As the U.S. Senate continues to debate the future of stablecoin regulation, much of the discussion has focused on how to bring privately issued digital dollars within a federal regulatory framework. Yet an important question has received comparatively little attention: Could the effort to regulate stablecoins strengthen the competitive position of tokenized deposits issued by commercial banks?

The question is particularly relevant given that the debate involves questions of issuer oversight, reserve requirements, and consumer protection, and whether stablecoin issuers should be permitted to pay interest to holders.[1] While these debates are often presented as questions unique to digital assets, many of the underlying policy concerns are familiar banking-law issues that regulators have confronted for decades.

The distinction between stablecoins and tokenized deposits is central to understanding the emerging regulatory landscape. Stablecoins are issued by non-bank entities and are designed to maintain a stable value relative to a sovereign currency. Tokenized deposits, by contrast, are digital representations of traditional commercial bank deposits recorded on distributed ledger infrastructure.[2] Although both instruments seek to facilitate programmable payments and near-instant settlement, they occupy different legal and regulatory positions.

This divergence is becoming increasingly visible across major regulatory jurisdictions.

The Regulatory Advantage of Existing Banking Frameworks

At the international level, the Basel Committee on Banking Supervision has adopted a framework that treats tokenized traditional assets, including tokenized deposits, as equivalent to their conventional counterparts when specified legal and operational conditions are satisfied.[3] Stablecoins face a more demanding regulatory pathway. To receive favorable prudential treatment, they must satisfy redemption-risk requirements, reserve-quality standards, and other conditions designed to ensure the effectiveness of their stabilization mechanisms.[4]

The European Union has reached a similar conclusion. In its 2024 Report on Tokenised Deposits, the European Banking Authority stated that the tokenization of a deposit does not alter its legal nature.[5] Consequently, tokenized deposits remain subject to existing banking law rather than the European Union’s Markets in Crypto-Assets Regulation (MiCA).[6] The practical significance of this distinction should not be underestimated. A tokenized deposit remains within the traditional banking framework, while a stablecoin operates under a separate regulatory regime.

Recent developments in the United States suggest a comparable trajectory. Although federal policymakers have devoted considerable attention to stablecoin legislation, banking regulators have simultaneously taken steps to facilitate responsible bank participation in digital asset activities. In 2025, both the Office of the Comptroller of the Currency and the Federal Reserve withdrew policy statements that had imposed additional procedural barriers on certain crypto-related banking activities and replaced them with more technology-neutral approaches.[7]

At the same time, some of the most significant industry developments have involved tokenized deposits rather than stablecoins. JPMorgan’s Kinexys platform has expanded institutional use of tokenized commercial bank money. Citi and BNY Mellon have launched tokenized deposit initiatives for institutional clients. Most notably, The Clearing House recently announced a multi-bank tokenized deposit network involving several of the nation’s largest financial institutions.[8]

These developments may be particularly important because they address one of the most frequently cited limitations of tokenized deposits: interoperability. Early tokenized deposit systems functioned within individual banking organizations. Shared infrastructure has the potential to extend these systems across multiple institutions while preserving their status as regulated bank liabilities.

The political debate surrounding stablecoins is also highlighting a broader regulatory reality. Many of the issues dividing policymakers are questions that banking law has already addressed for traditional deposits. As a result, efforts to regulate stablecoins may unintentionally strengthen the competitive position of tokenized deposits.

The Stablecoin Interest Debate and the Banking Alternative

One of the most contentious issues in Congress concerns whether stablecoin issuers should be permitted to offer interest or interest-like returns.[9] Critics argue that interest-bearing stablecoins could compete directly with bank deposits while operating outside the traditional banking framework. Supporters contend that consumers should benefit from market competition and technological innovation.

