Omid Malekan Argues Stablecoins Offer Superior Utility and Safety Compared to Tokenized Deposits
A growing number of banks are experimenting with tokenized bank deposits — blockchain-based representations of traditional bank balances — but not everyone is convinced. Omid Malekan, adjunct professor at Columbia Business School, has raised doubts about the long-term viability of the concept, arguing that stablecoins remain a far more functional and flexible alternative.
Malekan explained that tokenized deposits lack the openness and composability of stablecoins, making them limited in real-world usability. “Tokenized bank deposits are like a checking account where you could only write checks to other customers of the same bank,” he said. “Such a token can’t be used for most activities — it’s useless for cross-border payments, can’t serve the unbanked, doesn’t offer composability or atomic swaps, and can’t be used in DeFi.”
The debate also ties into the rapid growth of the real-world asset (RWA) sector, projected by Standard Chartered to reach $2 trillion by 2028. Malekan warned that tokenized deposits could struggle to compete with yield-bearing stablecoins, which are finding ways to pass interest to users despite regulatory restrictions under the GENIUS Act.
Stablecoins Provide Safer and More Versatile Alternatives
According to Malekan, overcollateralized stablecoins — those backed 1:1 by cash or short-term Treasury assets — are safer from a liability perspective than fractional reserve banks, which would issue tokenized deposits. This structural difference, he argues, positions stablecoins as a superior form of digital money.
Stablecoins’ composability — their ability to interact seamlessly across decentralized applications — makes them invaluable to the digital economy. By contrast, tokenized deposits remain restricted within permissioned systems, subject to know-your-customer (KYC) and anti-money-laundering (AML) controls that limit innovation.
“Stablecoins are already integrated into global payment and DeFi systems,” Malekan noted. “Tokenized deposits, on the other hand, remain siloed and offer no real advantage to users.”
Competition Intensifies as Yield-Bearing Stablecoins Emerge
Meanwhile, the banking lobby continues to resist yield-based models, fearing they could erode traditional banks’ market share. Austin Campbell, a professor at New York University, criticized banks for using political influence to protect profits at the expense of retail customers.
“The market is voting with its wallet,” Malekan concluded. “Users prefer digital assets that are open, usable, and yield-generating — and that’s something tokenized bank deposits simply can’t offer.”
Disclaimer
This content is for informational purposes only and does not constitute financial, investment, or legal advice. Cryptocurrency trading involves risk and may result in financial loss.