Widespread adoption of tokenized deposits could transform banks' funding models, while instant cross-institutional transfers may reduce the stability of their funding base and constrain lending capacity. This was stated by Federal Reserve Bank of Dallas economists Rosy Levy and Srini Ramaswamy in their research. Tokenized deposits are a digital form of bank liabilities recorded on distributed ledger infrastructure. Unlike most stablecoins, they remain within the existing banking system and can earn interest for their holders.
One of the technology's touted advantages is real-time settlement, but the economists identified this feature as a potential drawback for banks. Today, a portion of deposits remains relatively stable due to customer relationships with their bank and technical barriers to rapid fund transfers, allowing lenders to forecast how long money will stay on their balance sheets. Tokenization could lower these barriers: customers would be able to move funds more quickly to banks offering higher rates, while programmable features could automate such operations. The authors specifically highlighted the role of AI agents, which, combined with smart contracts, could theoretically monitor yields autonomously and transfer tokenized deposits between banks without any direct action by the account holder.
Levy and Ramaswamy assessed the impact of changing deposit behavior on duration transformation. According to their calculations, approximately 80% of the interest rate risk that US banks take on when holding long-term assets is currently supported by deposit characteristics, equivalent to roughly $5.8 trillion of the total $7 trillion in such exposure. If the average duration of deposits on bank balance sheets decreases by 10%, the aggregate capacity of banks to absorb interest rate risk would decline by approximately $580 billion in 10-year asset equivalents. A 10% increase in the sensitivity of deposit rates to market rates would produce an even larger effect — around $700 billion. These figures do not represent a direct reduction in lending, but rather reflect a change in banks' ability to hold interest-rate-sensitive assets. Offsetting the effect by attracting longer-term funding is possible, but such debt typically costs more than deposits, which would negatively affect the cost of credit for consumers and businesses.
Another potential consequence is a shift in the structure of bank balance sheets. If tokenized deposits allow customers to withdraw substantial sums almost instantly, financial institutions would need to hold larger buffers of highly liquid assets — primarily reserves and Treasury securities — reducing the share of funds available for less liquid assets, including loans. As a rough analogy, the authors examined Brazil's instant payment system Pix, which enables round-the-clock money transfers between banks. By the first quarter of 2026, the system had approximately 200 million active users, and monthly transaction volume reached roughly $650 billion. A 2025 study by the Central Bank of Brazil found that greater use of Pix was accompanied by an increase in liquid asset holdings at banks and a decline in credit intermediation.
The Dallas Fed economists emphasized that Pix is not a perfect analogue to tokenized deposits, but both technologies enable near-instant money transfers between banks, meaning Brazil's experience may offer insight into possible outcomes.
The analysis comes against the backdrop of accelerating bank projects involving tokenized money. On August 26, 39 US state banking associations formed the BankChain alliance, which plans to launch a nationwide blockchain network in 2027 with support for tokenized deposits, stablecoins, and programmable settlement. In June, JPMorgan Chase, Citigroup, Bank of America, Wells Fargo, and other financial institutions announced the creation of their own infrastructure for bank on-chain money through The Clearing House. On August 19, HSBC and Standard Chartered completed the first live interbank transaction using tokenized deposits on SWIFT's blockchain infrastructure. The service is intended to enable 24/7 settlement between banks and more efficient liquidity management.
The study's authors note that the space remains at an early stage. The potential consequences will depend on system architecture, the rules governing interoperability between banks, and the extent to which tokenized deposits are able to circulate across different issuers.