Tokenised deposits and the future of institutional money
May 2026
With the increasingly prevalent issuance of tokenised deposits, Matthew Challis explores their future in commercial bank money and what it will take to move them from pilot to routine infrastructure
Image: unicro/stock.adobe.com
The past two years of institutional digital finance have, in part, been characterised by the ongoing and increasingly prevalent issuance of tokenised deposits. HSBC’s tokenised deposit service is live across multiple regions, Kinexys by J.P. Morgan deploys deposit-token rails for its institutional clients, UK Finance is running its Great British Tokenised Deposit (GBTD) pilot, and, according to Citi, tokenised deposits could support between US$100–140 trillion in annual flows by 2030, which are figures that would put them well ahead of stablecoins, whose global issuance climbed to around US$300 billion through 2025.
The appeal, at an institutional level, of a tokenised deposit is rooted in the “same activity, same risk, same regulatory outcome” principle. They do not offer something entirely new, but an evolution of an existing financial instrument, providing institutions with considerably quicker settlement times while maintaining predictable supervisory treatment and accounting.
Significantly, they allow globally systemically important banks (G-SIBs) to harness the most sought-after characteristics of stablecoins — their settlement times, flexibility, and programmability — while keeping funds inside established regulated banking rails.
But what position do they hold in the future of commercial bank money? Are they an incremental upgrade, or are they the foundation of a new settlement architecture?
Stablecoins vs tokenised deposits
The Bank for International Settlements’ (BIS) ‘singleness of money’ concept is based on the belief that to maintain a stable and trusted payment system, all forms of money, from public to private, need to trade at one-to-one value and be fully interoperable with one another.
Herein lies the key differentiator between stablecoins and tokenised deposits as vessels for moving institutional money.
Stablecoins, despite (usually) being pegged one-to-one with a fiat currency or real-world asset (RWA), can potentially fluctuate in value. Tokenised deposits, due to their position as a digitised version of an existing regulated product, are much better at retaining their intended value and subsequently align more closely with the BIS concept.
The preservation of the two-tier monetary system has also guided the recent institutional shift. While stablecoins represent a claim on a segregated reserve pool, tokenised deposits allow central banks to issue base money and commercial banks to create credit.
Institutional thinking
The institutional appeal, highlighted by Emma Landriault, head of labs, Kinexys by J.P. Morgan, lies in tokenised deposits’ ability to offer the flexibility of modern financial systems without the uncertainty of stablecoins’ ever-evolving framework.
The round-the-clock and near-instant settlement capabilities of tokenised deposits, she says, allow institutions to send and receive money securely onchain without being confined to the constraints of TradFi operating windows and the subsequent potential for delays in sending and receiving payments. She adds that the convergence of TradFi and DeFi “will not disrupt correspondent banking”, which plays a “critical role in maintaining the singleness of money” — aligning with the work done by BIS.
Landriault believes that, in the future, “stablecoins could become privately issued money, good for a subset of payment use cases such as retail, fractional, and low-value payments as M2 money”, off-ramping and finding the finality into commercial bank money, which she says “allows for flexibility of privately issued money, while maintaining a strong financial stability profile as M0-M1 money remain anchored”.
“Then commercial bank money as deposit tokens would find finality in central bank money such as CBDCs,” she says. “This is how we continue to see the space evolving.”
Interoperability and flexibility
The ‘Multi-Moneyverse’ theory, coined by the Bank of England, wherein the digital ecosystem is one of interoperable fiat and digital currencies that can freely and securely coexist, provides banks with the foundation for the institutional ambition underpinning tokenised deposits. But coexistence presupposes that the rails connecting these instruments are fit for purpose. In much of the market today, they are not.
While capital markets infrastructure transitions into becoming digital at one end — tokenised bonds, MMF interests, repo positions, onchain collateral — the cash leg of those transactions is still dependent on TradFi payment rails, which operate under the restrictions of traditional banking hours, suffering from the shortcomings of batch-based settlement.
Commercial bank money movement between institutions is still dependent on layered correspondent banking relationships and a reconciliation process designed for a bygone analogue era, held back further by the fixed operational hours of RTGS systems.
