Paycon Payments & Banking Advisory

Payments are a front-end thing for most people in the industry. But the rails are what make the clock tick. Moving money between two participants is the bloodline of every payment transaction. And in recent years, two instruments are talked about, analysed, and converging on similar territory from opposite directions.

Stablecoins, with over $310 billion in circulation and a significant presence in annual on-chain settlement volume (though the majority remains trading and DeFi activity), have graduated from crypto-native tooling into something that central banks and regulators now take seriously. Deposit tokens, pushed by regulated banks, represent traditional deposits recorded on distributed ledgers, preserving the full regulatory framework while adding programmability. Both promise to modernise how money moves. Both carry structural limitations that their advocates tend to understate — limitations that are worth addressing in everyday discussion.

What each one actually is

A stablecoin is a digital token issued typically by a non-bank entity, pegged to a fiat currency, and backed by reserves such as cash and Treasury bills. Tether’s USDT ($190 billion in circulation) and Circle’s USDC ($80 billion) dominate. They operate on public blockchains and can be held by anyone with a compatible wallet, without requiring a banking relationship. Under the US GENIUS Act (2025), issuers must maintain full reserve backing and are explicitly prohibited from paying yield to holders.

A deposit token is a bank deposit represented on a distributed ledger. The holder has a claim on a regulated bank, subject to banking law, capital requirements, and deposit insurance. JPMorgan’s JPMD, Citi Token Services, and the UK Finance pilot with Barclays, HSBC, Lloyds, and Santander are the prominent examples.

A stablecoin is a bearer instrument, similar in concept to cash. A deposit token is a bank liability. That distinction shapes everything from regulatory treatment to consumer protection to how the economics work.

Where they differ in practice

Stablecoins have found real traction in cross-border remittances, crypto trading settlement, and increasingly B2B payments — monthly B2B flows grew from under $100 million in early 2023 to over $6 billion by mid-2025. Their core strength is accessibility: anyone with a phone and internet connection can hold, send, and receive stablecoins regardless of their banking status. In markets with limited banking infrastructure or unstable local currencies, this is not a theoretical advantage. It is the reason stablecoin adoption in Latin America and Sub-Saharan Africa is growing faster than anywhere else.

Deposit tokens are institutional instruments, deployed for intraday liquidity management, tokenised securities settlement, and corporate treasury operations. JPMorgan’s Kinexys processes roughly $2 billion daily in internal flows. The target user is a corporate treasurer, not a retail consumer.

The economic model also differs. Because deposit tokens are bank deposits, the holder can earn interest on the balance, preserving the yield-bearing relationship of traditional banking. Stablecoin holders earn nothing directly on their holdings, and under the GENIUS Act they legally cannot. The issuer earns the yield on backing reserves. There is a counterpoint that often gets omitted, though: while the stablecoin itself cannot pay yield, the holder can deploy stablecoins into DeFi lending protocols where returns have averaged 4 to 8 percent for major stablecoins. That introduces additional risk, but it means the practical choice is not simply “yield versus no yield” but rather “bank deposit rate versus DeFi lending rate with different risk exposure.”

The yield question also connects to a macroeconomic concern that central bankers have raised. If stablecoins attract significant balances away from bank deposits, they drain the deposit base that fuels lending and credit creation. Deposit tokens avoid this because funds remain in the banking system. Whether stablecoin adoption will reach the scale where this becomes a systemic issue remains debated, but the structural dynamic is real.

The problems each one faces

This is where neither instrument looks as strong as its proponents suggest.

For deposit tokens, the most significant issue is that they barely exist at production scale. Stablecoins have survived multiple crypto winters, regulatory crackdowns, and the $40 billion Terra/Luna collapse, emerging with higher adoption each time. Deposit tokens are in pilot phase. The gap between a well-designed pilot and a production system handling billions in daily interbank volume across dozens of institutions is enormous. Every advantage of deposit tokens — from programmability to instant settlement — is currently theoretical for cross-institutional use.

The interoperability problem compounds this. JPMorgan’s JPMD works within JPMorgan’s ecosystem. Citi Token Services works within Citi’s. European CBMT works in the CBMT consortium’s realm. There is no production-grade interbank settlement mechanism for deposit tokens as of 2026. Moving a deposit token from one bank to another still requires traditional reserve settlement at every step. Each bank has limited commercial incentive to make its deposit tokens interoperable with competitors’, because keeping deposits within its own ecosystem is the whole point of banking. Card schemes solved this coordination problem for card payments through decades of governance. No equivalent body exists for deposit tokens.

Deposit tokens are also exclusionary by design. Holding one requires a banking relationship with the issuing institution. For financial inclusion, remittances, and developing-market access, deposit tokens have very little to offer at this point.

For stablecoins, the challenges are different but equally serious. Consumer and counterparty protection is the most prominent gap. There is no deposit insurance. If the issuer encounters problems, the holder’s recourse depends on the issuer’s reserve management and whichever regulatory framework applies. The GENIUS Act and MiCA are tightening requirements, but the operational track record under these frameworks is measured in months, not the decades of precedent that banking regulation provides.

Stablecoins also face their own version of fragmentation. USDC operates on 32 blockchains with cross-chain protocols that support but don’t achieve full interoperability. Moving between different stablecoins or different chains requires bridges, exchanges, or liquidity pools, each introducing counterparty risk and cost. There are initiatives like Qivalis, an upcoming pan-European stablecoin, but that is still in the making.

The on-ramp and off-ramp friction remains a practical barrier. Stablecoins move globally in seconds, but converting to and from fiat currency involves exchanges, compliance checks, and fees that can erode the efficiency gains, particularly for smaller transactions.

One area where the balance has shifted more recently is regulatory clarity. The GENIUS Act provides a comprehensive, dedicated framework for stablecoin issuance. MiCA does the same in Europe. Deposit tokens, somewhat counter-intuitively, exist in a less defined space. They are treated as bank deposits, which gives them the safety net of existing regulation, but the distributed ledger layer introduces unresolved questions about settlement finality, cross-border recognition, and how existing banking rules apply to on-chain transfers.

Where this leaves us

Deposit tokens and stablecoins are not competing for the same transactions in most cases today. Institutional, high-value flows within known counterparty relationships and established banking infrastructure favour deposit tokens. Cross-border, retail-accessible, permissionless flows where speed, cost, and access matter more than regulatory familiarity favour stablecoins.

The honest assessment is that stablecoins are further along the maturity curve. They have real volume, real users, dedicated regulation, and battle-tested infrastructure. Deposit tokens have stronger theoretical foundations — deposit insurance, yield, balance-sheet participation — but remain largely unproven outside controlled environments. That will change with time.

Whether these instruments end up as friends, foes, or parallel rails will depend less on their technical merits and more on whether the infrastructure to connect them materialises. Stablecoins cannot offer the regulatory safety net or credit-cycle participation of bank deposits. Deposit tokens cannot offer permissionless global accessibility. Until one solves the other’s core problem, or a shared settlement layer bridges both, the two will continue along parallel tracks — each strong where the other is weak, neither complete on its own. Perhaps ending in some strange combo-rail setup. Time and the market will tell.

If stablecoin or deposit-token integration is on your roadmap this year and you would rather buy clarity than slideware, get in touch. See also our stablecoin advisory services and the rest of the Insights archive.