Bank of England Backs Tokenized Deposits to Thwart Stablecoin Risks

UK banks are accelerating their adoption of tokenized deposits, a move that aligns with broader trends in blockchain-based financial innovation. A coalition of major lenders—including HSBC, NatWest, Lloyds, Barclays, Santander, and Nationwide—has launched a pilot program to tokenize customer deposits, leveraging blockchain technology to create digital representations of pound sterling. The initiative, spearheaded by UK Finance and supported by the Bank of England, aims to enhance payment efficiency, reduce fraud risks, and modernize financial infrastructure. The pilot will run until mid-2026 and will test applications in online marketplaces, remortgaging processes, and digital asset settlementWhale Scores $2.1M as PunkStrategy NFT Token Hits $70M Valuation^[5].

Governor Andrew Bailey of the Bank of England has been a vocal advocate for tokenized deposits over stablecoins, which he views as potential threats to financial stability. In July 2025, Bailey emphasized that tokenized deposits offer tangible value by keeping payments within the regulated banking system, unlike stablecoins, which he criticized for their lack of "brand image" and potential to destabilize traditional financeNext Up, NFTStrategy^[6]. The UK pilot is part of a global divergence in regulatory approaches, with the U.S. under the Trump administration pursuing a more permissive stance toward stablecoins. This contrast highlights the growing debate over how to balance innovation with systemic risk in digital finance.

The UK’s push for tokenized deposits is occurring alongside a surge in tokenized asset projects, including experimental crypto-NFT hybrid models. One such example is PunkStrategy (PNKSTR), a tokenized NFT project that has seen rapid growth. PunkStrategy operates by allocating 10% of trading fees to purchase and resell CryptoPunk NFTs, using proceeds to buy back and burn PNKSTR tokens. This cyclical model aims to stabilize the token’s price while boosting NFT demand. In late September 2025, PNKSTR’s market capitalization surged from $1 million to over $21 million within a week, with a single whale investor reporting an unrealized gain of $2.1 million.

While the model has attracted attention for its innovative structure, analysts caution that its speculative nature introduces significant risks. The NFT market’s inherent illiquidity and volatility could amplify price swings, particularly if large holders decide to offload their positions. Additionally, PunkStrategy’s success depends on sustained trading activity and the broader health of the NFT ecosystem. Similar projects, such as TokenWorks’ NFTStrategy tokens for Bored Apes and Moonbirds, are also emerging, aiming to create self-sustaining economic loops around blue-chip NFT collections.

The UK’s tokenized deposit pilot and the rise of NFT-linked tokens reflect a broader shift toward programmable money and asset tokenization. By digitizing traditional financial instruments, institutions seek to reduce costs, enhance transparency, and unlock new use cases. However, challenges remain, including regulatory uncertainty, liquidity constraints, and the need for robust infrastructure. The Bank of England’s focus on tokenized deposits over stablecoins underscores its preference for maintaining control over monetary systems, while projects like PunkStrategy illustrate the experimental edge of tokenomics.

As the UK’s pilot progresses, its outcomes could influence global regulatory frameworks and investor sentiment toward tokenized assets. For now, the interplay between institutional adoption and speculative innovation highlights the dynamic, yet fragile, state of tokenization in finance.