The mismatch, says Dr Michael Huertas, partner and Global Financial Services legal leader at PwC, is “between a digitally native financial market infrastructure and a largely non-programmable commercial bank money layer”, with consequences from settlement delays to trapped liquidity to higher operational costs and even counterparty exposure during the gap that occurs between trade execution and final settlement.
Europe has, in fairness, tried to address these issues. SEPA has unified euro payments under a single ruleset; T2S consolidated securities settlement onto a common platform with central bank money finality, but both modernised the core of an older architecture, as opposed to replacing it with one of programmability or native integration with DLT-based asset environments.
“Neither,” Huertas says, “fully answers the problem that tokenised deposits address.”
Tokenised deposits offer a way to bring regulated commercial bank money into blockchain environments without dismantling the established two-tier banking system that acts as a framework for it. This extended preexisting bank liabilities into programmable form, while simultaneously harnessing atomic settlement and the near real-time transfer of value. Huertas sees this objective as “not simply faster payments”, but rather it is the “reduction of settlement friction, counterparty exposure, operational duplication, and trapped liquidity” across financial markets that are becoming increasingly digital in nature.
Implementation
HSBC’s Tokenised Deposits Service (TDS), according to Lewis Sun, the bank’s global head of digital currencies, Corporate and Institutional Banking, emerged as a direct response to specific client demands: 24/7, cross-border settlement, available irrespective of traditional banking hours, cut-offs, time-zone barriers, or any of the other analogue inconveniences. Treasury teams, he says, wanted to “move money when the business needed it”, not when working hours permitted, and payments that could be “initiated from their own systems and integrated into existing treasury operations”.
Tokenised deposits could, therefore, offer HSBC’s clients something that traditional banking rails could not.
Part of the appeal for large corporates is that a tokenised deposit is an evolution of an existing asset class. TDS allows clients to tokenise funds via API and move them between wallets, before redeeming the tokens back into standard fiat balances on HSBC’s core banking ledger. In substance, the funds have remained bank deposits, but in practice, there now exists a mirrored one-to-one tokenised digital representation on the blockchain layer. Institutions have taken their existing cash management structures, credit facilities, FX workflows, and reporting — all built around their current banking connections — and extended such arrangements onchain, instead of ushering clients into a parallel money ecosystem.
Sun positions TDS as a Digital Assets and Currencies (DAC) instrument, as opposed to a wholly separate asset class, which, significantly, frames it within the confines of HSBC’s existing risk parameters. The support for conditional release and automated sweeps allows treasury teams to develop automated funding and payment workflows, instead of simply moving money between accounts. Instant data integration, Sun says, “supports easier reconciliation”, which is an operational benefit that tends to be most visible at a large scale rather than showing up in a singular transaction. Subsequently, he adds, the earliest adopters tend to be global or regional treasury centres because they “operate at high volume across time zones and place a premium on real-time visibility and control”.
For TDS to realise its full potential, Sun believes it will depend on the speed at which the rest of the industry adopts tokenised deposits. He sees the early signs as “encouraging”, but the potential value of something like TDS will be revealed, “at scale as the industry moves towards cross-bank, multi-rail settlement”. While it is live in Hong Kong, Singapore, Luxembourg, the UK, and, most recently, the US, a single bank operating a parallel tokenised deposit service is still, in essence, a closed ecosystem.
As Sun insinuates, for the architectural framework to be of industry-wide value, tokenised deposits at HSBC would have to possess the ability to settle against tokenised deposits at a different bank, which is what initiatives like Project Ensemble in Hong Kong are testing.
The requirements for scale
Huertas believes that, in order for tokenised deposits to move from “innovation theatre to routine infrastructure”, three sets of conditions must converge: regulation, technology, and industry coordination. The regulatory medley of national interpretations, sandbox regimes, MiCAR addressing both stablecoins and crypto-assets, but, as Huertas puts it, leaving “deposits within existing banking law”, is a serviceable environment for pilot schemes and experimentation, but one that would not suffice for operating at scale.
