The blockchain ecosystem poses a quantifiable threat to traditional finance. Stablecoins represent the most significant disintermediation threat to traditional banking and so much panic within the market is pushing these businesses into deploying products such as deposit tokens and trying to block stablecoin yields.
In raw transaction terms, stablecoins like USDT and USDC processed around $32 trillion in 2024, and analysts project they could account for 20% of cross-border payments within five years.
The Federal Reserve has modeled the scenarios that even moderate stablecoin adoption could reduce bank lending by $190–408 billion as deposits migrate, particularly if issuers gain direct central bank account access.
Treasury has estimated that $6.6 trillion of bank deposits could be at risk if a regulatory loophole around interest-bearing stablecoins is not closed.
This all scares the shit out of TradFi giants.
Deposit tokens are a product of this fear and as one born out of desperation, it's a weak attempt at competiting with a solution that's already becoming infrastructure for the future of global finance.
For those who don't know, tokenized deposits or deposit tokens are digital representations of commercial deposits, issued by regulated banks and recorded on a blockchain or distributed ledger.
Unlike stablecoins, they are account-based, not bearer instruments — and remain on the bank's balance sheet, subject to the same regulatory framework, deposit insurance protections, and supervisory oversight as traditional deposits.
This means that to own one, you need to have a deposit at a bank.
The banks believe that tokenized deposits will allow them to retain on-chain transactional and liquidity balances that might otherwise migrate into stablecoins. From this perspective, tokenized deposits can not only support tokenized asset trading but also prove a defensive response to the credit disintermediation threat posed by stablecoins.
JPMorgan is piloting its deposit token, JPMD, on Base. The deposit token enables JPMorgan's institutional clients to settle transactions in seconds, around the clock, which would otherwise take hours and be restricted to business hours.
With this knowledge, you can see why the bankers are fighting stablecoin yield so much.
Deposit tokens are primarily considered superior because of interest payments, insurance of up to $250,000 and regulation integration—a described safety net.
The problem, however is that long-term, it's common knowledge that nobody will care about the last two supposed "advantages" so that leaves us with "interest payments" — hence why there's intense battles to block stablecoin issuers and partner platforms from offering yield on dormant stablecoin balances.
There are no real benefits to wanting or using a deposit token. The only parties that benefits from its existence are the banks.
These tokens are just centralized currencies of the banks to keep control and milk it's clients as usual.
Stablecoins on the other hand are permissionless, require no KYC, secure, anyone can acquire and transact with one, not to mention earning yield with one. Surely, it's common knowledge that it's mostly centralized options leading the markets now, but even that is a threat to traditional finance, imagine what the inevitable take over of decentralized alternatives will look like?