September 24, 2025 • 18 mins
In the wake of the summer’s Genius Act, many banks and nonbanks have announced new stablecoin initiatives. Another digital asset — tokenized deposits — may meet needs similar to stablecoins, but the two asset types have significantly different features based on their underlying designs. On this episode of the ABA Banking Journal Podcast, ABA experts Brooke Ybarra and Yikai Wang discuss:
- The key differences between stablecoins and tokenized deposits.
- Risks that widespread payment stablecoin adoption poses to community bank lending.
- Use cases for payment stablecoins (and areas where hype might exceed value).
- How U.S. banks are approaching stablecoin and tokenized deposit pilots.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Yikai Wang (00:02):
we have seen market projections for stablecoin issuance
growing to as much as 2 trillionUS dollars in the next three years.
That means that we are still tryingto quantify what that mean for us
banking deposit, but conservativelyour rough estimate would be
about at least 5% outflow for thedeposit from our community banks.
Evan Sparks (00:29):
From the American Bankers Association, this is the
A BA Banking Journal podcast.
Welcome back.
I'm Evan Sparks and I'm delighted tobring you a conversation about topics
that are very much in the news on,in, in front of in front of bankers.
I just spent a, I spent a day chattingwith the A BA Corp Platforms Committee.
They were interested intalking about this issue.
Our community, bankers council, ourpayments group, all of these state
(00:53):
associations across the country.
Our team at a BA is talking aboutstablecoins and the related concept
of tokenized deposits in all the time.
And, and, and to help us talk evenmore about that and make sure that
we kind of drill down into whatsome of these concepts are and how
they intersect with each other.
I have my two wonderful colleagueswho are much better versed in these
(01:16):
topics and much better able to distillthem and discuss them than I am.
And that's Brooke Ybarra.
Brooke is SVP at a BA wholeads our office of innovation.
Hi, Brooke.
Brooke Ybarra (01:26):
How's it going, Evan?
Good to be here again.
Evan Sparks (01:28):
And joining us on the podcast for the first time is my colleague, Yikai
Wang in our Office of the Chief Economist.
She's a vice president for banking andeconomic research over there and has
been writing about stablecoin issuesthe design of stablecoins, some of their
monetary policy implications, et cetera,on our website at aba.com/bankingjournal.
Yikai, welcome welcometo the show as well.
Yikai Wang (01:50):
Thank you, Evan.
I'm very glad to be here andexcited to talk about stablecoins
and tokenized deposits.
Evan Sparks (01:57):
All right, well, let's get get started here.
So we've got, we've been talking aboutstablecoin legislation on the Hill for the
last few years, and then it really wentinto overdrive in the first half of 2025.
And we saw the Genius Act passed whichallows for the first time this you know,
the creation of these payment stablecoins.
(02:18):
And, but, and then there's thisseparate concept of tokenization
of deposits, which is, you know.
I know is connected into the cryptosphere in the same way that stablecoins
are, but they're very different things.
So Brooke, can I just turn, turnit over to you to give a quick
overview of what is a stablecoin,what's a, what's a tokenized deposit?
(02:38):
So we are all level set withour audience before we dig into
some of the more into details.
Brooke Ybarra (02:43):
Yeah, absolutely.
So as you rightly point out, Evan,we've been talking a lot about
stablecoins and payment stablecoins.
And the truth is, though, what theGenius Act covers, which is payment
stablecoins, and really payment stablecoinissuers and the rules that that will
apply to kind of those entities.
It's a pretty narrow slice of the digitalassets world and is a very specific thing.
(03:09):
It is a digital token that is fullyreserved on at least a one-to-one basis.
And those reserves that are high qualityliquid assets have to be held in custody.
They cannot be lent against.
So while we think about kindof the function and the use of
a payment stablecoin, it feelslike a deposit in many ways.
(03:31):
There's really fundamental differencesactually between what a payment
stablecoin is because of that collateralthat reserves that, those reserves
that have to be held, that makes itvery different from a bank deposit.
