Tokenized Deposits: How They Work, Benefits & Use Cases

Since the advent of blockchain and cryptocurrency in 2009, the world is shifting from traditional banking systems and physical cash towards digital ledger technology and digital currency.

One of the reasons behind this is the ability of blockchain networks to facilitate instant cross-border payments, with significantly lower costs compared to wire transfers over the SWIFT network.

Tokenized deposits are one of the digital currencies that operate on blockchain networks. In this article, we explore how they work, their benefits, and use cases.

• Tokenized deposits are a token representation of fiat currency, issued by commercial banks. They are issued and transacted on a blockchain network.
• Tokenized deposits are minted by commercial banks when a customer requests to convert their bank deposit to digital tokens. These are transferred on a blockchain or DLT to make payments. To redeem tokenized deposits for fiat currency, the bank burns them and records the transaction on their ledger before crediting money to the end user.
• Tokenized deposits can often be confused with stablecoins and CBDCs, but stablecoins are a type of cryptocurrency issued by non-bank entities and CBDCs represent legal tender and are issued by a central bank.
• J.P. Morgan, Citibank, and HSBC have already launched their version of tokenized deposits, while Japan Post Bank will adopt tokenized deposits via the DCJPY network (developed by DeCurret DCP) by the end of FY 2026.
• RBI has also launched its pilot for tokenized deposits in October 2025. It utilizes the wholesale segment of its CBDCs as its underlying layer.

Tokenized deposits are token representations of fiat currency which are issued by commercial banks. It is a form of digital currency issued and transacted on blockchain platforms or on digital ledger technology (DLT). 

Tokenized deposits correspond 1:1 to fiat currency deposited in the bank and remain on its balance sheet; therefore, they are also bound by the same liquidity and supervisory requirements as fiat currency. It essentially combines traditional banking systems with blockchain mechanisms, enabling faster payment settlements while having protection of the regulatory framework.

Tokenized deposits work in three phases

1. Issuance of tokenized deposits

Tokenized deposits correspond 1:1 with fiat currency. A bank issues tokenized deposits to its customers who make the request to convert their deposited funds into digital tokens on a blockchain network. 

2. Transfer

Tokenized deposits are transferred and settled on permissioned or public blockchain networks or digital ledger technology (DLT) that operate 24/7. Just like fiat currency, tokenized deposits are also used for making a variety of transactions, especially cross-border payments, but with the added benefit of real-time settlement and programmable payments. 

3. Redeeming for fiat currency 

On receiving tokenized deposits, the end user can redeem them for fiat currency by making a request to the issuing bank. The bank burns or destroys these digital tokens, updates its internal ledgers and credits an equivalent amount of fiat currency to the redeemer.

Apart from tokenized deposits, we also have stablecoins and central bank digital currency (CBDCs), which are other forms of digital currency. While all of them correspond 1:1 with fiat currency, they are still slightly different.

1. Tokenized deposits: Tokenized deposits are representations of fiat money. These are issued by commercial banks and run only on permissioned blockchain networks.

2. Stablecoins: Stablecoins are a type of cryptocurrency issued by non-bank entities. Unlike other cryptocurrencies, they maintain a stable value by being pegged to fiat currency or assets. USDT and USDC are some examples of stablecoins pegged at a 1:1 ratio with the US Dollar. They run on public blockchains.

3. CBDCs: Central bank digital currency (CBDCs) are issued by the central bank. They are a digital form of physical currency, representing a legal tender. RBI issued India’s version of CBDCs, known as Digital Rupee in 2022. It is currently being tested in pilot mode with 17 banks (as per the RBI Annual Report 2024–25), including SBI, HDFC Bank, Axis Bank, etc and 2 non-bank entities- CRED and MobiKwik.

Compared to traditional banking, tokenized deposits not only speed up payments but also bring additional benefits. These are 

1. Atomic settlement

Tokenized deposits facilitate Atomic settlement, also known as delivery-vs-payment (DvP) settlement. In a DvP settlement, tokenized deposits and corresponding assets are exchanged simultaneously, with no settlement interval. This eliminates the risk of either party defaulting mid-process.

2. Programmable payments

Payments from tokenized deposits can be programmed to be released only when a product or service is released. This is facilitated by third-party smart contracts known as escrow, which has logic embedded in it to ensure that payment conditions are met. 

