In the wake of the digital revolution, the money landscape is rapidly evolving. Tokenized money — any form of money that exists on a blockchain network — has emerged as a fully digital means of transacting. Initiatives are gaining momentum, leading to a diverse array of options.
In this article, we focus on the three main categories of tokenized fiat money: stablecoins, deposit tokens, and central bank digital currencies (CBDCs). The aim is to establish a baseline understanding of these new forms of money and provide initial implications for key actors across the payments value chain.
How stablecoins, deposit tokens, and CBDCs are reshaping payments
Stablecoins initially took pole position in this transformation, attracting considerable attention and showcasing impressive growth: transaction volumes increased by 120% year-on-year, reaching approximately $950 billion in July 2025. While a significant portion of this volume is still associated with trading and decentralized finance (DeFi) activities, the share of “real” payment use cases tripled between February 2023 and February 2025 — primarily driven by business-to-business (B2B) transactions (Artemis).
Deposit tokens, stablecoins’ lesser-known counterpart, are gaining traction through various experiments. JP Morgan appears to lead the pack, breaking away from private chains to issue a deposit token on public network base. Meanwhile, central banks worldwide are cautiously exploring CBDCs to maintain pace and retain control over monetary systems. While 60% of central banks are experimenting with CBDCs, only a few have launched them.
Market competition is intensifying, driven by the potential to revolutionize payments — especially cross-border payments — and the winner-takes-all outcome resulting from network effects. Both traditional finance (TradFi) institutions and crypto natives are all gearing up for the battle for the future of money. This competition is underscored by a wave of partnerships, mergers, and acquisitions, such as Stripe acquiring Bridge and Privy, MoonPay acquiring Iron, and Visa investing in BVNK.
Amid all the headlines, numerous misconceptions persist, fueled by both enthusiasts and skeptics. If you ask 10 finance professionals about the differences between stablecoins, deposit tokens, and CBDCs, you might receive 10 different answers.
Discover what makes stablecoins, deposit tokens, and CBDCs unique
To support a baseline understanding, we outline the key characteristics of these new forms of money and examine their initial implications for players operating across the payments value chain.
Stablecoins redefine trust in the age of digital money
Stablecoins are private, digital money denominated in fiat currencies and issued by regulated entities on blockchain networks. The most common method of ensuring this fiat denomination is through reserve backing, where the issuer keeps cash or cash-equivalent reserves (for example, short-term government bonds) to match the stablecoins issued.
Regulatory regimes like the EU’s MiCAR and the United States’ GENIUS Act mandate a 1:1 ratio of reserve assets to stablecoins in circulation. Herein lies the difference with traditional private money (bank deposits), which allows for fractional reserve lending underpinning the core business model of banks.
In other words, banks only keep a fraction of their deposits in reserve in their current accounts at their national central bank (at minimum 1% in Europe). As open, borderless payments rails, stablecoins are best suited as an alternative to cross-border use cases where friction is highest, for example B2B payments in certain corridors. Issuers include both TradFi institutions (such as banks and fintechs) and crypto natives (such as Tether and Circle).
Political and regulatory treatment for stablecoins has flipped from being a key challenge to being a catalyst for adoption. Most major regions have a comprehensive stablecoin bill in place or under active development, which should level the playing field with traditional financial instruments. Asia (specifically Hong Kong and Singapore) and Europe with MiCAR were first movers in the regulatory space. Other regions have caught up and are doubling down to attract digital assets activity through constructive treatment. These include the UK, the UAE, and — most notably — the US with the recent passing of the GENIUS Act and launch of Project Crypto.
Deposit tokens the next step in banking’s evolution
Deposit tokens, or tokenized deposits, represent regular bank deposits on a bank’s balance sheet, minted and backed by regulated banks and fully integrated into the bank’s infrastructure (for example, JPMorgan’s JPMD). The innovation primarily involves utilizing blockchain “rails” for bank deposits instead of legacy banking rails. Deposit tokens are not open to the public and are usually used internally for payment settlement, such as treasury management.
Deposit tokens are governed by traditional banking law because these are digital representations of bank deposits and do not alter the fundamental nature of the depositor’s claim against the bank. In other words, the only difference is that deposit tokens are recorded on a blockchain ledger instead of a traditional ledger.
CBDCs redefine trust and access in the digital economy
CBDCs are digital versions of public money, issued by central banks: “digital cash.” It is important to note that CBDCs can be issued on blockchain or other networks. Retail CBDCs under development (such as the retail Digital Euro) are often not blockchain-based, and should serve as a 21st-century alternative for everyday purchases using public money.
