What form of digital money will ultimately dominate on-chain settlement?
Stablecoins have so far captured the spotlight, buoyed by rapid adoption and growing regulatory attention. But a different shift is underway inside the banking sector, where executives are increasingly confident that tokenized bank deposits, and not privately issued stablecoins, could become the preferred on-chain dollar for institutional and wholesale use.
“We don’t start with the asset,” Biswarup Chatterjee, global head of partnerships and innovation, Citi Services at Citi, told PYMNTS. “We typically start with our client need, and then we look at the pros and cons of each type of asset or financing instrument.”
For institutional money, innovation can often begin with constraint.
“When you’re dealing with money as a financial institution, you’re acting in a fiduciary capacity,” Chatterjee said, framing why safety and soundness dominate early conversations with clients.
From that perspective, the critical questions around new digital instruments are regulatory and operational before they are technological. Are these assets well-regulated? Do they operate within clearly defined legal frameworks? Can they be governed with the same rigor as traditional deposits or securities?
For institutions that manage systemic liquidity, and their clients, those questions are becoming non-negotiable. Within that context, tokenized deposits are what is emerging as a natural evolution of existing bank money.
“Within the bank’s network, tokenized deposits are an efficient way for our clients to be able to get that 24/7, always-on availability,” Chatterjee said.
By anchoring decisions in client economics and workflows, banks are positioning themselves less as promoters of specific technologies and more as integrators tasked with assembling the right mix of tools for each use case. Institutional clients are not simply looking for digital replicas of existing money; they are grappling with the friction of moving funds across use cases and jurisdictions.
“There’s this constant need to transform money across its various forms and shapes,” Chatterjee said, adding that payments, working capital and financing increasingly overlap, and inefficiencies emerge when money cannot move fluidly between those roles.
By representing deposits on distributed ledgers, banks can offer real-time movement of money across accounts, entities and geographies without leaving the regulated perimeter. For enterprises and institutions, this promises faster settlement, improved liquidity management and reduced operational friction, all without introducing new balance sheet or counterparty risks.
In this sense, tokenized deposits may turn out to be less disruptive than they appear. They modernize the plumbing of banking rather than bypassing it, extending familiar money into programmable environments.
The moment money exits a bank’s direct network, however, the strengths of tokenized deposits begin to fade. Cross-border payments, underbanked regions and counterparties outside major financial institutions can expose gaps in reach and efficiency when it comes to tokenized deposits.
This is where Chatterjee said he sees a role for stablecoins, not as competitors to banks, but as connective tissue.
“When money leaves the bank’s network and goes out into the external ecosystem, that’s where we see the role of stablecoins coming in,” he said, assuming they operate in a “very safe and sound and regulated manner.”
The result is likely to represent not a binary choice but a continuum. Just as checks, wires, cash and instant payments coexist today, digital money is likely to fragment into specialized forms optimized for different environments.
At the heart of the impact financial blockchain is having on digital money’s evolution lies a deceptively simple question: What makes money “good”?
For Chatterjee, the answer hinges on universal acceptance and trust.
“What makes a currency strong … has a lot to do with universal acceptance,” he said.
Assets that cannot be readily transferred or accepted risk becoming stranded, unable to circulate productively; while trust is fundamental to the value and stability of money, no matter its form. That logic applies equally to tokenized deposits and stablecoins. Without trust and transferability, neither is likely to function as a true institutional settlement asset.
Despite the focus on tokens and technology, Chatterjee was clear about where long-term value resides. It is not in the token itself, but in service.
“Client service and the client experience is what is going to drive the winning proposition,” he said.