So another key aspect of tokenizeddeposits that I think is really important,
it makes them very different from paymentstablecoins, is the applicability of FDIC
(03:54):
deposit insurance because a tokenizeddeposit is representing an actual deposit.
You know, we believe it would have all ofthe features of a deposit, including being
eligible for FDIC insurance, you know, asthat deposit would in the ordinary course.
Evan Sparks (04:11):
And a bank can also pay interest on a tokenized
deposit, unlike a stablecoin, right?
Brooke Ybarra (04:16):
That's right.
The Genius Act prohibits paymentstablecoin issuers from paying
interest on payment, stablecoins,and yet a tokenized deposit.
If that deposit earns interest again, inthe ordinary course, that would be could
be paid on the tokenized version as well.
And so it's been so great to work withYikai and the rest of our econ team as
(04:37):
we kind of really try to flesh out, youknow, what are the key differences and,
and why are those important to banks.
And to the economy in general.
Evan Sparks (04:45):
So before we dig further into these, the, the differences,
and I, I do want to get to that.
What is, what is unique aboutthe tokenization process?
Because, I mean, deposits today areall digital, you know, that's not,
you know, cash being held in the back.
Right.
I mean, all of our deposits aredigital representations on a bank's
ledger of what I know to be sureis there in my bank account, what
(05:06):
is unique about the tokenizationprocess that makes this, that makes.
That such a deposit more usefulor more different functional in a
different way than today's digitalbank deposits that we're, yeah.
Brooke Ybarra (05:21):
It's, it's a important question and it's one, we get a lot
kind of this, "well, what am I missing?
The dollar is digital today.
What, what is special about this?"And it really does, when you think
about tokenization and the benefits oftokenization, it flows back to, well,
what are the benefits of a blockchainor distributed ledger technology
and some of the differences there?
(05:43):
You know, though we have a very advanceddigital ecosystem in the United States.
A blockchain has, you know,24 7 always on availability.
There's some transparency benefit.
Potentially it is considered immutable,so you can't go back and change records
or, you know, alter records that havealready been attached to the blockchain.
(06:07):
Blockchain.
So there's, because some of these corefunctions, I guess, or, or features
of a blockchain that make it differentfrom ledgering systems today, but
at its core it's the right questionbecause it is a ledgering system.
It's another way ofrecording transactions.
And it's, and it's totally fair toask, you know, is this gonna be, is
(06:30):
that trade off of kind of making thistransition to blockchain based payments?
You know, is that worth it?
Are the benefits gonna outweigh the risks?
Evan Sparks (06:39):
So let's, so let's talk about some of those risks.
And I know Yikai, you've done workon this with the stablecoin front.
What is, so Brooke talked a littlebit about kind of how it's reserved.
stablecoins are reserved and.
What is the, what is the risk that agrowing use of stablecoin as kind of the
functional equivalent of a bank deposit?
(06:59):
What are some of the risks thatthat poses vis-a-vis our current
system or vis-a-vis tokenizeddeposits for financial stability?
Yikai Wang (07:07):
Evan, so first I would like to answer your question from the
perspective of the banking sector.
For us, stablecoin and tokenized deposit,they are different for stablecoins.
If a retail customer, theyconvert their banking deposit to
stablecoins, it means that depositoutflow from the US banking system.
(07:28):
So we have seen market projectionsfor stablecoin issuance growing
to as much as 2 trillion USdollars in the next three years.
That means that we are still tryingto quantify what that mean for us
banking deposit, but conservativelyour rough estimate would be
about at least 5% outflow for thedeposit from our community banks.
(07:54):
So that is our top concern, number two.
Thinking about the deposit outflowfrom the banking system, it'll actually
raise our funding, core funding costfor banks, they meaning that, that they
have to resort to alternative banking.
Banking funding source thatwill rise their cost of funding.
(08:16):
And ultimately it may lead to theexit for certain or re reduction
in certain loan lending in certainsmall, for small businesses, for
mortgages and for C&I loans, meaningthat the reduction in loan portfolios.
