Short answer: Caitlin Long expects tokenized bank deposits eventually to overtake stablecoins in transaction velocity and volume, because deposits can use bank networks, funding relationships and existing liquidity. That is Long’s forecast—not an established market outcome. The practical difference today is legal: a tokenized deposit is a digital representation of a bank deposit, while a payment stablecoin is a privately issued payment instrument backed by reserve assets. The issuer, person or institution obligated to redeem it, applicable rules and access model can all differ even when both instruments move on similar blockchain infrastructure.
The New York Fed’s February 2026 model reaches a more conditional conclusion. Depending on regulatory costs and banks’ incentives to shift risk, a system with tokenized deposits, stablecoins or competition between them can produce the best result. For anyone evaluating the two, the token wrapper matters less than the claim underneath it, who can access the network and which jurisdiction’s law governs redemption.
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What Long is actually predicting
In a November 11, 2025 interview reported by TheStreet, Caitlin Long, CEO of Custodia Bank, said: “The tokenized dollars are going to be big. Yes, there’s a distinction between tokenized bank deposits and stablecoins. Yes, right now, all the activity is in stablecoins, but we’re going to link the two in a safe and sound way.”
A separate podcast transcript attributes a more specific forecast to Long: “I think tokenized deposits are going to elbow out stable coins in velocity and volume over time.” The wording matters. She is predicting a possible shift in payments activity, not saying that stablecoins are illegal, useless or certain to disappear. Her argument is that bank-connected deposit tokens could eventually move more value, more quickly, because banks already operate payment rails, maintain customer relationships and intermediate liquidity.
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Current adoption does not yet show that outcome. Brookings reported an EY-Parthenon survey in 2026 in which 13% of 350 companies said they were already using stablecoins. More than half of companies that were not users expected to adopt them within six to 12 months. That is a survey of stated use and intentions, not proof that adoption will occur or that tokenized deposits will replace stablecoins.
The legal distinction comes before the technology
Both instruments can be represented by tokens and transferred using distributed-ledger technology. That similarity can obscure the most important question: what legal claim does the holder own?
Tokenized deposits
A tokenized deposit is generally a digital representation of a commercial bank deposit. The bank remains the deposit-taking institution and is the obligor on the underlying claim. The relationship is therefore connected to banking law, supervision, capital and liquidity rules, and the bank’s contractual terms. Whether a particular tokenized deposit is eligible for deposit insurance depends on how it is structured and on statutory limits; the label alone does not guarantee coverage.
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Some market discussions use “deposit token” loosely. Brookings distinguishes a tokenized representation of an existing deposit from a product that might create a different type of claim. Read the account agreement and the issuing bank’s disclosures rather than assuming every token bearing the word “deposit” has identical legal treatment.
Payment stablecoins
A payment stablecoin is a privately issued payment instrument designed to maintain a stable value against a reference currency, usually the U.S. dollar. Brookings’ April 14, 2026 overview of the U.S. framework describes payment stablecoins under the GENIUS Act, enacted in July 2025, as requiring at least one-to-one backing with segregated, liquid, low-risk reserve assets. The holder’s redemption claim runs to the stablecoin issuer under the instrument’s terms; it is not automatically a claim on a commercial bank deposit.
Stablecoin reserves can include bank deposits or other permitted assets, but reserve backing does not turn every token into a deposit. The issuer, redemption process, reserve custody, insolvency treatment and supervisory regime determine what the holder can demand and how quickly.