On the other hand, wholesale CBDCs (like the Euro wholesale CBDC trials) explore public and private blockchain options and focus on settlement of intrabank transfers and related wholesale transactions. CBDCs are generally considered risk-free, as they represent a direct claim on the central bank. This contrasts with stablecoins and deposit tokens, which carry counterparty risk associated with the issuer.
As for regulation, central banks are developing regulatory frameworks to accompany the development of CBDCs, often in collaboration with government and regulatory bodies. In Europe, for example, a legislative proposal for the Digital Euro is under review by the European Parliament and European Council.
Understanding key differences between stablecoins, deposit tokens, and CBDCs
Digital currencies are evolving rapidly, and understanding their distinctions is key to navigating the future of finance. Each type differs in its issuer, structure, and intended use.
Stablecoins are privately issued digital currencies, typically backed one-to-one by cash or cash-equivalent reserves. They’re most commonly used for cross-border transactions and crypto-native activities. Examples include Tether (USDT), Circle (USDC), and PayPal USD. However, their impact on liquidity can be significant, potentially drawing funds away from traditional banking systems and complicating asset/liability management.
Deposit tokens, on the other hand, are issued by regulated banks and represent claims on the bank’s balance sheet. Because the funds remain within the banking system, they don’t disrupt liquidity. These tokens are well-suited for domestic and cross-border payments, as well as closed-loop transfers. JPMorgan’s JPM Coin and HSBC’s tokenized deposits are notable examples.
CBDCs are digital forms of public money issued directly by central banks. They’re backed by central bank reserves and can be designed for retail use (accessible to the public) or wholesale use (for interbank transfers). While CBDCs offer new possibilities for monetary policy and financial inclusion, they also pose risks to banking liquidity by shifting funds toward public money. Examples include the Digital Euro and Digital Yuan.
Regulatory treatment varies across these categories. Stablecoins face differing rules depending on jurisdiction, while deposit tokens are subject to standard banking regulations. CBDCs are governed by central bank frameworks and policies.
All forms of tokenized money can modernize payments rails into more advanced financial infrastructure by combining the institutional anchor of fiat with the benefits of blockchain technology. They could help in transforming the financial system from slow, batch-based legacy systems to 24/7-available, worldwide, instant, low-cost, and programmable ecosystems for transacting anything of value.
One might be inclined to think these three forms of tokenized money are competing substitutes. In our view, however, they can be seen as complementary, as they address varying use cases. For example, stablecoins are the rails for cumbersome corridors, deposit tokens are the TradFi on-ramp to the on-chain world, and wholesale CBDCs are the future of central bank settlement. In doing so, they all contribute to the transition of transacting “anything of value” on blockchain networks, as these are general-purpose, fully digital ecosystems: the “internet revolution of money.”
What tokenized money means for the future of payments
The rise of tokenized money represents a profound shift in the payments ecosystem. Various players, from payers and payees to paytechs and traditional banks, must assess the implications of this evolving ecosystem.
Payers and payees benefit from the rise of tokenized payments
The most significant impact on the end users — payers and payees — is felt where payment friction is the highest, such as B2B and cross-border flows, as well as retail and small and medium-sized enterprises (SMEs) in emerging markets. For the latter category, stablecoins offer access to US dollars in regions with unstable local currencies and close the financial inclusion gap for the 1.3 billion adults lacking access to a financial account. Additionally, even segments less prone to disruption stand to benefit from tokenized money. For instance, retail consumers in high-income regions can also benefit through things like tokenized loyalty programs and on-chain yield for idle cash in their wallets (like crypto exchange Kraken offering 5.5% on USDC holdings).
Paytechs are powering the future of tokenized payments
Paytechs such as PayPal and Stripe initially serve as crucial gateways into the tokenized money space for payers and payees. They offer plug-and-play solutions, shielding clients from complexities like suboptimal user experience (UX), bridging various blockchain networks and cross-regional compliance requirements. Current actors pick a specific piece of the puzzle and expand from there. For instance, PayPal and Fiserv launched a proprietary stablecoin, Stripe and Worldpay are unlocking stablecoin acceptance and payout for merchants, and FIS focuses on enabling stablecoins for money movement in general.
However, these enablers might also be bypassed in the long term. Disintermediation can arise from clients themselves, such as consumers using self-custodial wallets, or merchants such as Amazon and Walmart issuing their own stablecoin. Additionally, other tech providers are vertically expanding into tokenized payments, exemplified by SAP’s Digital Currency Hub, which facilitates stablecoin payments integrated in organizations’ ERP systems.