So that is the ultimate concern orrisk we have for the US banking sector.
Evan Sparks (08:41):
So the idea being that traditional bank, the our traditional
fractional fractional reserve systembank deposits are backed by a mix of
cash, treasuries, high quality, thehigh quality liquid assets, as well as
the non-liquid assets that are on thebank's books like commercial loans,
real estate loans, et cetera, et cetera.
You're in a stablecoin system.
(09:02):
You are only backing that depositor function deposit equivalent with
the high quality liquid assets.
Yikai Wang (09:10):
I would say that in the terms in terms of stablecoin, there will
be certain deposit coming back to thebanking system, but most likely it'll
come back to the banking system only as apercentage of the total deposit outflow.
For example, currently circle onlyholds about, 13, 15% of their stablecoin
(09:32):
reserve as bank deposit tetheractually holds even less percentage
of their reserve as bank deposit.
And we also see that the, the reservewill come back as the wholesale deposit
instead of retail deposit outflow.
And our community banks may suffermost from all the deposit off flow
(09:54):
because when the issuers return thedeposit back to the banking system,
it may not make their deposit.
At our community banks, mostlikely at the largest banks.
Evan Sparks (10:05):
Yeah, so I mean, that, that picture does not sound very
positive when I think about it.
There must be some appeal to thearchitecture of stablecoins for there to
be this much investor interest in them.
What is, what from a bank point of view,would be an advantage of developing
a stablecoin architecture or product?
(10:27):
What is the advantage for consumersof having their, of having funds in
a stablecoin versus a bank deposit?
Brooke Ybarra (10:34):
They're not questions that are easy to answer, especially
in thinking about the US domesticmarket, where we're seeing more
interest in payment, stablecoins isabroad or in payment transactions
that have a cross border aspect.
And really, you know, some of thepriorities and, and advocacy around
(10:55):
payment stablecoin from advocates of.
Payment stablecoin have been aboutfurthering the reach of the US dollar,
and so further dollarizing the globaleconomy, even, you know, creating
demand for short term treasuries thatwould back up payment stablecoins.
So that's been, that's been part of theargument in favor I think, of putting
(11:20):
together this regulatory frameworkand promoting payment stablecoins is.
In many ways has been about that,you know, treasury demand, demand for
treasuries globalization of the dollar,particularly in kinda the global south
or in other economies where, you know,there, there local currency may be subject
to much more volatility or more inflationrisk and there is interest in having
(11:44):
access to more dollar denominated assets.
And a payment Stablecoin is a good.
Answer to that, potentially a USdollar denominated payment, stablecoin.
But when you think to the US market.
It's a little less obvious what what thosepayments use cases or certainly that store
of value use case is going to be given thedigital economy that the dollar operates
(12:07):
in today inside the United States.
You know, something worth watchingthough, you know, as you think about,
well, what would some of the signalsbe that, that we should look to?
You know, I think in some capitalmarkets applications, we're
starting to see more interest in.
Tokenizing equities ortokenizing other derivatives.
You know, if there's other aspects offinancial services that, you know, quote
(12:31):
unquote move on chain and are, have ablockchain based nature to them, you, the
currency, the medium of exchange thereis, is likely to be a payment stablecoin.
And so you can see for some ofthose applications perhaps a
payment stablecoin makes sense, but.
For regular retail transactions,domestic B2B transactions, I think
(12:54):
the use cases are, are much lessobvious here in the United States.
Yikai Wang (13:00):
One potential, I want to mention that one potential
reaction from the bankingsector is to tokenize deposits.
Mm-hmm.
To actually combat thechallenge posed by stablecoins.
In this article, we actuallyhighlighted the key difference between
tokenized deposit and stablecoins.
Since tokenized, tokenized deposit onlyis only one digital representation of
(13:24):
the banking traditional banking deposit,actually it will not lead to deposit
outflow, as we mentioned, for stablecoins.
