Economists from the Federal Reserve Bank of Dallas have raised concerns about the potential impact of widespread adoption of tokenized deposits on bank funding models. They highlighted that the instant transfer capabilities associated with these deposits could undermine the stability of banks' resource bases and restrict lending. This warning comes from economists Rosi Levy and Shrini Ramaswamy.
Tokenized deposits are essentially digital representations of bank liabilities, operating on distributed ledger technology. Unlike most stablecoins, they remain within the existing banking framework and can yield interest for their holders.
One of the touted advantages of this technology is real-time settlement. However, the economists identified this same feature as a potential drawback for banks.
Currently, a portion of deposits remains relatively stable due to the relationship between customers and banks, along with technical barriers to swift fund transfers. This stability allows banks to predict how long funds will stay on their balance sheets.
Tokenization could diminish these barriers, enabling customers to transfer funds more rapidly to banks offering higher interest rates, with programmable features facilitating such transactions automatically.
The authors also pointed out the role of AI agents, which, in conjunction with smart contracts, could theoretically monitor yields and shift tokenized deposits between banks without the owner's direct involvement.
How tokenization may impact the stability of bank deposits. Source: Federal Reserve Bank of Dallas.Model Suggests Impact Could Reach $700 Billion
Levy and Ramaswamy analyzed how changes in deposit behavior could affect the duration transformation. Their calculations indicate that approximately 80% of the interest rate risk that American banks face when investing in long-term assets is currently supported by the characteristics of deposits, amounting to about $5.8 trillion out of a total exposure of $7 trillion.
If the average duration of deposits on bank balance sheets decreases by 10%, the total capacity for banks to absorb interest rate risk could diminish by around $580 billion, in 10-year asset equivalents.
A 10% increase in the sensitivity of deposit rates to market rates could lead to an even larger effect, approximately $700 billion in 10-year asset equivalents, according to the model's calculations.
These figures do not imply a direct reduction in lending of $580 billion or $700 billion. Instead, they reflect a change in banks' ability to hold assets with interest rate risk when recalibrated to the equivalent of 10-year government bonds.
Banks might offset some of this effect by securing more long-term financing, although such funding typically comes at a higher cost than deposits.
"This is likely to negatively affect the cost of borrowing for consumers and businesses," the authors noted.
Banks May Need to Hold More Liquid Assets
Another potential outcome could be a shift in the structure of bank balance sheets. If tokenized deposits allow customers to withdraw large sums almost instantly, financial institutions may find it more challenging to predict daily outflows. In stress scenarios, regulatory models might also begin to view these liabilities as less stable.
Consequently, banks may need to increase their holdings of highly liquid assets (primarily reserves and U.S. Treasury bonds), which could reduce the portion of funds available for less liquid assets, including loans to businesses and households.
However, this does not necessarily mean the overall deposit base of the banking system will shrink. Funds could simply move more rapidly between individual institutions. The risk arises from the increased difficulty for each bank to rely on the stability of its own reserves.
As a rough analogy, the authors considered Brazil’s Pix instant payment system, which allows for 24/7 real-time money transfers between banks.
By the first quarter of 2026, about 200 million active users were utilizing the system, with a monthly transaction volume reaching approximately $650 billion. A study by the Central Bank of Brazil in 2025 found that increased usage of Pix was associated with higher reserves of liquid assets in banks, primarily government bonds, and a decrease in credit intermediation.
The Dallas Fed economists emphasized that Pix is not a complete equivalent of tokenized deposits. However, both technologies enable rapid fund transfers between banks, suggesting that Brazil's experience could provide insights into potential outcomes.
Asset structure and loan portfolio of banks under low and high usage of instant payments. Data: Central Bank of Brazil, authors' calculations. Source: Federal Reserve Bank of Dallas.Banks Accelerate Tokenization of Deposits
This analysis comes amid a surge in banking projects involving tokenized money. On August 26, 39 banking associations across U.S. states formed an alliance called BankChain, which aims to launch a national blockchain network supporting tokenized deposits, stablecoins, and programmable settlements by 2027.
In June, JPMorgan Chase, Citigroup, Bank of America, Wells Fargo, and other financial institutions announced the creation of their own infrastructure for on-chain banking money through The Clearing House.
On August 19, HSBC and Standard Chartered executed the first real interbank transaction using tokenized deposits on the SWIFT blockchain infrastructure. This service is expected to facilitate bank settlements around the clock and improve liquidity management.
The authors of the study believe that this trend is still in its early stages. The potential implications will depend on the architecture of the systems, the rules governing interactions between banks, and how widely tokenized deposits can circulate among different issuers.
For further understanding, in July, ForkLog provided an analysis of the structure of tokenized deposits and their distinctions from stablecoins.