SKN | Can Stablecoins Survive as Banks Build Their Own Blockchain-Based Payment Systems?

Key Points:

• Traditional banks are accelerating tokenized deposit initiatives, challenging stablecoins in payments, settlement and corporate treasury services.
• Seven U.K. banks have completed live tokenized deposit payments, while 25 U.S. banks are developing a shared network, signaling that institutional competition is moving beyond experimentation.
• Stablecoins retain advantages in interoperability, self-custody, decentralized finance and access to dollar-denominated assets, suggesting their future may be more specialized rather than obsolete.

Stablecoins have established themselves as an important part of digital finance, but their long-term competitive advantage is facing a new challenge: traditional banks are beginning to adopt the same blockchain infrastructure. As financial institutions develop tokenized deposits and crypto companies pursue banking licenses, the distinction between conventional banking and digital-asset services is becoming less pronounced. The question for investors is no longer simply whether banks will enter blockchain finance, but whether stablecoins can retain their relevance once regulated banks offer comparable functionality.

Tokenized Deposits Challenge Stablecoin Technology

According to Alessandro Hatami, founder of Pacemakers and former COO of Digital Banking at Lloyds Banking Group, stablecoins’ technological advantage may not be permanent. A tokenized deposit is essentially a bank deposit recorded on a blockchain, allowing programmable payments that can execute automatically when predetermined conditions are met.

Unlike conventional stablecoins, which depend on an issuer’s reserves and redemption arrangements, tokenized deposits remain claims on the issuing bank. Eligible deposits may also earn interest and benefit from deposit insurance within applicable limits. This creates a potentially attractive alternative for corporate treasurers who prioritize reliable payments, cost efficiency and established banking protections.

Examples are already emerging. JPMorgan’s JPM Coin has expanded onto Base and Ethereum, while seven U.K. banks have completed their first live tokenized deposit payments. In the United States, 25 banks are developing a shared network. These developments suggest that blockchain-based banking is moving toward practical implementation rather than remaining a theoretical competitor to stablecoins.

Interoperability Remains Stablecoins’ Strongest Advantage

The more difficult challenge for banks is cooperation. Stablecoins already connect wallets, exchanges and applications across different markets. By contrast, a tokenized deposit that can only circulate within one bank’s network offers limited usefulness to businesses operating across multiple financial institutions.

Traditional banking depends on shared clearing and settlement systems. Tokenized deposits require similar foundations, including compatible infrastructure, common operating rules and settlement between institutions using central bank money.

Progress is visible but incomplete. Germany’s Commercial Bank Money Token initiative completed its first live interbank payments in May, while the U.K. and U.S. projects are developing their own networks. However, these initiatives do not yet connect to one another. Until interoperability improves, stablecoins retain an advantage as digital assets that can circulate across a wider ecosystem.

Interest, Access and Regulation Shape the Competition

Another important difference concerns who earns the return generated by the underlying money. Major stablecoin issuers receive income from their reserve assets, while holders generally do not receive that interest directly. Under the U.S. GENIUS Act, which takes effect in January, issuers are prohibited from paying holders interest simply for holding payment stablecoins. The treatment of rewards distributed through third-party platforms remains subject to regulatory interpretation.

Tokenized deposits can offer interest, although that does not guarantee competitive returns. Corporate clients holding substantial balances may question why they should forgo earnings when a bank-based alternative provides comparable payment functionality.

Stablecoins nevertheless retain important advantages in self-custody, decentralized finance integration and established liquidity pools. They can also provide dollar access to individuals and businesses in jurisdictions where obtaining a suitable bank account is difficult. These functions are not easily replicated through conventional banking relationships.

Stablecoins May Become More Specialized, Not Obsolete

The convergence between banking and crypto is also visible in Kraken parent company Payward’s agreement to acquire Lithuania-licensed Saldo Bank, a transaction still requiring regulatory approval and expected to close in 2027. Kraken Financial also received a Federal Reserve master account in March, illustrating how digital-asset companies are pursuing closer integration with regulated financial infrastructure.

For investors, the competitive landscape will depend on whether banks can establish interoperable networks before stablecoin ecosystems become more deeply entrenched. Stablecoins are unlikely to disappear, but their role may become more concentrated in cross-platform payments, global accessibility and decentralized applications. The decisive factors will be regulatory clarity, network connectivity, interest arrangements and the ability of each model to deliver reliable financial services at scale.