And also tokenized deposit canalso help facilitate faster
transaction and settlement forfor domestic business purpose.
Tokenized deposit may be one answerfrom the banking industry when facing
(13:46):
the challenge from st stablecoins.
Evan Sparks (13:49):
So it, so the tokenized deposit addresses some of the questions
or challenges around speed and aroundinteroperability with other blockchain
based technologies without the downsideof affecting bank sources of funding.
Am I summarizing that too, crudely?
Yikai Wang (14:10):
That's perfect summary.
Brooke Ybarra (14:12):
No, I think that's right, Evan.
I, the you know, one thing I wouldadd it, it is, if your question before
is the perfect lead in, you know,if you believe in the benefits of.
Blockchain based payments and why shouldwe ledger potentially on a blockchain
as opposed to the other ledgers, youknow, perhaps tokenized deposits are are
the bank solution here, as Yikai said,the one thing I might take issue with
(14:35):
or just suggest is the challenge still.
To be solved.
And there's several is actuallythat interoperability point.
I think there's still, there's stillquestions right around how banks are
connecting to public blockchains,how a tokenized deposit might
interoperate with with a paymentstablecoin issued by a non-bank.
(14:57):
But you know, that's a question at aBA and, and many others are exploring
really deeply now as we think aboutwhat, what is the appropriate role
for banks to play, you know, in thiskind of blockchain based ecosystem.
Yeah.
Evan Sparks (15:11):
So speaking of that, what are you hearing from, you know, I'm
particularly interested, I, I knowwe've heard a lot about larger banks
making investments in stablecoinsand in tokenized deposits, I had an
interesting conversation with a bankbased in Canada that has a digital
digital, deposit product that theyare working on, particularly on this
cross-border issue that you talked about.
Brooke, what are you hearing aboutfrom mid-size and community banks in
(15:33):
terms of how they're approaching thesequestions and the kinds of strategies
they're considering as they kind of makeseek to, you know, protect and enhance
their deposit franchise in this new era?
Brooke Ybarra (15:47):
Yeah, I think, I mean there's, there are certainly some
examples of banks that are exploringand looking at pilots, but I would
say for the vast majority right now,the name of the game is on education.
It's about learning aboutthese things, you know?
Talking to the a, BA, we, we putout a number of resources here.
But starting to talk to vendors.
(16:08):
You're seeing core platforms starthaving conversations about how they're
thinking about enabling bank activityon blockchain or with payment,
stablecoins and tokenized deposits.
So I think right now it's really about.
Learning and starting tothink about use cases.
We ask a lot of banks, you know,are you hearing demand from
(16:29):
your customers for this type ofasset or this type of payment?
And really, Evan, the answer so far is no.
There's not this significant market demandthat banks are hearing for the most part.
I'm sure there's isolated casesor you know, maybe for banks with
certain very specific customer niches.
(16:49):
They might be seeing some, but for thevast majority, they're not hearing it.
And so I think it's, it's a realchallenge for, for banks with this
kinda narrative around stablecoinsare so important and, you know,
digital assets and cryptocurrencyand it's, it's in the news so much.
But they're not hearingit from their customers.
So it's really about education,I think, and, you know, strategy
(17:12):
thinking, what might be opportunities?
What problems might thissolve for my customers?
And that we could think aboutimplementing in the future.
Yeah.
Evan Sparks (17:23):
I always benefit from getting smart from my colleagues
here at a BA who know a lot moreabout these things than I do.
And I know you are all, you are both gonnacontinue doing work on this issue and so.
Bankers who want to learn more andcontinue digging into what the potential
strategies might look like in thisspace, in the digital asset space,
can stay tuned on the ABA BankingJournal website or aba.com where
(17:46):
all of this information is posted.
And if you go to thebanking journal website.
abba.com/banking journal.
You can read Yikai and Brooke's newestarticle" decoding Digital Money", which
really gets into these differences betweenstablecoins and tokenized deposits.
