Stablecoins Outpace Tokenized Deposits in Safety, Composability Race

The battle between stablecoins and tokenized bank deposits is intensifying, with experts arguing that stablecoins hold a decisive edge in safety, functionality, and adoption. Omid Malekan, an adjunct professor at Columbia Business School, contends that overcollateralized stablecoin issuers—backed by 1:1 cash or short-term reserves—are structurally safer than fractional reserve banks issuing tokenized deposits. "Stablecoins are inherently more resilient to liquidity risks," Malekan said, noting that tokenized deposits often face KYC restrictions and limited interoperability, according to a Cointelegraph report.

Stablecoins also shine in composability, enabling seamless integration across the crypto ecosystem and decentralized applications (dApps). Unlike tokenized deposits, which are often confined to permissioned systems, stablecoins facilitate cross-border payments, yield-generating protocols, and interactions with decentralized finance (DeFi) platforms, as reported in a Markets.com article. This versatility is a key driver of their growing dominance, as institutions and individuals increasingly seek alternatives to traditional banking.

Meanwhile, the tokenized real-world asset (RWA) market is projected to surge to $2 trillion by 2028, according to a Standard Chartered report. Geoffrey Kendrick, the bank's global head of digital assets research, attributes this growth to stablecoin liquidity and DeFi's expanding role in bridging traditional finance with blockchain. The report forecasts $750 billion in tokenized money-market funds, $750 billion in U.S. equities, and $250 billion each in commodities, private equity, and real estate. This would represent a 57-fold increase from the current $35 billion RWA market.

Stablecoins themselves are central to this transformation. With a market capitalization exceeding $300 billion, they provide the liquidity backbone for tokenized assets, enabling efficient on-chain transactions and yield generation, the Standard Chartered report found. Tether's USDT and Circle's USDC, for instance, dominate the sector, while newer stablecoins like USDe and DAI further deepen liquidity pools. "Stablecoins are the gateway to broader RWA adoption," Kendrick stated in a Standard Chartered projection.

However, challenges persist. Banks and financial institutions are resisting stablecoins that offer yield to users, fearing erosion of their market share. The banking lobby has lobbied against yield-bearing stablecoins, which could disrupt traditional interest-earning models, the Markets.com article noted. Meanwhile, regulatory uncertainty remains a hurdle. Standard Chartered warns that progress could stall without comprehensive U.S. crypto legislation before the 2026 midterm elections, the bank's report added.

Despite these obstacles, institutional adoption is accelerating. Coinbase's recent $2 billion bid for stablecoin infrastructure firm BVNK underscores the sector's strategic value, while BlackRock and other firms are exploring stablecoin-backed funds, according to a Coinotag article. Tether, the largest stablecoin issuer, projects $15 billion in annual profits, leveraging its reserves in U.S. Treasuries to generate yields, the Coinotag article reported.

As the financial system grapples with this shift, the choice between stablecoins and tokenized deposits will hinge on utility and regulatory clarity. For now, stablecoins appear to be winning the race, backed by their composability, liquidity, and institutional momentum.