According to Experts.news, the largest banks are beginning to move traditional bank money onto the blockchain, creating a potential competitor to the USDT and USDC stablecoins. In the UK, Barclays, HSBC UK, Lloyds Banking Group, Monzo, Nationwide, NatWest, and Santander are already testing tokenized deposits, while in the U.S., Citi is simultaneously building infrastructure that allows corporate clients to work with stablecoins via Coinbase.
In effect, two models for the future of digital money are taking shape. The first involves the use of independent stablecoins issued by companies such as Tether and Circle. The second transfers existing funds from bank accounts onto the blockchain.
British banks took an important step in this direction on September 24, 2026. The industry association UK Finance announced the completion of the first real-world customer transactions involving tokenized deposits in pounds sterling as part of the Great British Tokenized Deposit (GBTD) project.
Participants in the project include Barclays, HSBC UK, Lloyds Banking Group, Monzo, Nationwide, NatWest, and Santander.
The banks conducted two live mortgage refinancing transactions. The tokenized funds were automatically blocked until the terms of the agreement were met, after which the payment was processed without any additional manual steps.
Another test involved a purchase on a consumer marketplace. It demonstrated the ability to transfer tokenized bank funds between customers of different banks via a shared infrastructure.
The main difference between this model and USDT or USDC lies in the legal nature of the money.
A tokenized deposit is not a separate cryptocurrency. It is a digital representation of regular money that the customer already holds in a bank account.
If there is 1,000 GBP in a bank account, the bank can theoretically represent this amount in the digital infrastructure as a corresponding amount of tokenized pounds. In this case, the bank continues to bear the obligation to the customer, and the funds themselves retain the legal status of a bank deposit.
A stablecoin works differently.
USDT is issued by Tether, and USDC by Circle. The user effectively exchanges regular money for a digital token, the value of which the issuer commits to maintaining at the level of the corresponding fiat currency through reserve assets.
Therefore, a tokenized bank deposit and a stablecoin may look the same on the blockchain, but economically they are different instruments.
Banks have a significant advantage—their existing system of trust, regulation, and customer relationships.
UK Finance explicitly states that tokenized deposits must retain the regulatory guarantees of traditional bank deposits while acquiring the properties of digital money—programmability, faster settlements, and the ability to automatically execute payments once specified conditions are met.
It is precisely this programmability that could become one of the technology’s main advantages.
For example, when purchasing real estate, funds can be automatically transferred to the seller only after the transaction has been registered. Payment to a supplier can be made after confirmation of delivery. In financial transactions, the transfer of a security and payment for it can occur almost simultaneously.
As a result, the number of intermediate transactions is reduced, as is the risk that one party will fulfill its obligations while the other does not.
The next phase of the British project will involve using tokenized deposits to settle payments for digital assets. GBTD participants plan to link customers’ tokenized funds to digital securities.
In this way, banks are attempting to create within the regulated financial system the opportunities that blockchain and stablecoins initially offered outside of it.
However, it is still too early to write off USDT and USDC.
The scale of the existing stablecoin market is incomparable to the banks’ experiments. According to CoinGecko data as of October 3, the market capitalization of USDT alone is approximately $184 billion, while that of USDC is approximately $74 billion.
The total stablecoin market already exceeds $300 billion.
Stablecoins are particularly strong in international money transfers. They operate around the clock, can move between different blockchains and platforms, and do not require the sender and recipient to be served by the same bank.
This is where a fundamental problem arises for the traditional banking system.
If a significant portion of international payments shifts to USDT, USDC, or other stablecoins, banks will have to compete for payment flows that previously passed almost entirely through the banking infrastructure.
Furthermore, a massive shift of funds from bank deposits to stablecoins could potentially reduce banks’ deposit base, which is used to lend to the economy.
The Bank of England is explicitly taking this risk into account as it develops new regulations for digital currencies.
In June 2026, the Bank of England published draft rules for systemic stablecoins. The regulator proposed a model under which at least 40% of a systemic stablecoin’s reserves must be held directly at the Bank of England, while up to 60% may be invested in short-term UK government bonds.
Restrictions on the amount of stablecoins that individual users and companies can hold are also being considered for a transitional period.
However, the Bank of England does not propose banning stablecoins. On the contrary, its strategy envisions the coexistence of several types of digital currencies.
In the future, traditional bank deposits, their tokenized versions, regulated stablecoins, and a potential central bank digital pound could all be used simultaneously.
Therefore, real competition is developing not so much between banks and cryptocurrencies as between different models of digital money.
Citi’s strategy is illustrative in this regard.
On September 28, Citi and Coinbase announced an expansion of their partnership, which effectively combines traditional banking infrastructure with stablecoins.
Coinbase has selected Citi’s Virtual Account Wallet to power Coinbase Virtual Accounts. Incoming traditional currency can be automatically converted into stablecoins.
Conversely, Citi’s corporate clients will be able to accept payments in stablecoins via the Spring by Citi payment platform and the Coinbase Payments infrastructure.
Coinbase accepts the digital payment and facilitates its conversion, after which Citi processes the settlement in traditional currency as a bank.
This is particularly important for corporate clients: the company gains the ability to accept stablecoins without having to build its own infrastructure for storing and managing crypto assets.
According to Citi, this solution potentially gives its corporate clients access to over 150 million stablecoin holders worldwide.
Thus, major banks are adopting different strategies.
British banks such as Barclays, HSBC, Lloyds, NatWest, and others are creating tokenized versions of their own deposit funds.
Citi, meanwhile, is developing a banking blockchain infrastructure and building a bridge between traditional money and existing stablecoins.
In the long run, these models may not displace one another but rather share the market.
Tokenized deposits have a natural advantage within the banking system—for payroll, corporate payments, mortgages, lending, and securities transactions.
Stablecoins are stronger in areas where round-the-clock cross-border transfers, interoperability between different platforms, and the ability to freely move digital money between blockchains are particularly important.
But for banks, this issue is becoming strategic. If they fail to migrate deposits and payments to a programmable digital infrastructure, a significant portion of the new market could go to Tether, Circle, Coinbase, and other companies in the crypto industry.
That is why competition between USDT, USDC, and tokenized bank deposits could become one of the key drivers of the global financial system’s development in the coming years.
Sources: UK Finance, Bank of England, Citi, Coinbase, CoinGecko.