So thank you both so much for beingon the show and for your sharing
your insights with our members.
Brooke Ybarra (18:06):
Thanks for having us.
Evan Sparks (18:07):
For our listeners, you can find this in previous episodes
at aba.com/banking journal podcast.
You can find us also on any of yourfavorite podcast apps or platforms.
Thanks so much for listening, andwe'll be back with you again very soon.
we have seen market projections for stablecoin issuance
growing to as much as 2 trillionUS dollars in the next three years.
That means that we are still tryingto quantify what that mean for us
banking deposit, but conservativelyour rough estimate would be
about at least 5% outflow for thedeposit from our community banks.
Evan Sparks (00:29):
From the American Bankers Association, this is the
A BA Banking Journal podcast.
Welcome back.
I'm Evan Sparks and I'm delighted tobring you a conversation about topics
that are very much in the news on,in, in front of in front of bankers.
I just spent a, I spent a day chattingwith the A BA Corp Platforms Committee.
They were interested intalking about this issue.
Our community, bankers council, ourpayments group, all of these state
(00:53):
associations across the country.
Our team at a BA is talking aboutstablecoins and the related concept
of tokenized deposits in all the time.
And, and, and to help us talk evenmore about that and make sure that
we kind of drill down into whatsome of these concepts are and how
they intersect with each other.
I have my two wonderful colleagueswho are much better versed in these
(01:16):
topics and much better able to distillthem and discuss them than I am.
And that's Brooke Ybarra.
Brooke is SVP at a BA wholeads our office of innovation.
Hi, Brooke.
Brooke Ybarra (01:26):
How's it going, Evan?
Good to be here again.
Evan Sparks (01:28):
And joining us on the podcast for the first time is my colleague, Yikai
Wang in our Office of the Chief Economist.
She's a vice president for banking andeconomic research over there and has
been writing about stablecoin issuesthe design of stablecoins, some of their
monetary policy implications, et cetera,on our website at aba.com/bankingjournal.
Yikai, welcome welcometo the show as well.
Yikai Wang (01:50):
Thank you, Evan.
I'm very glad to be here andexcited to talk about stablecoins
and tokenized deposits.
Evan Sparks (01:57):
All right, well, let's get get started here.
So we've got, we've been talking aboutstablecoin legislation on the Hill for the
last few years, and then it really wentinto overdrive in the first half of 2025.
And we saw the Genius Act passed whichallows for the first time this you know,
the creation of these payment stablecoins.
(02:18):
And, but, and then there's thisseparate concept of tokenization
of deposits, which is, you know.
I know is connected into the cryptosphere in the same way that stablecoins
are, but they're very different things.
So Brooke, can I just turn, turnit over to you to give a quick
overview of what is a stablecoin,what's a, what's a tokenized deposit?
(02:38):
So we are all level set withour audience before we dig into
some of the more into details.
Brooke Ybarra (02:43):
Yeah, absolutely.
So as you rightly point out, Evan,we've been talking a lot about
stablecoins and payment stablecoins.
And the truth is, though, what theGenius Act covers, which is payment
stablecoins, and really payment stablecoinissuers and the rules that that will
apply to kind of those entities.
It's a pretty narrow slice of the digitalassets world and is a very specific thing.
(03:09):
It is a digital token that is fullyreserved on at least a one-to-one basis.
And those reserves that are high qualityliquid assets have to be held in custody.
They cannot be lent against.
So while we think about kindof the function and the use of
a payment stablecoin, it feelslike a deposit in many ways.
(03:31):
There's really fundamental differencesactually between what a payment
stablecoin is because of that collateralthat reserves that, those reserves
that have to be held, that makes itvery different from a bank deposit.
So another key aspect of tokenizeddeposits that I think is really important,
it makes them very different from paymentstablecoins, is the applicability of FDIC
(03:54):
deposit insurance because a tokenizeddeposit is representing an actual deposit.
You know, we believe it would have all ofthe features of a deposit, including being
eligible for FDIC insurance, you know, asthat deposit would in the ordinary course.
