Tokenized Bank Deposits Will Not Be A Thing

The author argues that while regulatory clarity in the US may lead to increased tokenization, tokenized bank deposits are not necessarily desirable. Tokenization is a superior form factor for a digital economy, but demand is what truly matters, and tokenized bank deposits will fall short. The success of stablecoins has proven the demand for tokenized dollars, but tokenized bank deposits are inferior to tokenized money market funds in terms of yield, risk, and regulatory accommodation. Tokenized bank deposits from traditional levered banks are inferior because they pay less interest, are riskier, and require greater regulatory accommodation. Banks can't compete with tokenized money market funds, which offer higher interest rates and lower risk. The only exception is tokenized deposits from Too Big to Fail banks, which are implicitly safer due to government backing. The author concludes that tokenized bank deposits make sense only if we project the current architecture of finance onto a blockchain, but disruption rarely works that neatly. Compared to other types of dollar liabilities, tokenized bank accounts are inferior in almost every way, and big money center banks will struggle to make them work. Tokenized money market funds on public blockchains offer a superior user experience and cost compared to traditional banking.