Stablecoins vs. tokenized deposits at a glance
| Comparison point | Tokenized deposit | Payment stablecoin |
|---|---|---|
| Primary issuer | Commercial bank or bank group, subject to the applicable banking framework | Private stablecoin issuer authorized under the relevant jurisdiction’s payment-stablecoin rules |
| Legal obligor | The bank that owes the underlying deposit | The stablecoin issuer under the token’s redemption terms |
| What backs the claim | The bank’s deposit-taking balance sheet, with banking-law requirements and protections that vary by structure | At least one-to-one reserve backing for U.S. payment stablecoins under the GENIUS Act framework described by Brookings; permitted reserve composition and segregation matter |
| Deposit status | Can remain a bank deposit; insurance eligibility depends on legal structure and statutory limits | Not automatically a bank deposit or deposit-insured claim |
| Network access | Often permissioned or limited to the issuing bank, its clients and connected institutions | Can be distributed on public networks, though the issuer may impose compliance and transfer restrictions |
| Current examples of use | Corporate treasury management and cross-border transfers among clients of a bank or bank group | Cross-border payments, remittances, decentralized-finance collateral and payments for tokenized assets |
| Main policy questions | Bank funding, credit creation, interoperability and the possibility of deposit runs moving quickly on a token network | Reserve safety, issuer runs, par redemption across venues, fragmented networks and effects on bank deposits |
Actual terms vary by product, network and country. A comparison table can identify the usual design differences, but it cannot substitute for the instrument’s legal documents.
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Why Long thinks bank-connected deposits could gain velocity
Existing payment and liquidity relationships
Banks already connect deposit accounts to payment systems, treasury services, foreign-exchange operations and credit facilities. A tokenized deposit could add programmable transfer and settlement while preserving the bank relationship. In Long’s view, that combination could let institutions settle directly against balances they already use for operating cash, rather than acquiring a separate payment token and later converting it back into bank money.
Network effects among regulated institutions
If several banks use compatible deposit-token standards, customers could transfer value across a bank network while the participating institutions continue to manage compliance, credit exposure and liquidity. Long describes this as linking tokenized dollars and stablecoins “in a safe and sound way,” not as making the two legal claims identical. Interoperability would be essential: a token that works only inside one bank’s silo may not achieve the scale she is forecasting.
Institutional settlement rather than only wallet activity
Stablecoins gained early traction in open blockchain markets, remittances and digital-asset trading. Tokenized deposits may appeal to companies that want on-chain settlement but also need a direct relationship with a bank, predictable treasury controls and access to bank credit. If those customers move larger values, aggregate transaction volume could rise even if the number of retail wallets is smaller.
None of these mechanisms guarantees adoption. Banks must be willing to issue the tokens, connect their systems and manage the operational and regulatory risk. Customers must see enough benefit to change payment workflows. Technical compatibility, legal finality and reliable redemption remain practical hurdles.
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Stablecoin use cases
Brookings identifies several current or emerging uses for stablecoins:
- Cross-border payments: Tokens can move across networks and time zones without requiring every participant to share a correspondent-bank relationship.
- Remittances: A sender can transmit a dollar-linked token, although the recipient still needs a compliant way to hold, convert or spend it.
- Decentralized-finance collateral: Stablecoins are commonly used as a dollar-denominated asset in lending, trading and other smart-contract applications.
- Payments for tokenized assets: A stablecoin can settle a transaction involving a tokenized security or other on-chain asset.
These are tendencies, not exclusive rights. A bank-issued deposit token could support cross-border settlement or a tokenized-asset payment if the bank, network and regulators permit it.
Tokenized-deposit use cases
Brookings describes current tokenized-deposit activity as more limited and concentrated among bank-connected users. Examples include corporate treasury management and cross-border transactions among customers of a bank or bank group. A treasury department might use a token to move money between subsidiaries, automate settlement conditions or reconcile balances on a shared ledger while retaining a bank account relationship.
Permissioned access can be an advantage where participants need verified identities, contractual limits and a defined dispute process. It can also be a constraint if counterparties outside the bank’s network cannot receive the token directly or must first convert it.
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- Identify the issuer. For a tokenized deposit, confirm the bank that holds the underlying deposit. For a stablecoin, confirm the legal entity responsible for redemption and the jurisdictions in which it serves customers.
- Read the redemption terms. Check who may redeem, minimum amounts, processing times, fees, cut-off hours, suspension rights and the assets used to satisfy redemptions.
- Check the settlement venue. Determine whether transfers occur only on a permissioned bank platform or on a public blockchain, and whether the receiving institution supports the same token and network.
- Map the conversion path. A token may trade at a venue before it reaches the issuer. Identify how a holder converts it to a bank deposit or fiat currency and which intermediary bears settlement risk.
