Traditional banks are finally experimenting with blockchain. Yet their latest innovation, tokenized deposits, may be arriving years too late.
Financial institutions envision a future where everyday checking balances live on a distributed ledger. But for Omid Malekan, adjunct professor at Columbia Business School, the concept is little more than a digital illusion — one destined to be eclipsed by stablecoins.
The Great Banking Copycat Moment
In the last decade, crypto projects built what banks never could: instantly transferable digital dollars that actually work. Now, banks want in — but without giving up control. Their idea is to take customer deposits and issue them as blockchain-based tokens, effectively “on-chain bank balances.”
Malekan dismisses the model as self-defeating. Tokenized deposits, he argues, are the blockchain equivalent of a private intranet in an era of global internet connectivity — secure, limited, and ultimately obsolete. These instruments would be usable only among customers of the same institution, fenced in by compliance layers like KYC and transaction permissioning.
“What use is a token that can’t travel?” he wrote, describing them as digital checking accounts that stop at the bank’s front door.
Stablecoins Already Solved the Problem
While banks are still building walled gardens, stablecoins have spent years integrating into open networks that now underpin DeFi, cross-border payments, and on-chain commerce. They are interoperable, composable, and transferable without middlemen. Most importantly, they rely on transparent, full-reserve backing — not fractional banking — to ensure stability.
That structure, Malekan argues, makes them safer from a risk perspective. Stablecoin issuers must hold equivalent assets in cash or short-term treasuries, giving them a liquidity profile banks can’t match. Tokenized deposits, by contrast, remain exposed to the same lending risk that defines the traditional system.
Why Yields Will Decide Everything
The real blow, however, could come from returns. As the stablecoin market matures, issuers are finding creative ways to share yields with users — from reward points to staking incentives — even as regulations try to restrict direct interest payouts.
This potential for yield is something banks can’t easily compete with. The average retail savings account in the U.S. or U.K. offers less than 1%, while stablecoin-based products often find indirect methods to return a larger share of Treasury-based earnings to users.
“The banks’ fear is simple,” Malekan explained: “if stablecoins start paying real yield, customers will stop keeping cash in accounts that do nothing.”
A Political Fight, Not a Technological One
The banking lobby has pushed back aggressively, warning that yield-bearing stablecoins could siphon away deposits and threaten financial stability. Critics view it differently. Austin Campbell, a professor at New York University, accused the industry of using regulation as a shield to protect profits, arguing that it’s retail users who lose when competition is suppressed.
The Real-World Asset Boom
Behind this turf war lies a much larger transformation. The tokenization of real-world assets — everything from bonds and real estate to commodities and currencies — is expected to reach $2 trillion by 2028, according to Standard Chartered. Stablecoins are likely to remain the backbone of that ecosystem, serving as the medium through which tokenized assets are traded and settled.
The Verdict
Banks might still succeed in digitizing deposits, but their version of tokenization offers none of the freedom, speed, or interoperability that crypto users expect. In Malekan’s view, the financial sector is trying to retrofit old infrastructure onto new rails — and calling it innovation.
Stablecoins, meanwhile, have already built the roads, vehicles, and traffic rules for the digital economy. What banks are proposing, he suggests, are gated driveways that lead nowhere.
