By Barath Narayanan, Global BFSI and Europe Geo Head at Persistent Systems
Tokenized bank deposits move over $4 trillion annually through the balance sheets of the world’s largest banks, according to McKinsey. Organic stablecoin payment activity, minus bot-driven and arbitrage flows, accounts for roughly $400 billion, less than one percent of global money flows.
The institutional story is quieter but ten times larger.
Two Instruments, Two Architectures
Stablecoins and tokenized deposits are structurally distinct. Stablecoins are typically issued by non-bank entities, backed 1:1 by high-quality liquid assets such as US Treasuries. They settle on public blockchains 24/7, without relying on the Federal Reserve’s window. Tokenized deposits are commercial bank money recorded on a distributed ledger that preserves the fractional-reserve model; they are eligible for FDIC insurance and keep the liability on the bank’s balance sheet.
Two forms of digital money are scaling simultaneously. Bank leadership must decide which layers of trust, liquidity, compliance and customer ownership to modernize, and in which order.
The First Decision: Which Flows Earn a New Rail
High-volume domestic retail payments already run efficiently on existing rails and should stay there. Better candidates are areas where delay, trapped liquidity or operational breaks still create cost, including cross-border settlement, intraday liquidity, repo, collateral movement and delivery versus payment.
In one US banking engagement, the bank faced challenges around wallet visibility and stablecoin movement. The team introduced a programmable settlement layer alongside existing infrastructure. Smart contract services, built through the Fireblocks application programming interface, enabled the bank to mint, burn and sweep stablecoins. ALT5 integration supported movement between custodial hot and cold wallets with success and failure tracking across every transaction.
Regulatory clarity sharpens the order of operations. Flows aligned with MiCA’s e-money token and asset-referenced token classifications in Europe, or the GENIUS Act’s reserve and disclosure requirements in the United States, move faster because compliance obligations are already specified.
The Second Decision: Sequence the Network Before Scaling It
Banks will not move toward tokenized settlement in one leap. The path usually begins with intrabank networks that optimize flows between a bank and its corporate clients. It then moves to interbank networks, where shared rulebooks enable settlement across institutions. Over time, this can lead to unified ledger models where cash, assets and settlement logic operate on one programmable fabric.
That order matters because each stage builds the discipline required for the next. Intrabank models are easier to control but limited in reach. Interbank models create broader utility but require common standards, liquidity commitments and shared compliance protocols. Unified ledgers offer larger market potential but require deeper legal and regulatory alignment.
For commercial banks, tokenized deposits may be the most practical starting point. They preserve the two-tier banking system, keep deposits on the bank balance sheet and enable programmability without disintermediation risk. In collateral, repo and settlement, timing and visibility determine economic value and tokenized deposits bring both without requiring banks to step outside the regulatory perimeter they already operate within.
Every major disruption in banking eventually becomes a question of architecture.
The progression from intrabank to interbank to unified ledger describes the business model evolution — who participates and under what rules. The infrastructure roadmap underpinning the transition needs to follow a defined sequence as well.
From our client engagements across global banks, most institutions treat tokenized rails architecture decisions as a layered evolution:
- Core decoupling and API enablement: Separating payment processing from monolithic core banking systems to create a clean abstraction layer.
- Real-time payments adoption: Building operational muscle for always-on, 24×7 settlement environments.
- Targeted tokenization: Introducing tokenized rails for specific, high-value flows where programmability delivers measurable advantage: treasury sweeps, intra-group liquidity, delivery-versus-payment settlement.
- Ecosystem and multi-chain connectivity: Expanding to interoperate across permissioned and public networks as counterparty adoption matures.
Bolting tokenized rails onto batch-processing cores creates reconciliation gaps and operational fragility. Real-time operational readiness, including exception handling, always-on monitoring, instant reconciliation, is what makes tokenized settlement viable.
Readiness Demands Parallel Action
Tokenized rails cannot sit only with innovation teams. Operations must identify high-friction flows while treasury models liquidity and capital impact. Compliance must connect anti-money laundering, KYC and sanctions controls to on-chain activity before volumes scale.
The infrastructure that makes parallel settlement work cannot be built together with the decision to deploy it. Operations, treasury and compliance need to be aligned before that point. Readiness is the competitive advantage and by the time the market demands it, the window for building it will have closed.