Regardless of the outcome, the controversy reveals an important asymmetry between stablecoins and tokenized deposits. Banks already possess a well-established legal framework for offering interest-bearing deposits. Tokenized deposits do not require Congress to decide whether digital dollar issuers should be allowed to pay interest because the underlying banking relationship already exists. The technology changes the form in which the liability is recorded, but not the legal nature of the liability itself.

Similarly, many of the consumer-protection concerns driving the stablecoin debate are addressed within the existing banking framework. Prudential supervision, capital requirements, liquidity regulation, resolution planning, and deposit insurance are not novel policy challenges for banks. Stablecoin legislation must create statutory mechanisms to address these issues. Tokenized deposits operate within systems where such mechanisms already exist.

This does not mean that stablecoins lack advantages. Stablecoins continue to play a critical role in public blockchain ecosystems and decentralized finance applications. They possess substantial liquidity, global accessibility, and network effects that regulated banking institutions have not yet replicated. For many crypto-native use cases, stablecoins remain the dominant form of digital money.

The more consequential question may be which form of programmable money is best positioned to serve institutional financial markets over the long term. For institutional users, regulatory certainty often carries greater value than technological novelty.

Corporate treasury operations, collateral management, wholesale payments, and cross-border settlement generally place a premium on regulatory certainty, established supervisory oversight, and integration with existing financial infrastructure. Tokenized deposits fit naturally within this environment because they leverage legal and regulatory frameworks that already govern commercial bank money.

The Emerging Institutional Preference

Viewed from this perspective, the congressional debate over stablecoins reveals a broader reality. Many of the concerns lawmakers are attempting to address through new legislation, including reserve quality, consumer protection, insolvency treatment, interest payments, and systemic risk, already have established solutions when the issuer is a regulated bank offering tokenized deposits.

Whether stablecoins or tokenized deposits emerge as the dominant form of programmable money remains uncertain. Yet a common theme is beginning to emerge across Basel standards, European regulation, and U.S. policy discussions. Regulatory authorities increasingly favor digital-money structures that remain within established banking and supervisory frameworks. In that respect, the effort to regulate stablecoins may produce an unintended consequence. By focusing attention on issues such as reserve quality, interest payments, consumer protection, and systemic risk, policymakers may also be strengthening the institutional case for tokenized deposits.

ENDNOTES

1. See generally Guiding and Establishing National Innovation for U.S. Stablecoins Act, Pub. L. No. 119-27 (2025).
2. David Krause, Tokenized Deposits and Stablecoins: A Comparative Analysis of Regulatory Treatment Under the Basel Framework, EU Law, and United States Law (2026), SSRN, June 10, 2026.
3. Basel Comm. on Banking Supervision, Prudential Treatment of Cryptoasset Exposures (2022), as amended July 2024.
4. Id.
5. Eur. Banking Auth., Report on Tokenised Deposits, EBA/REP/2024/24 (Dec. 2024).
6. Regulation (EU) 2023/1114 of the European Parliament and of the Council of 31 May 2023 on Markets in Crypto-Assets, 2023 O.J. (L 150) 40.
7. Office of the Comptroller of the Currency, Interpretive Letter 1183 (Mar. 7, 2025); Board of Governors of the Federal Reserve System, Federal Reserve Board Rescinds 2023 Policy Statement on Crypto-Asset Activities and Replaces It with New Statement that Facilitates Innovation (2025).
8. The Clearing House, Major Financial Institutions Unveil Bank-Led On-Chain Money Initiative (June 4, 2026).
9. David Krause, Closing the Stablecoin Yield Loophole in the Post-GENIUS Era, CLS Blue Sky Blog (Jan. 23, 2026), https://clsbluesky.law.columbia.edu/2026/01/23/closing-the-stablecoin-yield-loophole-in-the-post-genius-era/

David Krause is emeritus associate professor of finance at Marquette University and author of “Tokenized Deposits and Stablecoins: A Comparative Analysis of Regulatory Treatment Under the Basel Framework, EU Law, and United States Law,” available here.