Tether CEO Paolo Ardoino has challenged the Bank for International Settlements’ preference for tokenized bank deposits, arguing that fully reserved stablecoins give users a stronger alternative to money held under fractional reserve banking.
Summary
- Tether CEO Paolo Ardoino challenged the BIS preference for tokenized bank deposits, arguing that fully reserved stablecoins offer users a safer alternative.
- BIS chief Pablo Hernández de Cos said stablecoins face problems with redeemability, interoperability, financial integrity and monetary sovereignty.
- Ardoino questioned why savers would keep money in fractional reserve products when stablecoins can hold reserves in liquid assets such as U.S. Treasuries.
- The debate has reached U.S. lawmakers as banking groups warn that stablecoin rewards could pull deposits from banks and reduce funds available for lending.
The Bank for International Settlements laid out the case for tokenized deposits on Aug. 28, when General Manager Pablo Hernández de Cos told the Jackson Hole Economic Symposium that stablecoins still fall short of several properties needed to function as money at scale. Ardoino responded by questioning why savers would choose bank deposits when stablecoins can hold reserves in highly liquid assets such as U.S. Treasuries.
“BIS is rightfully worried about the fact that stablecoins are exposing the emperor without clothes,” Ardoino said. “Why someone should choose to put his savings into a fractional reserve product while stablecoins are fully reserved?”
Tether CEO challenges the BIS case for tokenized deposits
Hernández de Cos argued that stablecoins face problems with redeemability at par, interoperability and financial integrity, while their use outside the United States can create concerns over monetary sovereignty and digital dollarization.
In the BIS model, tokenized deposits remain liabilities of commercial banks and settle through central bank accounts. De Cos said this structure preserves the “singleness” of money because different bank liabilities remain redeemable at par through central bank settlement.
Stablecoins work differently. A user holding USDT who needs to pay someone accepting only USDC may first need to exchange one token for the other in a secondary market, where prices can deviate from their dollar pegs, particularly during periods of stress.
Public blockchains create another concern for the BIS. Stablecoins can circulate across multiple networks and through self-custody wallets, while moving the same asset between chains can require bridges or other infrastructure. De Cos argued that this structure creates interoperability problems and makes consistent enforcement of anti-money laundering and counterterrorism financing controls more difficult.
Ardoino focused his response on the reserve structure behind the two forms of digital money. The Tether executive argued that stablecoins can be backed almost entirely by liquid reserves, including U.S. government debt, while commercial banks operate under a fractional reserve system in which only part of their liabilities are held in liquid assets.
His comments put the reserve question at the center of a debate that has increasingly divided stablecoin issuers and the banking sector as both compete to move fiat-denominated money onto blockchain networks.
Crypto.news recently examined how a tokenized bank deposit remains on the issuing bank’s balance sheet even after being represented on a blockchain. Unlike stablecoins, customer funds do not move into a separate reserve portfolio and can remain available to support the bank’s lending operations.
Tokenized deposits are moving beyond pilot programs
Banks have started building infrastructure around that model as stablecoins take a larger role in digital payments.
JPMorgan Chase, Bank of America, Citigroup and Wells Fargo are developing a shared deposit token network through The Clearing House, with a launch targeted for the first half of 2027. The planned system would initially give multinational companies access to programmable treasury and cross-border payment services.
SWIFT has pursued a similar route. In July, the financial messaging network launched a blockchain-based shared ledger with 17 major banks, including Citi, HSBC, UBS and BNP Paribas. The system was designed around tokenized bank deposits for round-the-clock cross-border payments.
Custodia Bank and Vantage Bank have taken a different approach by combining the two structures. Their dual-purpose token model is designed to operate as a bank deposit while inside the Hazel network and function as a stablecoin when transferred outside it. The Ethereum-based system has been under testing ahead of a planned fourth-quarter 2026 rollout.
Despite supporting tokenized deposits, Hernández de Cos acknowledged that the model has its own unresolved problems. No multi-bank or cross-jurisdictional ecosystem currently issues tokenized deposits through a fully interoperable framework, he said. Existing systems remain concentrated on permissioned platforms, while some designs resemble bank-issued stablecoins.
The BIS chief said stablecoins and tokenized deposits could ultimately coexist, but argued that tokenized deposits should handle most everyday payments while stablecoins serve more specialized functions.
Stablecoin growth raises the deposit flight question
Ardoino’s criticism comes as the competition for deposits has become part of the U.S. debate over crypto market structure.
Banking groups have repeatedly pushed lawmakers to tighten stablecoin reward provisions in the Digital Asset Market Clarity Act. In July, the American Bankers Association, Independent Community Bankers of America and 76 state banking associations urged Senate leaders to revise Section 404 before the legislation reached the Senate floor.
The groups argued that allowing crypto platforms to provide certain rewards on stablecoin balances could encourage customers to move funds out of traditional bank accounts. Under that argument, deposit losses could leave community banks with less funding available for lending.
Citigroup CEO Jane Fraser repeated the concern in August while supporting passage of the CLARITY Act. Fraser warned that stablecoin rewards could draw deposits away from banks and affect their ability to extend credit.
The dispute partly traces back to the GENIUS Act, which prevents payment stablecoin issuers from directly paying interest or yield to holders. Crypto exchanges and other service providers can still offer some rewards depending on how their programs are structured, leaving lawmakers and banking groups divided over where the restrictions should apply.
Hernández de Cos raised a similar funding issue at Jackson Hole. Stablecoin issuers can increase demand for government debt by placing reserves into Treasury securities, potentially lowering sovereign borrowing costs, he said. At the same time, money leaving commercial bank deposits could increase bank funding costs and eventually raise borrowing costs for households and companies.
Ardoino presented the same movement of funds from the opposite perspective.
“What happens to financial system if people start realizing that stablecoins are safer and move their savings into the better asset class?” he said. “We’re in the Find Out phase.”
USDT remains the largest stablecoin by circulation and has developed a substantial user base outside the United States. Ardoino has repeatedly positioned the token as a dollar-based savings and payments product for markets where access to U.S. dollars or conventional banking services can be limited.
Tether has pursued that market through payment and remittance investments, including its May investment in cross-border platform LemFi, which serves users across African and Asian remittance corridors.
Ardoino said some economies now rely heavily on USDT for both domestic and foreign commerce, while the BIS has warned that increasing use of dollar-denominated stablecoins outside the United States could weaken monetary policy transmission and increase dependence on external monetary conditions.
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