Stablecoins, bank deposits, and central-bank tokens compete for tokenized asset settlement

Delivery versus payment meets blockchain

In conventional finance, a system known as delivery versus payment (DvP) ensures that trade settlement is secure and fair. When an investor acquires an asset, one side delivers the security while the other delivers cash, all facilitated by intermediaries like banks, custodians, and settlement systems. These institutions ensure that neither party parts with their asset or funds without receiving the corresponding leg of the transaction.

Blockchain technology introduces the possibility to streamline this process. Using smart contracts and atomic settlement, digital mechanisms can simultaneously lock and exchange both the asset and the corresponding payment, significantly reducing counterparty risk and transaction times. If either participant cannot fulfill their obligation, the trade automatically cancels, offering a safeguard that is challenging to achieve in traditional systems.

However, for atomic settlement to function seamlessly, both the asset and the payment must be supported within the same blockchain infrastructure. This integration is where tokenized finance faces its key challenges.

The three forms of onchain money

Three main candidates could serve as the cash leg in a tokenized market: stablecoins, tokenized bank deposits, and tokenized central-bank money. Each comes with distinct advantages and trade-offs.

Stablecoins, such as those pegged to the US dollar, are already prevalent on public blockchains. They enable round-the-clock trading and settlement, allowing tokenized assets like Treasury securities to be bought and sold entirely within the blockchain environment.

Despite their accessibility, stablecoins represent liabilities of private entities. Their reliability depends on the transparency and robustness of their reserves and issuers’ willingness and ability to redeem tokens for fiat currency. This characteristic differentiates them from traditional money kept in bank or central-bank accounts.

Tokenized bank deposits provide an alternative structure. Here, commercial banks can offer digital versions of conventional deposits, which retain their character as liabilities of the issuing bank. This model promises programmable settlement capabilities while leveraging established banking relationships and infrastructure. Many commercial banks are beginning to explore this approach, seeing it as a way to integrate programmable payments without overhauling the financial system.

For major financial institutions, this system is particularly compelling, as central-bank reserves remain the backbone of large-scale settlement. Unlike private firms, central banks carry no solvency risk, offering a level of stability not found in other forms of onchain money.

Hybrid models and the interoperability challenge

As tokenization gains traction, the challenge of payment settlement intensifies. Even if a tokenized asset moves instantly on the blockchain, real-world settlement sometimes still depends on traditional banking channels. Recent experiments by banks and financial institutions reflect this hybrid reality: while efforts are underway to tokenize Treasuries, deposits, and funds, payment rails often still connect to established infrastructure.

The transition to a fully tokenized financial system is unlikely to happen abruptly. Some trades may rely on blockchain for asset transfer but use commercial bank deposits for payment, while others might utilize stablecoins or, eventually, tokenized versions of central-bank reserves.

This complex landscape makes interoperability between different forms of digital money crucial. If each tokenized asset requires its own payment network or is isolated from traditional finance, the benefits of tokenization diminish considerably. Connecting multiple payment mechanisms is as important as the technology used to move assets onto the blockchain.

Tokenized stocks and bonds may eventually trade around the clock and settle almost instantly. Every purchase will still require something trustworthy on the other side of the transaction, and the real breakthrough comes when assets and cash can move together.

Ultimately, market participants are exploring a spectrum of solutions for the future of tokenized finance. Until payment and asset settlement operate natively on the same digital rails, tokenization addresses only part of the problem—solving half the trade.