At EU level and, ideally, with international convergence, Huertas argues, further legislative or supervisory guidance is necessary to confirm how prudential, deposit-protection resolution, and settlement-finality rules apply to tokenised forms. Despite the uptake in demonstrative examples of live laboratories — Project Ensemble, the UK’s GBTD initiative, the Canton Pilot, TDS’s global expansion — the absence of a unifying framework causes unworkable levels of operational friction, posing a great challenge to solving the issue of an at-scale institutional function for tokenised deposits.
Huertas highlights that the technology must possess and demonstrate enterprise-grade resilience and scalability, along with the necessary security “not merely in controlled pilots but under real-world stress conditions”. Standards for interoperability must reach a stage where “a corporate treasurer or asset managers can move tokenised deposits across banks and platforms with the same ease and certainty with which they move euros through SEPA today”, further shedding light on how far the industry needs to come.
Huertas speaks of industry coordination as being the most consistently underestimated facet of transitioning from pilot phase to live service. “True interoperability requires competitors to cooperate on shared infrastructure standards,” he says, “which is inherently difficult but historically necessary for payment and settlement networks to achieve critical mass.”
Network effects in money do not stem from individual product launches, or as Huertas frames it, “no single bank can create a market on its own”.
Steps taken by the European Central Bank, such as its exploratory work on a unified ledger concept for wholesale settlement and its developments on and around the Eurosystem Collateral Management System, are, indeed, steps in the right direction. But the integral heavy lifting at the industry-coordination level remains to be seen.
Landriault anticipates that parallel financial infrastructure will coexist for many years to come.
“Even as public blockchain use increases,” she says, “banks and other service providers will support integration of these new technologies with legacy infrastructure and services. It’s true the transformation of financial services is underway, but scalable, institutional-grade capabilities will be the result of incremental adaptation over the years ahead, rather than an overnight transformation.”
But Huertas’s timeline of events is more specific and, perhaps, more optimistic: he claims that “meaningful institutional adoption in the euro area within the next two to four years” is plausible, on the basis that “the current pace of regulatory and central bank engagement is maintained”.
Looking ahead
How will the future be shaped?
Well, what will determine whether tokenised deposits become a genuine interoperable layer of programmable commercial bank money of significance for G-SIBs and institutions alike, or fade into the obscurity of parallel coexisting silos, as warned against by Huertas and Landriault, will depend on what regulators and central banks, along with the broader industry, can agree on.
The product has proven itself as a viable tool for institutional money; the question that remains to be seen is: can they get the architecture right?
The appeal, at an institutional level, of a tokenised deposit is rooted in the “same activity, same risk, same regulatory outcome” principle. They do not offer something entirely new, but an evolution of an existing financial instrument, providing institutions with considerably quicker settlement times while maintaining predictable supervisory treatment and accounting.
Significantly, they allow globally systemically important banks (G-SIBs) to harness the most sought-after characteristics of stablecoins — their settlement times, flexibility, and programmability — while keeping funds inside established regulated banking rails.
But what position do they hold in the future of commercial bank money? Are they an incremental upgrade, or are they the foundation of a new settlement architecture?
Stablecoins vs tokenised deposits
The Bank for International Settlements’ (BIS) ‘singleness of money’ concept is based on the belief that to maintain a stable and trusted payment system, all forms of money, from public to private, need to trade at one-to-one value and be fully interoperable with one another.
Herein lies the key differentiator between stablecoins and tokenised deposits as vessels for moving institutional money.
Stablecoins, despite (usually) being pegged one-to-one with a fiat currency or real-world asset (RWA), can potentially fluctuate in value. Tokenised deposits, due to their position as a digitised version of an existing regulated product, are much better at retaining their intended value and subsequently align more closely with the BIS concept.
The preservation of the two-tier monetary system has also guided the recent institutional shift. While stablecoins represent a claim on a segregated reserve pool, tokenised deposits allow central banks to issue base money and commercial banks to create credit.
Institutional thinking
The institutional appeal, highlighted by Emma Landriault, head of labs, Kinexys by J.P. Morgan, lies in tokenised deposits’ ability to offer the flexibility of modern financial systems without the uncertainty of stablecoins’ ever-evolving framework.
