A research paper published August 25 found that tokenized deposits could cut U.S. bank lending capacity by $580 billion under a moderate adoption scenario, roughly 5% of total bank lending. The mechanism is simple: banks lend against stable deposits, and blockchain-speed transfers make that deposit base less predictable, forcing banks to hold more reserves and lend less.
Banks lend against a basic assumption: most deposits stay put. A research paper published on August 25 tested what breaks once deposits can move at blockchain speed instead, and it put a number on the damage.
What the paper found
Under a moderate adoption scenario, covering 15% to 25% of deposits, the paper projects bank lending capacity falls by $580 billion, an amount roughly equal to the total outstanding balance of U.S. auto loans. A low adoption scenario, 5% to 10% of deposits, produces a milder $120 billion reduction that banks would likely absorb through routine reserve adjustments. At the high end, adoption reaching 35% to 50% of deposits could cut lending capacity by $1.2 trillion. The paper says that scenario could push average mortgage rates up by 15 to 30 basis points, and it could push small business loan rates up by 25 to 50 basis points.
The mechanism sits inside fractional reserve banking: banks keep a fraction of each deposit and lend out the rest, relying on the fact that most depositors will not withdraw on any given day. Basel III's Liquidity Coverage Ratio assumes retail deposits see outflows of just 3% to 10% over 30 days, which is what lets banks lend so much of that money out. Tokenized deposits threaten to push every deposit toward the outflow assumptions used for interbank transfers, the paper argues, because the technology makes any deposit as mobile as a bank-to-bank transfer.
Why speed is the variable that matters
Traditional transfers create friction that protects deposit stability: ACH transfers take one to three business days, and even the Fed's FedNow system keeps deposits inside the banking system. Tokenized deposits remove that friction entirely. On Ethereum, a transfer settles in roughly 12 seconds, and on Solana, in under a second — with funds able to leave the banking system altogether for DeFi protocols or cross-chain bridges where no bank holds the underlying balance.
That is no longer theoretical. LayerZero and Keeta launched tokenized bank deposits across Ethereum, Solana, Base, and Keeta in July 2026, covering nine fiat currencies. Regulators are pushing in the same direction. The Bank of England said tokenized deposits belong in UK payments infrastructure, and South Korea has begun trialing them for government spending.
What could change the outcome
The paper's authors note the $580 billion figure is not fixed. If banks build programmable settlement delays into tokenized deposits, or design variable-rate loan products that reprice against a more volatile deposit base, the lending capacity hit could shrink well below the moderate scenario.
Source: crypto.news
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