settlement, but stablecoins have a fundamental advantage: they are designed to be portable and composable across open blockchain networks,” Roussel said.
Stablecoins can circulate across supported blockchain networks and interact with decentralized financial applications. Tokenized bank deposits will probably be restricted to a bank’s in-house ecosystem.
For cryptocurrency developers, that openness is central to the appeal of blockchain finance. For them, stablecoins could eventually become more than digital representations of cash, serving as assets that interact with lending, payment systems and other onchain financial markets.
That is basically what the crypto currency market is building today. “The bigger question is therefore not whether dollars will move onchain because that transition is already underway.
The question is what financial infrastructure will be built around those dollars once they are there,” Roussel said. That points toward a possible future in which banks, stablecoin issuers and blockchain infrastructure providers compete over different parts of the same financial system rather than replacing one another.
Banks have the advantage of existing deposits, regulatory relationships and access to established payment infrastructure. For investors, the implications extend beyond cryptocurrency prices.
TradFi’s move into the blockchain can potentially affect bank deposit economics, traditional payment markets like credit card systems, stablecoin sustainability (especially for new entrants) and lead to increased demand for companies building blockchain infrastructure. "I expect the market to segment.
Banks will likely use their stablecoins for institutional settlement, clearing and treasury, where their balance sheets and existing relationships provide an advantage," said South Korea-based John Cho, CEO and Co-Founder of Ratio and Chief Stablecoin Officer at the Kaia DLT Foundation "Circle and Tether can continue powering exchanges, wallets, payments and broader on-chain ecosystems," he said, adding you will have different issuers for different purposes, rather than one replacing the other. "Regulation already appears to be moving in this direction, with different requirements emerging around issuers and use cases," he said.
"I don’t see USDT and USDC becoming the AOLs of digital money. If anything, the banks entering validate the category they created.
The bigger development is multiple currencies and issuers coming onchain. " Cover art created by the author using Canva.
Benzinga Disclaimer: This article is from an unpaid external contributor. It does not represent Benzinga’s reporting and has not been edited for content or accuracy.
