Why Tokenized Deposits Need Standards Before They Can Scale

The rise of tokenized deposits has triggered excitement across the banking sector, but behind the rapid rollout lies a fundamental problem: there are no shared standards governing how banks, wallets, and applications should communicate. Without these standards, tokenized deposits risk becoming a patchwork of incompatible systems.

Traditional banking already struggles with interoperability, but at least it operates within mature frameworks—correspondent banking, clearing networks, settlement rails. Tokenized deposits could recreate those same inefficiencies in digital form. A tokenized pound issued by Lloyd’s and a deposit token issued by JPMorgan may represent the same currency, yet behave like entirely different assets.

The issue goes far beyond technical integration. Each bank must implement identity verification, sanctions screening, compliance controls, and permissioning—but if everyone builds their own isolated system, liquidity becomes siloed. The result is the opposite of what blockchain promises: instead of frictionless value transfer, the industry creates walled gardens.

Two glaring gaps stand out across the industry.

Banks and wallets lack a shared protocol for transmitting payment information, compliance data, or identity proofs. When clients try to move value between tokenized deposit platforms, there is no standardized way for systems to exchange the information required to complete the transfer.

The second gap concerns administrative controls. Banks need mechanisms for freezing transactions, responding to sanctions hits, or addressing fraud. But because every institution designs these mechanisms differently, interoperability becomes nearly impossible. Businesses using multiple banks must navigate inconsistent controls, creating significant compliance risk.

Digital identity makes the problem worse. Technical identity solutions already exist, but the industry cannot agree on the basics:

Who provides the root of trust?

Where should identity registries live?

How can attestations flow across ecosystems?

With no common answers, each bank builds (yet another) closed ecosystem.

Lessons From Payments History

Every major payments innovation—credit cards, ACH, faster payments—only scaled after introducing shared clearing infrastructure. The market moved from a web of complex bilateral connections to standardized many-to-many networks.

Mathematically, this shift reduced complexity from A×B connections to A+B. That simplification unlocked global scale.

Today’s tokenized deposit landscape risks ignoring that history. Banks focus on building their own proprietary systems, implicitly assuming they can create global acceptance networks independently—something no institution has ever achieved in payments.

The Public Blockchain Challenge

Public blockchains add even more complexity. Tokenized deposits must coexist alongside stablecoins and digital assets, yet banks require strict compliance controls that don’t naturally fit open blockchain architecture.

Some banks implement permissions at the protocol level, creating private or semi-private environments. Others embed controls directly in the token itself. These approaches are mutually incompatible: a token designed for one environment often cannot operate in the other.

Scaling these systems introduces performance constraints. Whitelists that work in small networks become costly and slow when millions of users are involved. Gas fees, storage limitations, and throughput caps further restrict how identity and compliance controls can be deployed.

A Path Toward Interoperability

To scale, the industry must define a small set of shared, narrow standards—focusing on the areas where fragmentation causes the most pain.

The most urgent need is a bank-to-wallet communication protocol. Banks must be able to exchange payment instructions, compliance attestations, and identity proofs in a standardized format. Only then can tokenized deposits from different institutions coexist inside the same wallet or application.

Administrative controls also require baseline standardization. The goal is not to force every bank to implement controls identically, but to ensure systems can recognize and honor each other’s actions. A Lloyd’s token should interact seamlessly with a JPMorgan smart contract even if each institution handles permissions differently.

Market Structure Matters as Much as Technology

Technical standards alone won’t solve the fragmentation problem. The industry must also determine whether tokenized deposits will rely on bilateral relationships or shared clearing infrastructure.

Without neutral intermediaries, corporate users will be stuck managing multiple wallets, permissions, and workflows across their various banking partners. Instead of simplifying financial operations, tokenized deposits would add layers of operational burden.

Blockchain’s promise is to streamline value transfer—not multiply complexity.

The Crossroads

Tokenized deposits have the potential to reshape financial infrastructure. The technology is ready. The institutional appetite is here.

But without shared standards and interoperable market structure, this innovation risks devolving into isolated systems that are blockchain-based in name only, offering no efficiency gains over today’s legacy networks.

The industry must act collectively now—before fragmentation becomes baked into the system and the opportunity for global scale disappears.