Last week, European Banking Association (EBA) published a statement about tokenized deposits and stablecoins. Disclosure was part of an ongoing process Digital Currencies and Smart Payments Working Group (DSWG).
The statement stated that it is too early to judge how well stablecoins and tokenized deposits meet the critical success factors. These include “compatibility, security, flexibility, user experience and cost efficiency.”
The expectation is that speed and cost will increase with the emergence of stablecoins and tokenization, but the EBA remains skeptical at this point.
“As the underlying technology continues to evolve rapidly and the adoption of tokenized money spreads from global payment networks to large corporations, financial institutions must proactively evaluate and decide on their investments in this area,” said Wim Grosemans, Head of the EBA’s Digital Currencies and Smart Payments Working Group.
According to EBA, current use cases are quite marginal.
tokenovate CEO and founder Richard Baker He believes that the real opportunity in digital money and tokenized deposits lies in the payment process.
“The EBA’s analysis reflects a still-emerging market where tokenized money provides a clear advantage over existing payment mechanisms. For wholesale markets, this advantage is unlikely to come from payments alone. The bigger opportunity is how tokenized money supports the exchange of tokenized assets and reduces the time risk and capital remain tied up after a trade,” says Baker. “Many of the processes behind settlement remain fragmented. Cash, assets and collateral often move between different systems, each retaining its own view of the transaction. This limits the value that tokenized money can provide in practice.”
Baker says the challenge is to create consistency across the transaction, create common standards, and create a “common foundation” to streamline the tokenization process.
When you reduce the inherent friction in a financial service at scale, huge opportunities can arise for institutions, even if the savings per transaction are small.