Evan Sparks (04:11):
And a bank can also pay interest on a tokenized
deposit, unlike a stablecoin, right?
Brooke Ybarra (04:16):
That's right.
The Genius Act prohibits paymentstablecoin issuers from paying
interest on payment, stablecoins,and yet a tokenized deposit.
If that deposit earns interest again, inthe ordinary course, that would be could
be paid on the tokenized version as well.
And so it's been so great to work withYikai and the rest of our econ team as
(04:37):
we kind of really try to flesh out, youknow, what are the key differences and,
and why are those important to banks.
And to the economy in general.
Evan Sparks (04:45):
So before we dig further into these, the, the differences,
and I, I do want to get to that.
What is, what is unique aboutthe tokenization process?
Because, I mean, deposits today areall digital, you know, that's not,
you know, cash being held in the back.
Right.
I mean, all of our deposits aredigital representations on a bank's
ledger of what I know to be sureis there in my bank account, what
(05:06):
is unique about the tokenizationprocess that makes this, that makes.
That such a deposit more usefulor more different functional in a
different way than today's digitalbank deposits that we're, yeah.
Brooke Ybarra (05:21):
It's, it's a important question and it's one, we get a lot
kind of this, "well, what am I missing?
The dollar is digital today.
What, what is special about this?"And it really does, when you think
about tokenization and the benefits oftokenization, it flows back to, well,
what are the benefits of a blockchainor distributed ledger technology
and some of the differences there?
(05:43):
You know, though we have a very advanceddigital ecosystem in the United States.
A blockchain has, you know,24 7 always on availability.
There's some transparency benefit.
Potentially it is considered immutable,so you can't go back and change records
or, you know, alter records that havealready been attached to the blockchain.
(06:07):
Blockchain.
So there's, because some of these corefunctions, I guess, or, or features
of a blockchain that make it differentfrom ledgering systems today, but
at its core it's the right questionbecause it is a ledgering system.
It's another way ofrecording transactions.
And it's, and it's totally fair toask, you know, is this gonna be, is
(06:30):
that trade off of kind of making thistransition to blockchain based payments?
You know, is that worth it?
Are the benefits gonna outweigh the risks?
Evan Sparks (06:39):
So let's, so let's talk about some of those risks.
And I know Yikai, you've done workon this with the stablecoin front.
What is, so Brooke talked a littlebit about kind of how it's reserved.
stablecoins are reserved and.
What is the, what is the risk that agrowing use of stablecoin as kind of the
functional equivalent of a bank deposit?
(06:59):
What are some of the risks thatthat poses vis-a-vis our current
system or vis-a-vis tokenizeddeposits for financial stability?
Yikai Wang (07:07):
Evan, so first I would like to answer your question from the
perspective of the banking sector.
For us, stablecoin and tokenized deposit,they are different for stablecoins.
If a retail customer, theyconvert their banking deposit to
stablecoins, it means that depositoutflow from the US banking system.
(07:28):
So we have seen market projectionsfor stablecoin issuance growing
to as much as 2 trillion USdollars in the next three years.
That means that we are still tryingto quantify what that mean for us
banking deposit, but conservativelyour rough estimate would be
about at least 5% outflow for thedeposit from our community banks.
(07:54):
So that is our top concern, number two.
Thinking about the deposit outflowfrom the banking system, it'll actually
raise our funding, core funding costfor banks, they meaning that, that they
have to resort to alternative banking.
Banking funding source thatwill rise their cost of funding.
(08:16):
And ultimately it may lead to theexit for certain or re reduction
in certain loan lending in certainsmall, for small businesses, for
mortgages and for C&I loans, meaningthat the reduction in loan portfolios.
So that is the ultimate concern orrisk we have for the US banking sector.
Evan Sparks (08:41):
So the idea being that traditional bank, the our traditional
fractional fractional reserve systembank deposits are backed by a mix of
cash, treasuries, high quality, thehigh quality liquid assets, as well as
the non-liquid assets that are on thebank's books like commercial loans,
real estate loans, et cetera, et cetera.