- Confirm legal protections. Review deposit-insurance treatment, reserve segregation, insolvency priority and applicable consumer or institutional protections for the specific jurisdiction.
The technology can make a transfer appear instant while the legal redemption obligation, banking-hours process or compliance review remains separate. “On-chain” does not by itself mean final, insured or universally accepted.
Bank funding, credit and run risk
Funding and credit creation
Traditional deposits are a major source of bank funding. If tokenized deposits remain deposits, banks may continue to use the associated funding within their balance-sheet and liquidity framework, subject to prudential rules. That could support lending and other credit activities.
Stablecoins backed by reserve assets can change where money sits. If users move funds from bank deposits into stablecoin reserves, banks may lose some deposit funding, while reserve managers acquire the permitted backing assets. The effect depends on the reserve composition, issuer relationships and whether stablecoin growth attracts new money or merely changes its form.
Run dynamics
Both designs can transmit confidence shocks quickly. A token holder may attempt redemption at the first sign of trouble, and a digital network can process withdrawals faster than a traditional branch system. For a tokenized deposit, the stress is connected to the issuing bank. For a stablecoin, it is connected to the issuer, its reserves and the redemption channel.
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1Repair Windows errors before they cause bigger problems2Fix the driver behind crashes, sound loss and screen glitches3Clear out junk files and repair common Windows errorsThe BIS speech of August 28, 2026 compares the instruments through singleness, interoperability, integrity, reserves, credit provision and run risk. It warns that secondary-market exchanges between distinct stablecoins may not preserve par value and that multiple networks can become fragmented. The same speech notes that tokenized deposits on siloed platforms face interoperability and scale problems. These are the speaker’s analytical concerns, not a claim that every implementation will fail in the same way.
Singleness and par value
“Singleness” means that a unit of money is accepted at par with another unit of the same monetary system. A bank deposit normally benefits from the bank’s obligation and the payment system’s rules. A stablecoin can trade near its target value yet deviate on a secondary market if liquidity is thin, redemption is delayed or participants doubt the reserves. A network that supports multiple issuers may need conversion and settlement rules to maintain reliable par exchange.
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What the New York Fed model says about the policy choice
New York Fed Staff Report 1179, by Xuesong Huang and Todd Keister and published and revised in February 2026, models stablecoins backed by safe assets alongside traditional and tokenized bank deposits. It does not forecast a market share or establish that one instrument will win in practice.
| Model condition | Arrangement that can be preferable in the model | Why the result changes |
|---|---|---|
| Regulatory costs are large and banks’ risk-shifting incentives are limited | Allowing only tokenized deposits can raise welfare | Bank-based money may provide useful payment and credit functions without as much additional risk-taking |
| Regulation is lighter and banks have strong incentives to shift risk | Stablecoins alone may be preferable | Competition from a reserve-backed instrument can limit the costs associated with bank behavior |
| Intermediate or mixed conditions | Competition between stablecoins and tokenized deposits can be optimal | Choice and discipline from both arrangements may outweigh the costs of permitting only one |
The policy lesson is conditional. Regulators should not treat a theoretical result as proof that tokenized deposits will displace stablecoins, nor assume that competition is always safer. The answer depends on how rules affect issuer costs, bank incentives, reserves, credit and settlement.
Regulatory context: keep the jurisdiction attached to every claim
United States
Brookings’ April 2026 overview discusses U.S. payment stablecoins under the GENIUS Act, enacted in July 2025. It describes at least one-to-one backing with segregated liquid, low-risk reserve assets. The framework applies to the instruments and issuers covered by that law; it does not make every dollar-linked token a bank deposit.
Tokenized deposits remain tied to banking law and supervision. Deposit-insurance eligibility depends on the structure and statutory limits. A business should ask whether it owns an insured deposit, an uninsured deposit, a claim on an issuer or another contractual instrument.
Canada
A September 2026 overview from Torys discusses Canada’s Stablecoin Act. It says Canadian-law stablecoins cannot pay interest under that Act and that tokenized deposits may qualify for insurance if structured appropriately. Those are Canadian rules and should not be presented as U.S. requirements. A multinational treasury team must analyze each country where the issuer, customer, reserve assets and redemption occur.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.How large could the market become?
