Tokenized Deposits vs. CBDCs: Key Differences To Be Aware Of

Key Takeaways

• Tokenized deposits are issued by commercial banks and stay within the traditional banking system.
• CBDCs are issued by central banks and shape how people store and use money.
• Both systems raise concerns about privacy, cybersecurity, and regulation, though in different ways.
• Understanding who controls the money is key to understanding how each option might work in practice.

As digital technologies evolve and create new options in the financial system, new actors come into play. 

It is no longer just about well-established cryptocurrencies like Bitcoin (BTC) or Ether (ETH), or even categories like stablecoins and memecoins. 

Other digital formats are broadening how money can function. CBDCs and tokenized deposits are part of that shift. 

These two tools may look similar at first, but they serve different purposes and follow different models. 

This article explains what sets them apart, how they work, and what they mean for the future of money.

What Are Tokenized Deposits?

Tokenized deposits are digital representations of traditional bank deposits recorded on a blockchain or other distributed ledger technology (DLT). 

Their general characteristics are the following:

• Backed by real money: Each tokenized deposit is fully backed by fiat currency like USD, EUR, or GBP held in a commercial bank account.
• One-to-one value: One token always equals one unit of fiat currency. There is no price fluctuation or speculation involved.
• Same legal status as fiat: Tokenized deposits are treated like traditional bank deposits and carry the same rights and protections under financial law.
• Issued by regulated institutions: Only licensed banks and depository institutions can issue them. These banks follow existing regulations such as know-your-customer (KYC) and anti-money laundering (AML) rules.
• Exists on blockchain or DLT: Tokenized deposits are recorded as digital tokens on distributed ledger systems. Most use permissioned blockchains for security and control.
• Programmable: Smart contracts can automate bill payments, conditional transfers, interest payouts, and escrow services.
• Faster settlement: Transactions can settle almost instantly, across borders and outside regular banking hours.
• Lower costs: Automated clearing and reduced need for intermediaries can lower transaction fees and processing costs.
• Transparent and auditable: Every token transaction is traceable on the ledger. This supports easier compliance, auditing, and risk monitoring.
• Private and secure: Banks use permissioned systems that limit access and protect sensitive data while offering cryptographic security.
• Liquid and transferable: Tokens can move easily between parties. Some systems may allow for fractional ownership or real-time exchange.
• Non-speculative: Tokenized deposits are not meant for trading or investment like cryptocurrencies. They serve as stable digital representations of money held in custody.

How Do Tokenized Deposits Work?

Tokenized deposits begin with a regular bank deposit. The money stays in the bank, but users can request to convert it into digital tokens recorded on a blockchain. The steps below explain how that process works.

• Deposit process: An individual deposits money (e.g., $1,000) into their bank account as usual.
• Tokenization request: If the bank offers this service, the individual can request to tokenize or convert the full deposit or part of it into digital tokens.
• Minting tokens: The bank mints tokens on a blockchain, typically a permissioned (private) blockchain or a regulated public one.
• Bank-backed tokens: The bank backs the tokens with its reserves to ensure they are fully collateralized. Following the previous example, the bank holds $1,000 in its custody, and the individual receives 1,000 tokens as a digital representation of that amount.
• Token value: Each token represents the equivalent fiat value (e.g., 1 token = $1).

Deutsche Bank Explores Stablecoins and Tokenized Deposits in Strategic Tech Push

Deutsche Bank AG is actively exploring the use of stablecoins and tokenized deposits as part of its broader digital transformation. The bank is evaluating the potential issuance of its own stablecoin and participation in regulated digital currency initiatives. This move aligns with efforts to modernize financial infrastructure and improve payment efficiency.

With regulatory frameworks maturing in the European Union and the United States, Deutsche Bank is focusing on compliant, blockchain-based solutions to enhance settlement speed and reduce operational costs.

The bank has also engaged in partnerships with blockchain firms to develop cross-border payment systems and custodial services, signaling a continued commitment to digital financial innovation.

What Are CBDCs?

Central Bank Digital Currencies (CBDCs) are digital forms of a country’s or a region’s (for example, in the potential case of a European CBDC) fiat currency. Central banks manage and issue CBDCs, and therefore, they operate within a regulated framework. 

One of their main aims is to combine the efficiency of digital payments with the stability (or perceived stability) of traditional money. 

CBDCs can support many uses, such as retail payments, interbank settlements, or cross-border transactions. 

Additionally, they may follow account-based, token-based, or hybrid models depending on the issuing country’s approach.

Many countries are in the research or early pilot phases, with over 100 jurisdictions globally exploring CBDCs. Some have fully launched them, including Jamaica, China, the Bahamas and Nigeria. Others, such as Brazil, Russia, Europe, and the Eastern Caribbean Currency Union, are in advanced pilot stages.

Key Concerns Surrounding CBDCs

CBDCs raise serious questions beyond technical design. Central banks must address multiple risks before launching digital currencies. 

Public opinion reflects this divide. Some view CBDCs as a path to more control and surveillance: 

However, others see them as a step toward a safer, more inclusive financial system.

These are the main concerns shaping current discussions:

• Surveillance concerns: Governments could monitor individual transactions and limit financial autonomy.
• Financial stability: People may move large sums out of bank accounts into CBDCs, weakening the role of commercial banks.
• Monetary policy impact: CBDCs could interfere with central banks’ tools for managing interest rates and money supply.
• Digital divide: Users without internet access, smartphones, or digital literacy may face exclusion from the system.

Shared Risks: Tokenized Deposits and CBDCs

These risks apply to both tokenized deposits and central bank digital currencies, though the degree may vary:

• Data privacy: Institutions collect detailed transaction data, raising concerns about personal and financial privacy.
• Cybersecurity: Hackers could target wallets, smart contracts, or blockchain infrastructure used by banks or governments.
• Over-centralization: A single institution controls the system, limiting competition and concentrating power.
• Banking sector competition: New models may pressure traditional banks, especially when private tech platforms join the ecosystem.
• Infrastructure cost: Building and securing blockchain systems requires major financial and technical resources.
• Legal and regulatory uncertainty: Many countries still lack clear rules for how tokenized systems fit within existing financial law.
• Cross-border complexity: International use creates compliance, conversion, and jurisdiction challenges.

Issuing Entity: Private vs. Public

However, when addressing differences, the biggest one between CBDCs and tokenized deposits starts with who issues them. 

Central banks issue CBDCs directly, making them a public liability backed by the state. In contrast, commercial banks issue tokenized deposits, and these remain private liabilities backed by the issuing bank’s own reserves. 

This difference shapes how people view trust. CBDCs require public trust in the central bank and its ability to protect privacy, security, access and user control. 

Tokenized deposits rely on trust in the commercial banking system, where users already store funds and expect deposit protections. 

These trust dynamics affect how each option might scale, how they fit into the current financial system, how they interact with existing institutions, and how people use them day to day.

CBDCs vs. Tokenized Deposits: Key Differences

CBDCs and tokenized deposits share some features but differ in how they work, who issues them, and how they affect the financial system. The table below highlights the key differences.

Conclusion

CBDCs and tokenized deposits both bring digital payments into regulated systems, but they follow different models. 

Central banks issue CBDCs and may change how people store money and how policy tools work. 

Commercial banks issue tokenized deposits and keep them inside the existing financial system.

The main differences come from who controls them, how trust works, and what risks they carry. 

Both raise questions about privacy, cybersecurity, and regulation. 

However, CBDCs raise concerns about surveillance, financial stability, and access. 

The way forward will depend on how banks and regulators manage these trade-offs and whether both systems can work together without creating new problems.

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