Banks pivot to tokenized deposits in race for onchain cash

• Commercial banks are integrating tokenized deposits into blockchain infrastructure to maintain relevance alongside stablecoins and CBDCs.
• Unlike stablecoins, these assets are regulated bank liabilities subject to existing AML, KYC, and deposit insurance standards.
• Major initiatives including the Great British Tokenised Deposit and the ECB’s Pontes mechanism are targeting launches and trials through 2026 and 2027.

The Rise of Tokenized Commercial Money

Traditional financial institutions are accelerating efforts to move commercial bank money onto blockchain-based settlement systems. According to a new report from RWA.io, developed with contributions from Citi, JPMorgan’s Kinexys, BNY, and Standard Chartered, tokenized deposits are emerging as a critical component of the modern "onchain cash stack."

These digital assets represent traditional bank deposits on distributed ledgers. Because they are direct liabilities of the issuing bank, they operate within existing regulatory perimeters, including capital requirements and Anti-Money Laundering (AML) protocols. Marko Vidrih, co-founder of RWA.io, noted that while stablecoins dominate headlines, the global financial system remains rooted in commercial bank money, making its transition to digital rails essential for the future of finance.

Pilot Programs and Deployment Timelines

European banks are already testing the practical applications of this technology. In January, Lloyds Banking Group and Archax completed the first public blockchain transaction in the UK using tokenized deposits on the Canton Network. Other notable developments include:

• The Great British Tokenised Deposit pilot, led by UK Finance, which is testing marketplace payments and digital-asset settlement through mid-2026.
• The European Central Bank (ECB) is advancing its Appia strategy, which outlines how tokenized financial markets can function using central bank money.
• The Pontes settlement mechanism, designed to link blockchain platforms to TARGET Services, is scheduled for launch in the third quarter of 2026.

Strategic Importance in a Multi-Money System

As the ECB prepares for a possible digital euro pilot in late 2027, industry leaders argue that tokenized deposits will complement rather than replace other forms of digital currency. UK Finance suggests that these instruments will play a "vital role" in a future multi-money environment, providing a regulated alternative to private stablecoins.

By leveraging existing infrastructure like TARGET Services, which currently handles high-value euro payments and securities settlement, banks aim to preserve their central role in treasury and deposit-taking. The transition ensures that as digital cash instruments proliferate, commercial bank money retains its utility in high-speed, onchain financial environments.