Available figures are estimates and survey results, not observed outcomes:
- Corporate adoption: EY-Parthenon’s 2026 survey, as reported by Brookings, found current stablecoin use at 13% among 350 surveyed companies. More than 50% of non-users expected adoption within six to 12 months.
- Cross-border payments: EY-Parthenon estimated that stablecoins could represent 5% to 10% of cross-border payments by 2030, equivalent to $2.1 trillion to $4.2 trillion. This is a projection, not a measured 2030 share.
- Stablecoins outstanding: Citi forecast $3 trillion to $4 trillion in stablecoins outstanding by 2030, a figure Long characterized as too conservative in TheStreet’s November 2025 coverage. Her criticism is an opinion, not an independently validated alternative forecast.
These numbers describe potential stablecoin growth and do not establish how much of the eventual activity will use tokenized deposits. Long’s velocity-and-volume claim remains a forward-looking view.
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A decision framework for businesses and policymakers
Choose the legal claim first
Ask what the organization needs to own: a bank deposit, a redeemable payment token, or access to both. If deposit status, bank credit and existing treasury controls are central, a tokenized deposit may fit better. If broad network reach, public-chain composability or access to decentralized-finance markets matters, a stablecoin may be more useful, subject to compliance and counterparty review.
Measure network reach, not just transaction speed
A fast token that the recipient cannot accept is not an efficient payment instrument. Compare supported counterparties, geographic availability, operating hours, conversion venues, fees, transaction limits and recovery procedures. Include the cost of maintaining accounts on multiple networks if no common standard exists.
Stress-test redemption
Model a sudden 10%, 25% or larger redemption wave without assuming that the market price always stays at par. Review reserve liquidity, bank cut-off times, issuer concentration, smart-contract controls, sanctions screening and the process for a frozen or compromised wallet. These are risk-management scenarios, not predictions of a particular loss.
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Separate payment, investment and credit decisions
A stablecoin or tokenized deposit may improve settlement while offering no yield, limited insurance or no access to credit. Do not treat a payment token as a substitute for a diversified cash-management program. Evaluate whether holding it changes counterparty exposure, accounting treatment, liquidity buffers or tax reporting.
Questions to ask before using either instrument
- Which legal entity owes redemption, and where is it licensed?
- Is the holder’s claim a bank deposit, a reserve-backed payment claim or another contract?
- What assets back the token, who controls them and how are they segregated?
- Can the issuer suspend redemptions, and under what conditions?
- Does deposit insurance apply, in which country and up to what statutory limit?
- Which blockchain or ledger records final settlement, and who can reverse or freeze a transfer?
- Can the counterparty receive the same token without an intermediary conversion?
- What happens if the issuer, a network operator, a custodian or a bank partner fails?
- Are transfers permitted for the intended geography, industry and customer type?
- What records are available for reconciliation, audits and regulatory reporting?
What would have to happen for Long’s forecast to come true?
Tokenized deposits would need interoperable standards, dependable legal finality and enough participating banks to create useful network effects. Banks would also need a commercial reason to issue them, customers would need to value direct bank connectivity, and regulators would need rules that allow innovation without weakening deposit, payment or financial-stability safeguards.
Stablecoins would not need to vanish. They could continue serving users who want open-network access, cross-border reach or decentralized-finance functionality, while tokenized deposits capture more institutional treasury and bank-to-bank flows. The two could also be linked through regulated conversion or settlement arrangements, as Long suggested, without becoming the same legal instrument.
Bottom line for readers
Stablecoins and tokenized deposits are competing ways to represent dollar value digitally, but they are not interchangeable. A tokenized deposit points back to a bank deposit and its banking-law framework; a payment stablecoin points to an issuer’s redemption promise and reserve assets. Long believes bank network effects could eventually give tokenized deposits greater velocity and volume. The New York Fed’s model shows why that result is not predetermined: regulation, bank incentives and the design of competition can change which arrangement is preferable. Evaluate the issuer, legal claim, reserves, network and jurisdiction before relying on either one.
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