This past week, the European Banking Association (EBA) issued a statement on tokenized deposits and stablecoins. The statement was part of the ongoing Digital Currencies & Smart Payments Working Group (DSWG).
The statement declared that it is still too early to judge how well stablecoins and tokenized deposits fulfill critical success factors. These include “compliance, security, resiliency, user experience, and cost efficiency.”
The expectation is that speed and cost will improve with the advent of stablecoins and tokenization, but the EBA remains skeptical at this point.
“As underlying technology continues to evolve rapidly – and adoption of tokenized money expands from global payment networks to large corporates – financial institutions should proactively assess and decide on their investments in this area,” stated Chair of the EBA’s Digital Currencies & Smart Payments Working Group Wim Grosemans.
Existing use cases are rather marginal, according to the EBA.
Tokenovate CEO and founder Richard Baker believes the real opportunity in digital money and tokenized deposits lies in the settlement process.
“The EBA’s analysis reflects a market that is still working out where tokenized money delivers a clear advantage over existing payment mechanisms. For wholesale markets, that advantage is unlikely to come from payments alone. The greater opportunity is in how tokenized money supports the settlement of tokenized assets and reduces the time that risk and capital remain tied up after a trade,” says Baker. “Many of the processes that sit behind settlement remain fragmented. Cash, assets, and collateral often move across different systems, each maintaining its own view of the transaction. That limits the value that tokenized money can deliver in practice.”
Baker says the challenge is to create consistency across the transaction, establish common standards, and build a “shared foundation” to ease the tokenization process.
Anytime you reduce intrinsic friction in a financial service at scale, even if the savings per transaction are small, there can be massive opportunities for institutions.