Tokenized Deposits Could Drain $700 Billion From Bank Lending, Dallas Fed Warns

In brief

• Tokenized deposits could allow customers to move funds more quickly in search of higher yields.
• A 10% increase in deposit-rate sensitivity could reduce banks’ interest-rate risk capacity by about $700 billion.
• Banks worldwide are already testing tokenized deposits and round-the-clock settlement systems.

Tokenized deposits could enable faster payments but make banks’ funding less stable, according to a report by the Dallas Federal Reserve.

The report, published on Tuesday, examines how widespread adoption could affect bank liquidity and maturity transformation—the use of deposits available on demand to finance longer-term loans.

“Increasing adoption of distributed ledger technology—blockchain is the best known—has opened up digital payment infrastructure, allowing real-time settlement,” the report said. “Growth in stablecoins has garnered attention, supported by efforts to construct regulatory regimes in the U.S. and overseas. Meanwhile, tokenized deposits have received comparatively little focus.”

Unlike stablecoins such as USDT and USDC, tokenized deposits are regulated and can pay interest; however, the report noted, instant settlement, smart contracts, and agentic AI could make it easier for customers to chase higher yields—eroding the frictions that keep deposits “sticky.”