A report from the Federal Reserve Bank of Dallas says tokenized deposits could make it easier for customers to move funds quickly in search of higher yields, reducing the stability of bank funding. The report estimates that a 10% increase in deposit rate sensitivity could cut banks’ interest-rate risk-bearing capacity by about $700 billion. It also says that if the weighted average maturity of deposits shortens by 10%, the banking system’s maturity transformation capacity could fall by $580 billion. The Dallas Fed drew a distinction between tokenized deposits and stablecoins such as USDT and USDC, saying tokenized deposits are regulated and interest-bearing. At the same time, the report warns that instant settlement, smart contracts, and AI could reduce deposit stickiness. It also notes that several institutions, including Custodia, Vantage, Barclays, BMO, and Swift, have already tested or advanced projects tied to tokenized deposits and 24/7 settlement.
A report from the Federal Reserve Bank of Dallas says tokenized deposits could let customers move money faster in search of higher yields, weakening the stability of bank funding.
Two modeled effects in the report
The Dallas Fed estimates that a 10% increase in deposit rate sensitivity could reduce banks’ capacity to bear interest-rate risk by about $700 billion.
It also says that if the weighted average maturity of deposits shortens by 10%, the banking system’s maturity transformation capacity could decline by $580 billion.
How tokenized deposits differ from stablecoins
The report says tokenized deposits are different from stablecoins such as USDT and USDC. They are regulated deposits and can bear interest. Even so, instant settlement, smart contracts, and AI could reduce deposit stickiness.
If banks’ demand deposits can move more easily and more quickly between institutions, banks may become less willing to hold long-term fixed-rate assets, according to the report.
Institutions already testing related projects
The Dallas Fed also said institutions including Custodia, Vantage, Barclays, BMO, and Swift have tested or are advancing projects related to tokenized deposits and round-the-clock settlement.
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