3. 24/7 operations

Unlike traditional banking systems that rely on legacy payment rails and batch settlements, with delays due to bank processes or holidays, the blockchain network used for tokenised deposits operates 24/7 and facilitates instant payments, enhancing treasury and liquidity management.

Using tokenized deposits is especially beneficial for cross-border payments, where the traditional SWIFT network of intermediary banks and currency exchange significantly increases settlement time and the cost of processing payments. 

4. Regulatory oversight

A major benefit of tokenized deposits is that they are issued by commercial banks and therefore, their operations are overseen by the same regulations implemented on fiat currency. Thus, it gives you the speed of the blockchain mechanism while ensuring payment security with regulatory oversight.

Since tokenized deposits are a 1:1 representation of fiat currency in a digital form, they have combined the stability of traditional banking with the speed, low cost and borderless nature of blockchain. As a result, commercial and central banks alike have shown interest in using tokenized deposits for making cross-border payments.

In the U.S., J.P. Morgan has been the pioneer in the trend for tokenized deposits by launching its JPM coin in 2019 for institutional clients. It initially used a permissioned version of Ethereum (via its Kinexys division), and has since expanded to Coinbase's Base public blockchain.

Following in its footsteps, Citibank in late 2024, and HSBC domestically in Hong Kong and Singapore in May 2025, with cross-border expansion in September 2025 have also run successful pilot programs for their tokenized deposits.

Japan Post Bank is set to roll out tokenised deposits on the DCJPY network (a token issued on a permissioned blockchain built by DeCurret DCP) by the end of FY 2026, while in Switzerland, Post Finance, UBS, Sygnum and the Swiss Bankers Association have reviewed the use of tokenized deposits in their study and reported it to be viable and legally compliant for making payments between customers of different banks.

Bakong, Cambodia's blockchain-based national payment system, has seen wide adoption among merchants due to its low transaction fee, faster settlement time and interoperability with different financial systems. It is a tokenized deposit initiative that reported 608 million transactions, totalling USD 104.81 billion in 2024, a 95% increase from 2023.

The Monetary Authority of Singapore has also launched Project BLOOM (Borderless, Liquid, Open, Online, Multi-currency) to enable settlement in tokenized bank liabilities and well-regulated stablecoins. The groundwork for Project Bloom is built upon Project Orchid, which explored digital Singapore dollar use cases and the infrastructure needed to support it.

The Reserve Bank of India launched its pilot on tokenized deposits in October 2025. It is utilising the wholesale segment of its CBDC as its underlying layer. The pilot stage would help the government gauge possible challenges and policy considerations for using tokenized deposits for instant, programmable settlement.

India’s central bank digital currency (CBDC), the digital rupee, has also gained traction since its launch in 2022. Its pilot is ongoing with 17 banks (as per the RBI Annual Report 2024–25), including SBI, ICICI Bank, PNB, HDFC Bank, etc. Its retail pilot has already onboarded around around 60 lakh users and crossed Rs. 1000 crore in circulation in 2025.

While tokenized deposits enhance how payments are processed and settled, certain risks and challenges also make their adoption difficult. These are

1. Interoperability

So far, different banks have launched their versions of tokenized deposits that are transferred and settled on their version of a blockchain network and digital ledger technology. This would create a system that lacks interoperability, making it impossible to use tokenized deposits for atomic settlements.

2. Legal uncertainty

Even though tokenized deposits are regulated under the legal requirements of commercial banks, they are still a form of digital money that can be hacked. This raises the need to have regulations for tokenized deposits that explain who bears liability if they are hacked while also clarifying custody, settlement finality and consumer protection.

3. Operational risks

The major use case of tokenized deposits is to facilitate fast and secure payment settlement with the help of digital ledgers and smart contracts. But errors in digital ledgers, bugs in smart contracts and network outages can affect the operations of tokenized deposits.

Tokenized deposits combine the traditional banking system with blockchain mechanisms. This speeds up payment settlement and reduces transaction costs while still having the regulatory oversight of the banking framework, especially for cross-border payments.

But tokenized deposits are still a new concept across financial systems, as many banks are running them only in pilot projects and testing their viability. It will take some time before tokenized deposits can be used commercially for cross-border payments.

Till then, Indian exporters who want to receive cross-border payments in a fast, secure and cost-effective manner can utilize Xflow’s payment solution. With Xflow, your international payments get settled in 1 business day in your INR account. Moreover, it offers mid-market-linked foreign exchange rates with transparent transaction fees.

Try Xflow now for speedy and cost-efficient cross-border payments!