You're in a stablecoin system.
(09:02):
You are only backing that depositor function deposit equivalent with
the high quality liquid assets.
Yikai Wang (09:10):
I would say that in the terms in terms of stablecoin, there will
be certain deposit coming back to thebanking system, but most likely it'll
come back to the banking system only as apercentage of the total deposit outflow.
For example, currently circle onlyholds about, 13, 15% of their stablecoin
(09:32):
reserve as bank deposit tetheractually holds even less percentage
of their reserve as bank deposit.
And we also see that the, the reservewill come back as the wholesale deposit
instead of retail deposit outflow.
And our community banks may suffermost from all the deposit off flow
(09:54):
because when the issuers return thedeposit back to the banking system,
it may not make their deposit.
At our community banks, mostlikely at the largest banks.
Evan Sparks (10:05):
Yeah, so I mean, that, that picture does not sound very
positive when I think about it.
There must be some appeal to thearchitecture of stablecoins for there to
be this much investor interest in them.
What is, what from a bank point of view,would be an advantage of developing
a stablecoin architecture or product?
(10:27):
What is the advantage for consumersof having their, of having funds in
a stablecoin versus a bank deposit?
Brooke Ybarra (10:34):
They're not questions that are easy to answer, especially
in thinking about the US domesticmarket, where we're seeing more
interest in payment, stablecoins isabroad or in payment transactions
that have a cross border aspect.
And really, you know, some of thepriorities and, and advocacy around
(10:55):
payment stablecoin from advocates of.
Payment stablecoin have been aboutfurthering the reach of the US dollar,
and so further dollarizing the globaleconomy, even, you know, creating
demand for short term treasuries thatwould back up payment stablecoins.
So that's been, that's been part of theargument in favor I think, of putting
(11:20):
together this regulatory frameworkand promoting payment stablecoins is.
In many ways has been about that,you know, treasury demand, demand for
treasuries globalization of the dollar,particularly in kinda the global south
or in other economies where, you know,there, there local currency may be subject
to much more volatility or more inflationrisk and there is interest in having
(11:44):
access to more dollar denominated assets.
And a payment Stablecoin is a good.
Answer to that, potentially a USdollar denominated payment, stablecoin.
But when you think to the US market.
It's a little less obvious what what thosepayments use cases or certainly that store
of value use case is going to be given thedigital economy that the dollar operates
(12:07):
in today inside the United States.
You know, something worth watchingthough, you know, as you think about,
well, what would some of the signalsbe that, that we should look to?
You know, I think in some capitalmarkets applications, we're
starting to see more interest in.
Tokenizing equities ortokenizing other derivatives.
You know, if there's other aspects offinancial services that, you know, quote
(12:31):
unquote move on chain and are, have ablockchain based nature to them, you, the
currency, the medium of exchange thereis, is likely to be a payment stablecoin.
And so you can see for some ofthose applications perhaps a
payment stablecoin makes sense, but.
For regular retail transactions,domestic B2B transactions, I think
(12:54):
the use cases are, are much lessobvious here in the United States.
Yikai Wang (13:00):
One potential, I want to mention that one potential
reaction from the bankingsector is to tokenize deposits.
Mm-hmm.
To actually combat thechallenge posed by stablecoins.
In this article, we actuallyhighlighted the key difference between
tokenized deposit and stablecoins.
Since tokenized, tokenized deposit onlyis only one digital representation of
(13:24):
the banking traditional banking deposit,actually it will not lead to deposit
outflow, as we mentioned, for stablecoins.
And also tokenized deposit canalso help facilitate faster
transaction and settlement forfor domestic business purpose.
Tokenized deposit may be one answerfrom the banking industry when facing
(13:46):
the challenge from st stablecoins.
Evan Sparks (13:49):
So it, so the tokenized deposit addresses some of the questions
or challenges around speed and aroundinteroperability with other blockchain
based technologies without the downsideof affecting bank sources of funding.