Tokenized money is reshaping the business model of commercial banks
For commercial banks, tokenized money brings financial and competitive pressure but also offers opportunities for new revenue streams. The financial impact ranges across the entire funding, balance sheet, and income spectrum. Most notably, stablecoins draw away bank deposits. Even if stablecoins remain non-interest-bearing, as mandated under most current regulations, deposit types at risk are significant (amounting to as much as $6.6 trillion in the United States). To protect funding, banks may need to raise interest rates or find alternative flows. As for competition, neobanks and crypto natives are capturing market share with blockchain-powered services, such as cross-border payments, lending, savings/deposits, and so on. Traditional banks face the risk of being marginalized into utility service providers or even being replaced altogether by alternative infrastructures. There are various scenarios for the degree to which this risk will play out. The key factor is the ability of banks to adapt and evolve.
Deposit tokens seem to be a logical first step given the alignment with banks’ current business models, for example preserving fractional reserve lending.
However, the fact that stablecoins are taking flight might actually be because of the different economics. In the tokenized age, it is increasingly easy to move funds from commercial banks to alternatives that offer more yield or better services. Banks see this and don’t want to be out of step with the industry, especially now that the regulatory hurdle has been taken away. This defensive play is a must, but requires an entire reimagining of revenue models. Banks face a dilemma: issuing a stablecoin allows them to preserve the deposits that form the reserves, but it also undermines the fractional reserve lending model due to the 1:1 reserve requirement.
Apart from being a defensive play, tokenized money offers various revenue opportunities to banks able to adapt. On one hand, banks could unlock new services such as offering crypto storage and trading services (live examples include Commerzbank, bunq, and BBVA). On the other hand, traditional banking services can be injected with blockchain’s benefits as described above, such as treasury and collateral management, cross-border payments and FX swaps, or cash leg for tokenized commercial paper settlement.
Legacy market infrastructure at risk in tokenized era
Most at risk in the long term are traditional market infrastructures such as card schemes and Swift. Ultimately, they face direct disintermediation by tokenized money as alternative payment rails. However, these players are likely to preserve relevance in the short to medium term. This stems from the continued need for fiat money movement as long as payers and payees demand off-ramps to fiat, and the entrenched position of these parties in the financial ecosystem, benefiting from established trust and network effects.
Market players can use this interim phase to reimagine and transition to a future-proof competitive position. Card schemes are already embracing tokenized money. Visa offers stablecoin settlement, a tokenization platform for banks, and stablecoin-linked Visa cards. Meanwhile, Mastercard has developed an end-to-end stablecoin suite that encompasses card issuing, acceptance, settlement, and remittances. Swift is cautiously following these card schemes with trials of digital assets transactions over the Swift network.
How central banks and regulators are responding to tokenized money
In addition to this competitive pressure in the private market, central banks and regulators are choosing directions for dealing with the rise of tokenized money, albeit with varying approaches. The EU strives to preserve monetary sovereignty and financial stability with relatively restrictive requirements under MiCAR and the development of a retail CBDC (Digital Euro). In contrast, the US appears to favor a more laissez-faire approach, supporting further stablecoin growth to preserve and accelerate the dollar’s global dominance and thereby increasing demand for US treasury bills, as stablecoins are mostly USD-based.
As the rise of stablecoins and other forms of private tokenized money becomes inevitable, the EU could consider alternative strategies such as promoting redemption to fiat euros at every EU bank (akin the Ubyx proposal) and fostering euro stablecoin growth by easing regulatory hurdles. The latter could be done by easing MiCAR restrictions and providing direct access to central bank settlement for stablecoin issuers.
Implications of tokenized money on the payments ecosystem
Tokenized money enables instant, irrevocable payments and programmable features like conditional transfers and escrow, offering new instruments and services for users.
For paytech firms, it unlocks innovation and competition, especially when paired with digital identity and data-sharing. However, it demands new standards and interoperability.
Commercial banks may face shifts in liquidity management and intraday credit, along with evolving roles and potential disintermediation risks.
Central banks must balance innovation with stability, designing CBDCs that support monetary policy while adapting regulatory oversight.
Market infrastructure providers will need to modernize clearing and settlement, aiming for greater efficiency and reduced risk — requiring close collaboration across the ecosystem.
Tokenized money marks a defining moment in global finance
Tokenized money is on the rise and becoming increasingly mainstream. We are on the cusp of an imminent change in market dynamics. Incumbents that fail to position themselves in time are likely to bear the brunt.
Amid the buzz, it is crucial to maintain a level-headed approach. All the various forms of tokenized money are part of the shift to fully digital ecosystems for all transactions: “gradually, then suddenly.” But as they are not 1:1 substitutes, it is important to understand the differences and the unique value proposition of each one on a case-by-case basis.
Our digital assets practice remains committed to exploring this evolving landscape. In a process of dialogue and collaboration, we look forward to helping TradFi market actors anticipate and prepare for the future of finance. Get in touch with the authors for more details.