STRATEGIC IMPLICATIONS FOR BANKS

Deposit Franchise Risk

The risk that bank deposits migrate to non-bank digital money alternatives—such as stablecoins, payment apps, or CBDCs—eroding the low-cost funding base that underpins traditional bank profitability.

EXAMPLE

The Federal Reserve's financial stability report flagged deposit franchise risk as a key concern if stablecoin adoption accelerates without equivalent prudential requirements for issuers.

Relevant Roles and Functions

On-chain Role
Head of Digital Asset Strategy
Function
Competitive Positioning
Institutional Digital Asset Roadmap
Partnerships with Blockchain Networks

Related Terms

Stablecoin

A digital token designed to maintain a stable value, typically pegged 1:1 to a fiat currency and backed by reserve assets or algorithmic mechanisms. Unlike tokenized deposits, stablecoins are generally issued outside the regulated banking system.

Example

Circle's USDC stablecoin settled over $400B in adjusted on-chain transactions in 2025, increasingly used by institutions for treasury and cross-border payments.

Tokenized Deposit

A bank-issued, blockchain-based representation of a commercial bank deposit that moves on distributed ledger infrastructure while remaining a liability of the issuing bank—distinct from a stablecoin, which is typically issued by a non-bank entity.

Example

Citi's tokenized deposit pilot allows corporate clients to move cash between subsidiaries in real time on a permissioned ledger, with the same credit standing as a traditional deposit.

Correspondent Banking

A relationship where one bank holds deposits and provides payment services on behalf of another bank—typically across borders—enabling international money movement. On-chain rails are increasingly viewed as a replacement for the correspondent network’s cost and latency.

Example

Stablecoins settled on-chain can route cross-border corporate payments in seconds, bypassing the multi-day correspondent banking chain that currently extracts 2–5% in fees.