The round-the-clock and near-instant settlement capabilities of tokenised deposits, she says, allow institutions to send and receive money securely onchain without being confined to the constraints of TradFi operating windows and the subsequent potential for delays in sending and receiving payments. She adds that the convergence of TradFi and DeFi “will not disrupt correspondent banking”, which plays a “critical role in maintaining the singleness of money” — aligning with the work done by BIS.
Landriault believes that, in the future, “stablecoins could become privately issued money, good for a subset of payment use cases such as retail, fractional, and low-value payments as M2 money”, off-ramping and finding the finality into commercial bank money, which she says “allows for flexibility of privately issued money, while maintaining a strong financial stability profile as M0-M1 money remain anchored”.
“Then commercial bank money as deposit tokens would find finality in central bank money such as CBDCs,” she says. “This is how we continue to see the space evolving.”
Interoperability and flexibility
The ‘Multi-Moneyverse’ theory, coined by the Bank of England, wherein the digital ecosystem is one of interoperable fiat and digital currencies that can freely and securely coexist, provides banks with the foundation for the institutional ambition underpinning tokenised deposits. But coexistence presupposes that the rails connecting these instruments are fit for purpose. In much of the market today, they are not.
While capital markets infrastructure transitions into becoming digital at one end — tokenised bonds, MMF interests, repo positions, onchain collateral — the cash leg of those transactions is still dependent on TradFi payment rails, which operate under the restrictions of traditional banking hours, suffering from the shortcomings of batch-based settlement.
Commercial bank money movement between institutions is still dependent on layered correspondent banking relationships and a reconciliation process designed for a bygone analogue era, held back further by the fixed operational hours of RTGS systems.
The mismatch, says Dr Michael Huertas, partner and Global Financial Services legal leader at PwC, is “between a digitally native financial market infrastructure and a largely non-programmable commercial bank money layer”, with consequences from settlement delays to trapped liquidity to higher operational costs and even counterparty exposure during the gap that occurs between trade execution and final settlement.
Europe has, in fairness, tried to address these issues. SEPA has unified euro payments under a single ruleset; T2S consolidated securities settlement onto a common platform with central bank money finality, but both modernised the core of an older architecture, as opposed to replacing it with one of programmability or native integration with DLT-based asset environments.
“Neither,” Huertas says, “fully answers the problem that tokenised deposits address.”
Tokenised deposits offer a way to bring regulated commercial bank money into blockchain environments without dismantling the established two-tier banking system that acts as a framework for it. This extended preexisting bank liabilities into programmable form, while simultaneously harnessing atomic settlement and the near real-time transfer of value. Huertas sees this objective as “not simply faster payments”, but rather it is the “reduction of settlement friction, counterparty exposure, operational duplication, and trapped liquidity” across financial markets that are becoming increasingly digital in nature.
Implementation
HSBC’s Tokenised Deposits Service (TDS), according to Lewis Sun, the bank’s global head of digital currencies, Corporate and Institutional Banking, emerged as a direct response to specific client demands: 24/7, cross-border settlement, available irrespective of traditional banking hours, cut-offs, time-zone barriers, or any of the other analogue inconveniences. Treasury teams, he says, wanted to “move money when the business needed it”, not when working hours permitted, and payments that could be “initiated from their own systems and integrated into existing treasury operations”.
Tokenised deposits could, therefore, offer HSBC’s clients something that traditional banking rails could not.
Part of the appeal for large corporates is that a tokenised deposit is an evolution of an existing asset class. TDS allows clients to tokenise funds via API and move them between wallets, before redeeming the tokens back into standard fiat balances on HSBC’s core banking ledger. In substance, the funds have remained bank deposits, but in practice, there now exists a mirrored one-to-one tokenised digital representation on the blockchain layer. Institutions have taken their existing cash management structures, credit facilities, FX workflows, and reporting — all built around their current banking connections — and extended such arrangements onchain, instead of ushering clients into a parallel money ecosystem.
