Digital Assets Strike Back: Stablecoins & Tokenized Deposits—5 Things Community Banks Need to Know

Author: Keith Daly, Principal, Banking & Fintech Search at Travillian

The Trump administration is now back in power, and it is clear – this administration will be more receptive towards the digital assets industry. President Trump has said he wants the U.S to be the “crypto capital” of the world and wants to “end the persecution of the industry.”

Along with a more friendly congress towards digital assets, this may be a golden age for these disruptive technologies. A statement on Monday, January 20^th, 2025 from Acting FDIC Chairman Travil Hill mentions adopting “a more open minded approach to innovation and technology adoption, including a more transparent approach to fintech partnerships and to digital assets and tokenization.”

What does this mean for Community Banks? There are many different forms of digital assets from the well-known Bitcoin cryptocurrency to lesser-known products such as Non-Fungible Tokens (NFT’s). This article will focus on Stablecoins & Tokenized Deposits.

Stablecoins & Tokenized Deposits ARE NOT the same as Bitcoin and other cryptocurrencies.

1. Bitcoin is a decentralized cryptocurrency that is highly volatile and tied to supply and demand and other trading patterns determined by the open market. Often referred to as “digital gold”’, Bitcoin is viewed as an asset for investment and wealth preservation.
2. Stablecoins and tokenized deposits are designed to maintain stable value, typically pegged to a fiat currency (e.g USD) or commodity (e.g. gold).

Stablecoins ARE NOT the same as Tokenized Deposits.

Although they have similar goals, maintaining a stable value, there are major differences:

1. Issuer: Stablecoins are typically issued by private companies, while tokenized deposits are issued by regulated banks.
2. Underlying Assets: Stablecoins can be backed by a variety of assets, including fiat currency, other cryptocurrencies, or commodities. Tokenized deposits are always backed by fiat currency held in a bank account.
3. Regulation: Stablecoins are subject to varying levels of regulation depending on the jurisdiction. Tokenized deposits are subject to the same regulations as traditional bank deposits.

Stablecoins have been growing substantially the past few years and are poised for massive growth in 2025 and beyond.

The current market cap for stablecoins reached $210B in January 2024, a record.

1. Tether is often hailed as the first successful stablecoin. Launched in 2014, it now has a market cap of $138B up from $91.7B at the end of 2023. In 2017 it was less than a billion and in 2020 the market cap was $20B.
2. The next highest stablecoin market cap is USDC (managed by Circle & Coinbase) at $48.5B After USDC, there is a huge market cap fall to $5.8B with USDE.
3. Chamath Palihapitiya is CEO and Founder of the venture capital company Social Capital and Co-Host of the very popular business & tech podcast All-In. This is what he had to say about stablecoins for their 2025 prediction podcast in late December 2024. “I think the biggest business winner of 2025 are going to be dollar denominated stablecoins.” He goes on to say,  “I think what we have now is something that has fundamentally crossed a point of no return. I think we are doing to finally attack the duopoly of Visa and Mastercard. I think you are going to see an innumerable number of use cases that sit and use stablecoin rails.” He ends with “I think stablecoins could quadruple or quintuple by the end of 2025.  I think it’s just going to be an enormous market.”
4. ParaFi Capital’s Projection: ParaFi suggests that by 2030, stablecoins could constitute up to 10% of the U.S. M2 money supply. Given that the M2 supply is approximately $21 trillion, this implies a potential stablecoin market size of around $2.1 trillion.

Potential Bank Use Cases for Tokenized Deposits and Stablecoins

1. Real-Time Settlements (24/7) – Enable instant, secure, and verifiable transactions between banks, businesses, and individuals. Reducing settlement times from days to seconds, particularly in cross-border payments, and lower associated costs.
2. Cross Border Payments – Facilitate seamless and cost-effective international transactions without relying on traditional payment networks like SWIFT. Reducing fees, eliminating currency conversion delays, and improve the overall customer experience for remittances and global trade.
3. Interbank Transfers – Streamline interbank clearing and settlement processes using tokenized deposits on a shared ledger. Enhanced transparency, reduced operational risks, and improve liquidity management within banking networks.
4. Programmable Money – Enable conditional payments and smart contracts (e.g., automated payroll, invoice payments, or escrow). Allow for greater automation and efficiency in financial transactions while reducing errors and administrative overhead.
5. Financial Inclusion – Provide access to secure, low-cost digital banking services for unbanked and underbanked populations. Reduce barriers to entry for financial services, especially in regions with limited traditional banking infrastructure.
6. Liquidity Management – Improve liquidity management for banks by enabling real-time tracking and tokenization of assets. Increase operational efficiency and enhance compliance with regulatory requirements.
7. Transparency & Auditing – Provide auditable and transparent records of all transactions through blockchain technology. Simplify regulatory compliance and improve trust between financial institutions and their customers.

Bank Talent Needs for a Stablecoin Strategy

From a talent perspective, community banks will need to focus on the following roles & skill sets to execute a stablecoin/tokenized deposit strategy:

1. Chief Payments Officer / Head of Payments – Bank payments expertise will be critical for the money flow in and out of the bank, whether it is through a digital wallet or other means for the stable coins.
2. Chief Risk Officer / Head of Risk – The compliance and regulatory oversight will be intense for stablecoins, a top risk talent is essential.
3. Chief Technology Officer/Chief Information Officer – Technology of course will be the engine of a stablecoin strategy so a deep understanding of API’s, Cybersecurity, Blockchain will be essential.