The stablecoin battle escalates: How tokenized bank deposits challenge the payment dominance of USDT and USDC

The stablecoin market has formed a bipolar pattern dominated by USDT and USDC over the past few years. However, since 2025, many commercial banks worldwide have launched or announced plans to launch tokenized deposit products directly targeting crypto payment scenarios. This trend is not merely a replication of existing products but represents a new competitive dimension spanning from underlying trust mechanisms and compliance frameworks to application scenarios. The stablecoin battle is shifting from competition among native crypto players to a structural contest between traditional financial systems and crypto-native stablecoins.

As of May 21, 2026, according to Gate market data, USDT is quoted at 0.9998 USD, and USDC at 1.0001 USD, both maintaining narrow fluctuations near their pegged prices. However, market focus has shifted from price stability itself to whether its payment utility will be eroded by bank-issued tokenized deposits.

What fundamental changes are occurring in payment infrastructure

Traditional payment systems rely on layered clearing and intermediary institutions, with cross-border settlements typically taking 2 to 5 business days for final clearance. In contrast, crypto payment demands require 24/7 continuous operation, instant finality, and programmable interaction capabilities. Commercial banks have long been excluded from on-chain real-time settlement, forcing their clients to convert funds into USDT or USDC when making crypto payments, incurring issuer credit risk and slippage costs. The emergence of tokenized deposits directly fills this gap—allowing banks to issue digital certificates representing customer deposits on permissioned or public blockchains, enabling fiat funds to enter crypto payment networks in native digital form without relying on stablecoin issuers as intermediaries.

What are the key differences between tokenized deposits and existing stablecoins

The core differences lie in three aspects. First, the issuer and trust model. USDT and USDC are issued by non-bank entities, relying on reserve asset audits and market confidence. Tokenized deposits are issued directly by licensed commercial banks, backed by deposit insurance, banking capital adequacy regulations, and central bank liquidity support, shifting the trust anchor from commercial credit to regulatory credit. Second, compliance and anti-money laundering frameworks. Tokenized deposits inherently carry customer identity verification and transaction monitoring information, enabling automated compliance at the transaction level. Existing stablecoins, however, face ongoing tension between on-chain anonymity and regulatory requirements. Third, interest attributes. Stablecoins typically do not pay interest to holders to avoid being classified as securities. Tokenized deposits, as a legal variant of deposits, can lawfully pay interest to holders, providing significant economic incentives in payment tools.

What drives commercial banks to aggressively enter crypto payments

Banks are not motivated by a belief in crypto assets but by clear competitive defense and revenue growth logic. On one hand, institutional crypto trading, cross-border trade settlement, and on-chain financial markets handle trillions of dollars in transactions annually. Without providing native on-chain fiat payment services, banks risk losing this incremental market entirely. On the other hand, the current stablecoin system extracts substantial payment profits—issuers earn returns from reserve asset investments, while banks only collect small fees for deposit inflows and outflows. Tokenized deposits enable banks to regain control over value distribution in the payment chain. Additionally, the 24/7 settlement environment offers long-term strategic benefits for banks, with scenarios like intraday liquidity management and real-time fund aggregation gaining from this infrastructure.

How do tokenized deposits achieve technical and liquidity features

Technologically, tokenized deposits are mainly deployed on permissioned blockchains or compliant public chains, with banks controlling validation nodes and smart contract permissions. Each unit of tokenized deposit corresponds 1:1 with fiat in the bank’s reserve account, and redemption is automatically executed by smart contracts without manual intervention. In terms of liquidity, tokenized deposits do not rely on external reserve assets; their liquidity stems directly from the bank’s deposit base and central bank reserves. Cross-bank settlement can be achieved via central bank digital currencies or atomic swaps of tokenized deposits, theoretically reaching the same finality level as reserve transfers. The main challenges currently are the lack of standardized interoperability between different banks’ tokenized deposits and the security of cross-chain bridges, which still require validation.

What structural competitive pressures do existing stablecoin models face

Tokenized deposits do not compete with USDT and USDC through technological performance but through the compression of regulatory arbitrage space. Institutional users will prefer holding bank-issued tokenized deposits with deposit insurance, interest income, and regulation by their central banks, especially in large-value settlement scenarios. Regulators may also tilt policies to prioritize the use of bank-issued tokenized deposits for compliant on-chain payments. Moreover, since issuing tokenized deposits does not require maintaining equivalent reserves, capital efficiency is significantly higher than the 100% reserve requirement of current stablecoins. If commercial banks widely integrate with mainstream crypto trading platforms and payment gateways, the dominant position of USDT and USDC in payment scenarios will face substantial erosion.

How will new competitive dimensions reshape the stablecoin market landscape

The market will not simply see substitution but a layered structure forming. In retail trading, DeFi collateral, and low-regulation scenarios, USDT and USDC will continue to dominate due to deep liquidity and extensive DeFi integration. However, in institutional settlement, cross-border trade payments, regulated on-chain financial markets, and interbank clearing, tokenized deposits will gradually become the preferred tools. This means the stablecoin battle is evolving from a product-level competition to an ecosystem-level contest—crypto-native stablecoins need to strengthen their toolset and composability, while bank-issued tokenized deposits must address cross-chain interoperability and DeFi integration challenges. Ultimately, hybrid models may emerge, such as stablecoin issuers collaborating with banks to issue collateralized synthetic stablecoins based on deposits, combining regulatory compliance with DeFi compatibility.

How will the trend from payments to broader tokenization applications evolve

The promotion of tokenized deposits is essentially a precursor to the tokenization wave of real-world assets. Once banks successfully deploy tokenized deposits at the payment layer, tokenization of bonds, stocks, commercial paper, and other assets will find a unified settlement tool. Programmable payments—such as conditional settlement of funds and automated supply chain financing—will move from concept to large-scale application. Commercial banks will no longer be just custodians and transferors of funds but will become liquidity providers and smart contract executors within the on-chain economy. This trend will blur the boundaries between traditional finance and crypto, shifting the competitive focus from “who issues better stablecoins” to “who builds more efficient tokenized value networks.”

Summary

In summary, the rise of tokenized deposits marks a new stage in the stablecoin battle centered on institutional trust and payment utility. Banks are not aiming to eliminate USDT or USDC but to leverage their compliance and liquidity advantages to penetrate high-value crypto payment scenarios, thereby reshaping the market landscape. For crypto exchanges, payment providers, and institutional users, understanding the division of roles and interoperability between tokenized deposits and traditional stablecoins will be a key strategic variable over the next two years.

FAQ

Q: Does tokenized deposits mean USDT and USDC will be completely replaced?

Not entirely. The market will form a layered structure: retail and DeFi scenarios will still mainly use crypto-native stablecoins, while institutional settlement and compliant payments will shift toward tokenized deposits.

Q: Do banks need central bank digital currencies as a foundation for issuing tokenized deposits?

Not necessarily. Tokenized deposits can be issued directly based on commercial bank reserves and can coexist and be exchanged with central bank digital currencies, but they are not dependent on each other.

Q: Can tokenized deposits achieve seamless interaction with existing decentralized applications?

Currently, there are technical challenges. The main issues involve secure bridging between bank-controlled blockchains and public chains, and ensuring smart contract permissions meet banking compliance standards.

Q: When will ordinary crypto users be able to use tokenized deposits for payments?

It depends on the integration progress of banks with crypto exchanges and payment gateways. It is expected that between 2026 and 2027, major trading platforms will gradually enable deposit, withdrawal, and payment functions for bank-issued tokenized deposits.