Sun positions TDS as a Digital Assets and Currencies (DAC) instrument, as opposed to a wholly separate asset class, which, significantly, frames it within the confines of HSBC’s existing risk parameters. The support for conditional release and automated sweeps allows treasury teams to develop automated funding and payment workflows, instead of simply moving money between accounts. Instant data integration, Sun says, “supports easier reconciliation”, which is an operational benefit that tends to be most visible at a large scale rather than showing up in a singular transaction. Subsequently, he adds, the earliest adopters tend to be global or regional treasury centres because they “operate at high volume across time zones and place a premium on real-time visibility and control”.
For TDS to realise its full potential, Sun believes it will depend on the speed at which the rest of the industry adopts tokenised deposits. He sees the early signs as “encouraging”, but the potential value of something like TDS will be revealed, “at scale as the industry moves towards cross-bank, multi-rail settlement”. While it is live in Hong Kong, Singapore, Luxembourg, the UK, and, most recently, the US, a single bank operating a parallel tokenised deposit service is still, in essence, a closed ecosystem.
As Sun insinuates, for the architectural framework to be of industry-wide value, tokenised deposits at HSBC would have to possess the ability to settle against tokenised deposits at a different bank, which is what initiatives like Project Ensemble in Hong Kong are testing.
The requirements for scale
Huertas believes that, in order for tokenised deposits to move from “innovation theatre to routine infrastructure”, three sets of conditions must converge: regulation, technology, and industry coordination. The regulatory medley of national interpretations, sandbox regimes, MiCAR addressing both stablecoins and crypto-assets, but, as Huertas puts it, leaving “deposits within existing banking law”, is a serviceable environment for pilot schemes and experimentation, but one that would not suffice for operating at scale.
At EU level and, ideally, with international convergence, Huertas argues, further legislative or supervisory guidance is necessary to confirm how prudential, deposit-protection resolution, and settlement-finality rules apply to tokenised forms. Despite the uptake in demonstrative examples of live laboratories — Project Ensemble, the UK’s GBTD initiative, the Canton Pilot, TDS’s global expansion — the absence of a unifying framework causes unworkable levels of operational friction, posing a great challenge to solving the issue of an at-scale institutional function for tokenised deposits.
Huertas highlights that the technology must possess and demonstrate enterprise-grade resilience and scalability, along with the necessary security “not merely in controlled pilots but under real-world stress conditions”. Standards for interoperability must reach a stage where “a corporate treasurer or asset managers can move tokenised deposits across banks and platforms with the same ease and certainty with which they move euros through SEPA today”, further shedding light on how far the industry needs to come.
Huertas speaks of industry coordination as being the most consistently underestimated facet of transitioning from pilot phase to live service. “True interoperability requires competitors to cooperate on shared infrastructure standards,” he says, “which is inherently difficult but historically necessary for payment and settlement networks to achieve critical mass.”
Network effects in money do not stem from individual product launches, or as Huertas frames it, “no single bank can create a market on its own”.
Steps taken by the European Central Bank, such as its exploratory work on a unified ledger concept for wholesale settlement and its developments on and around the Eurosystem Collateral Management System, are, indeed, steps in the right direction. But the integral heavy lifting at the industry-coordination level remains to be seen.
Landriault anticipates that parallel financial infrastructure will coexist for many years to come.
“Even as public blockchain use increases,” she says, “banks and other service providers will support integration of these new technologies with legacy infrastructure and services. It’s true the transformation of financial services is underway, but scalable, institutional-grade capabilities will be the result of incremental adaptation over the years ahead, rather than an overnight transformation.”
But Huertas’s timeline of events is more specific and, perhaps, more optimistic: he claims that “meaningful institutional adoption in the euro area within the next two to four years” is plausible, on the basis that “the current pace of regulatory and central bank engagement is maintained”.
Looking ahead
How will the future be shaped?
Well, what will determine whether tokenised deposits become a genuine interoperable layer of programmable commercial bank money of significance for G-SIBs and institutions alike, or fade into the obscurity of parallel coexisting silos, as warned against by Huertas and Landriault, will depend on what regulators and central banks, along with the broader industry, can agree on.
The product has proven itself as a viable tool for institutional money; the question that remains to be seen is: can they get the architecture right?
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