Table of contents

Approximate read time: 4 minutes

1. What are tokenised deposits and how are they different from cryptocurrencies?

Both tokenised deposits and cryptocurrencies use distributed ledger technology (DLT), often in the form of a blockchain. A distributed ledger stores data on multiple computers.[1] Transactions, such as buying and selling, are validated by consensus between the machines. In a blockchain, each transaction is grouped into blocks that are then linked together. The computing company IBM explains that this structure “guarantees data integrity and provides a tamper-proof record”.

However, there are a number of key differences between tokenised deposits and cryptocurrencies.

Cryptocurrencies are new currencies issued by private companies. Some are pegged to a government-backed (fiat) currency; these are called stablecoins.[2] The company issuing the stablecoin holds an amount in a national currency equal to the value of the stablecoins it has issued. Other cryptocurrencies, such as Bitcoin, are not linked to fiat currency and their value fluctuates with supply and demand. This means they can be more volatile than stablecoins.

In contrast, tokenised deposits are not new currency; rather, they are a new way of digitally representing bank deposits.[3] They are issued by a bank, sit on its balance sheet and are part of its regulated activities.

The UK government is establishing a regulatory regime for cryptoassets. While tokenised deposits could meet the current legal definition of a cryptoasset under the Financial Services and Markets Act 2000, the government has explicitly excluded tokenised deposits from the cryptoasset regulatory regime.[4] This means they will continue to be regulated as traditional bank funds, not as cryptocurrencies.

2. What are the advantages of tokenised deposits?

Tokenised deposits allow money to be sent and received internationally more quickly than with older systems. Most international payments between banks use payment networks such as Swift, where instructions are sent from one bank to another.[5] While most Swift payments reach the beneficiary bank in under an hour, transfers usually take between one and three business days to settle because of cut-off times and reliance on batch processing and intermediary banks.[6] In contrast, tokenised deposit transactions can be sent at any time and are executed in near real-time.

Tokenised deposit transactions can be set up to happen automatically when certain conditions are met. For example, if an account balance drops below a certain amount, money can be automatically transferred from an account in a different country.[7] Tokenised deposits can also be linked to smart contracts, as Ryan Rugg of Citi explains:

We did a pilot last year with ships in a canal ecosystem where, typically, they have to have letters of credit to be able to pass through, and only during traditional banking hours. We took our tokenised deposits and pre-funded a smart contract that said, if the ship receives fuel, automatically release payment.

In addition, tokenised deposits offer advantages compared to cryptocurrencies because they sit within the regulated banking system.[8] They are therefore subject to all the same regulations and guarantees as traditional bank deposits. Tokenised deposits also increase liquidity in the financial system by enabling fast and efficient movement. This contrasts with stablecoins, which could decrease liquidity because they require the issuing companies to back up their stablecoins with fiat currency, taking it out of the financial system.

3. What are the risks of tokenised deposits?

Some have argued that automation, along with the speed and transparency with which tokenised deposits can be transferred, means they could cause a bank run more easily than traditional deposits might.[9] In addition, if people and regulators perceive tokenised deposits to be high risk they may be concentrated in the most highly trusted banks, disadvantaging smaller banks and leading to financial exclusion.

It is also possible that the ledgers underpinning the deposit tokens could be disrupted, or that other aspects of the technology could be interfered with or fail.[10] However, the consultancy firm Oliver Wyman notes that banks have a history of successfully adapting to technological innovations.

4. Are tokenised deposits being used in the UK?

Some banks have set up internal distributed ledgers and created tokenised deposits that can be used within their own international networks.[11] In addition, six UK banks and building societies—Barclays, HSBC, Lloyds, NatWest, Nationwide and Santander—are taking part in a pilot in which they will use tokenised deposits that can be transferred between institutions.[12] The pilot will test three situations:

  • person-to-person payments on online marketplaces
  • remortgaging processes
  • digital asset settlement

In January 2026, as part of this pilot Lloyds completed the first transaction in the UK using tokenised deposits issued on a public blockchain.[13]

Image by rawpixel.com on Freepik.

References

  1. IBM, ‘What is blockchain?’, accessed 6 February 2026. Return to text
  2. Bank of England, ‘What are stablecoins and how do they work?’, 20 November 2025. Return to text
  3. Finovate, ‘Tokenised deposits vs stablecoins: What’s the difference and why it matters’, 2 July 2025. Return to text
  4. HM Treasury, ‘Future financial services regulatory regime for cryptoassets (regulated activities): Policy note (accessible)’, updated 16 December 2025. Return to text
  5. Swift, ‘Who we are’, accessed 6 February 2026. Return to text
  6. HSBC, ‘Tokenised deposit service’, accessed 6 February 2026. Return to text
  7. Citi, ‘How tokenised payments are enabling real-time liquidity’, 30 April 2025. Return to text
  8. Juniper Research, ‘Stablecoins vs tokenised deposits: Which will shape the future of UK finance?’, September 2025. Return to text
  9. Elevandi, ‘Who will emerge the digital money winner: Stablecoins or tokenised deposits?’, 2023, p 6. Return to text
  10. Oliver Wyman, ‘Deposit tokens: A foundation for stable digital money’, February 2023, p 24. Return to text
  11. HSBC, ‘Tokenised deposit service’, accessed 9 February 2026. Return to text
  12. UK Finance, ‘Tokenised sterling deposits’, accessed 9 February 2026. Return to text
  13. Lloyds Banking Group, ‘Lloyds and Archax complete UK’s first public blockchain transaction using tokenised deposits’, 7 January 2026. Return to text