Am I summarizing that too, crudely?
Yikai Wang (14:10):
That's perfect summary.
Brooke Ybarra (14:12):
No, I think that's right, Evan.
I, the you know, one thing I wouldadd it, it is, if your question before
is the perfect lead in, you know,if you believe in the benefits of.
Blockchain based payments and why shouldwe ledger potentially on a blockchain
as opposed to the other ledgers, youknow, perhaps tokenized deposits are are
the bank solution here, as Yikai said,the one thing I might take issue with
(14:35):
or just suggest is the challenge still.
To be solved.
And there's several is actuallythat interoperability point.
I think there's still, there's stillquestions right around how banks are
connecting to public blockchains,how a tokenized deposit might
interoperate with with a paymentstablecoin issued by a non-bank.
(14:57):
But you know, that's a question at aBA and, and many others are exploring
really deeply now as we think aboutwhat, what is the appropriate role
for banks to play, you know, in thiskind of blockchain based ecosystem.
Yeah.
Evan Sparks (15:11):
So speaking of that, what are you hearing from, you know, I'm
particularly interested, I, I knowwe've heard a lot about larger banks
making investments in stablecoinsand in tokenized deposits, I had an
interesting conversation with a bankbased in Canada that has a digital
digital, deposit product that theyare working on, particularly on this
cross-border issue that you talked about.
Brooke, what are you hearing aboutfrom mid-size and community banks in
(15:33):
terms of how they're approaching thesequestions and the kinds of strategies
they're considering as they kind of makeseek to, you know, protect and enhance
their deposit franchise in this new era?
Brooke Ybarra (15:47):
Yeah, I think, I mean there's, there are certainly some
examples of banks that are exploringand looking at pilots, but I would
say for the vast majority right now,the name of the game is on education.
It's about learning aboutthese things, you know?
Talking to the a, BA, we, we putout a number of resources here.
But starting to talk to vendors.
(16:08):
You're seeing core platforms starthaving conversations about how they're
thinking about enabling bank activityon blockchain or with payment,
stablecoins and tokenized deposits.
So I think right now it's really about.
Learning and starting tothink about use cases.
We ask a lot of banks, you know,are you hearing demand from
(16:29):
your customers for this type ofasset or this type of payment?
And really, Evan, the answer so far is no.
There's not this significant market demandthat banks are hearing for the most part.
I'm sure there's isolated casesor you know, maybe for banks with
certain very specific customer niches.
(16:49):
They might be seeing some, but for thevast majority, they're not hearing it.
And so I think it's, it's a realchallenge for, for banks with this
kinda narrative around stablecoinsare so important and, you know,
digital assets and cryptocurrencyand it's, it's in the news so much.
But they're not hearingit from their customers.
So it's really about education,I think, and, you know, strategy
(17:12):
thinking, what might be opportunities?
What problems might thissolve for my customers?
And that we could think aboutimplementing in the future.
Yeah.
Evan Sparks (17:23):
I always benefit from getting smart from my colleagues
here at a BA who know a lot moreabout these things than I do.
And I know you are all, you are both gonnacontinue doing work on this issue and so.
Bankers who want to learn more andcontinue digging into what the potential
strategies might look like in thisspace, in the digital asset space,
can stay tuned on the ABA BankingJournal website or aba.com where
(17:46):
all of this information is posted.
And if you go to thebanking journal website.
abba.com/banking journal.
You can read Yikai and Brooke's newestarticle" decoding Digital Money", which
really gets into these differences betweenstablecoins and tokenized deposits.
So thank you both so much for beingon the show and for your sharing
your insights with our members.
Brooke Ybarra (18:06):
Thanks for having us.
Evan Sparks (18:07):
For our listeners, you can find this in previous episodes
at aba.com/banking journal podcast.
You can find us also on any of yourfavorite podcast apps or platforms.
Thanks so much for listening, andwe'll be back with you again very soon.
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