The race for onchain cash is no longer between Tether and Circle. Banks are building their own version, and regulators are giving them a head start.
A UK Finance report published on March 23 laid out the case for tokenized deposits, bank-issued digital representations of traditional deposits that live on blockchain infrastructure. Unlike stablecoins, these instruments operate as direct bank liabilities, which means they inherit existing deposit insurance, capital requirements, and AML/KYC frameworks without needing new legislation.
The report calls tokenized deposits a "vital role" player in a future multi-money system alongside stablecoins and central bank digital currencies. That phrasing is diplomatic. The subtext is competitive: banks want a piece of the onchain settlement layer that stablecoins currently dominate.
Lloyds Fires the First Shot in the UK
In January, Lloyds Banking Group and digital asset firm Archax completed what UK Finance describes as the UK's first public blockchain transaction using tokenized deposits on the Canton Network. The pilot tested real value transfer on a public ledger using regulated bank money, not a stablecoin, not a CBDC, but an actual deposit claim moved onchain.
UK Finance's broader Great British Tokenised Deposit pilot is now testing three use cases through mid-2026: person-to-person marketplace payments, remortgaging workflows, and digital-asset settlement. Barclays, HSBC, and other UK banks are participating.
The distinction matters for anyone holding stablecoin-funded crypto cards. Tokenized deposits could eventually compete for the same settlement rails that USDC and USDT currently occupy, particularly in regulated corridors like the UK and EEA where banks have distribution advantages that no stablecoin issuer can match.
The ECB Has a Three-Phase Roadmap
The European Central Bank is not watching from the sidelines. In March, the ECB unveiled Appia, its roadmap for tokenized financial markets using central bank money. The plan has three phases:
Pontes, a settlement mechanism connecting blockchain platforms to the Eurosystem's TARGET Services infrastructure, launches in Q3 2026. This gives banks a direct pipe from onchain assets to the same settlement system that clears euro payments today.
A digital euro pilot follows in H2 2027, running for 12 months. If it proceeds to launch, it would give European consumers a central bank-backed digital currency that competes directly with euro-denominated stablecoins.
The timeline is aggressive by central bank standards. Q3 2026 is six months away. For stablecoin issuers operating in the EEA and UK, the competitive window is narrowing.
JPMorgan Already Processes 2 Billion Dollars a Day
While European banks run pilots, JPMorgan's Kinexys platform (formerly Onyx) already processes over $2 billion in daily transaction volume using its own tokenized deposit system. Standard Chartered, BNY, and Citi have similar programs at various stages of deployment.
The pattern is consistent: large banks are not adopting existing stablecoins. They are building parallel systems that replicate stablecoin functionality within their own regulatory perimeter. ABN Amro and Digital Asset are working on interoperability layers to connect these bank-specific systems, which could eventually create a network effect that rivals Tether's.
Marko Vidrih, co-founder and COO at RWA.io, told CoinTelegraph that tokenized deposits "bridge the gap between traditional finance and decentralized ecosystems." The framing is telling. From the bank perspective, stablecoins are the bridge. Tokenized deposits are the destination.
What This Means for Stablecoin-Funded Spending
For crypto card users, the implications are medium-term but real. Today, cards from Crypto.com, Nexo, and others settle through stablecoin-to-fiat conversion at the point of sale. If tokenized deposits gain traction, card issuers could eventually settle directly in bank-native digital cash, potentially reducing conversion spreads.
The risk runs the other direction too. If regulators favor tokenized deposits over stablecoins for retail payments (as MiCA's restrictive stablecoin rules suggest they might), card issuers that rely exclusively on USDC or USDT could face compliance pressure to integrate bank-issued alternatives.
None of this displaces stablecoins tomorrow. Tether alone has $145 billion in circulation, and Circle's USDC is embedded in DeFi infrastructure that banks cannot replicate quickly. But the direction is clear: traditional finance wants onchain cash on its own terms, and it has regulatory tailwinds that stablecoin issuers do not.
BTC trades at $68,108 (-0.8% over 24 hours), ETH at $2,062 (-0.3%), and the Fear & Greed index sits at 25 (Fear) as of March 23, 2026.
Overview
UK Finance published a report positioning tokenized deposits as a core component of future onchain payment systems. Lloyds completed the UK's first public blockchain deposit transaction on the Canton Network, and the ECB unveiled its Appia roadmap with Pontes launching Q3 2026 and a digital euro pilot in H2 2027. JPMorgan's Kinexys already processes $2 billion daily. Banks are not adopting stablecoins. They are building competing systems within existing regulatory frameworks, which could reshape how crypto cards settle transactions over the next two to three years.
