Tokenized deposits are the sleeping giant, HSBC’s Maher says

Stablecoins have gained momentum as the “killer use case” for digital assets due to their growing role in payments, but the highly-fragmented global regulatory landscape under which different forms of digital money are emerging as front runners could put tokenized deposits into the spotlight.

This is according to Daragh Maher, the head of digital asset research at HSBC, whose recent research piece, Digital money: multipolar, argues that instead of stablecoins, it will be tokenized deposits that will end up being the dominant form of digital money, otherwise current path will lead to a failure from an efficiency point of view.

Maher’s argument centres around the lack of agreement between jurisdictions about whether it’s stablecoins, central bank digital currencies or tokenized forms of commercial bank digital money will be the anchor of the ecosystem. In the U.S. President Trump banned CBDC research and development, meaning that the world will lack a dollar CBDC but instead it’s leaning heavily into stablecoins.

In Europe, CBDC seems to be the frontrunner, while in Asia different approaches are jostling for pole position, including commercialising tokenized money and deposits.

“As digital finance continues its journey from niche to mainstream, governments and central banks advance their strategies and visions for the ecosystem. Among the main currency blocks, the strategy varies noticeably. This points to a likely multipolar outcome for a future global digital finance architecture,” Maher said.

“Given the use case for digital money is mostly about its efficiency (i.e. speed, cost, reliability), impaired interoperability in this multipolar digital world would be a significant failure,’ he added.

Tokenized deposits offer a way forward as commercial bank deposits are the largest part of the fiat monetary system, meaning that a tokenized version could offer scale and the ability to operate within existing regulatory guardrails such as anti money-laundering requirements. Tokenized deposits also offer yield, have access to central bank backing and offer an attractive and viable way for banks to monetize deposits, which stablecoins don’t do due to 1:1 backing requirements.

“The profit motive will likely encourage banks to seek interoperability across different banking groups,” Maher argued.