Citigroup Prioritizes Tokenized Deposits Over Stablecoins for Digital Finance Future

Executive Summary

Citigroup CEO Jane Fraser has positioned tokenized deposits as the foundational technology for the next generation of digital finance, citing their infrastructural advantages, reduced regulatory friction, and enhanced compliance capabilities over stablecoins. This strategic direction underscores Citi's commitment to institutional digital asset innovation, building upon its Citi Token Services (CTS) platform and Citi Integrated Digital Asset Platform (CIDAP) to facilitate 24/7 financial operations and asset tokenization.

The Event in Detail

Jane Fraser, CEO of Citigroup, recently articulated a clear preference for tokenized deposits over stablecoins as the driving force for digital finance. Her assertion centers on the belief that tokenized deposits, digital representations of existing bank money, offer a superior framework for the financial sector’s digital evolution. Fraser emphasized that these deposits provide faster, safer infrastructure with significantly fewer anti-money laundering (AML) and compliance burdens compared to stablecoins. While acknowledging the attention given to stablecoins, Fraser stated that the financial industry has an "overfocus" on them. This perspective is supported by Citi's ongoing expansion of its tokenized services, including a 24/7 dollar clearing network and exploration into the tokenization of equities and commodities. Internally, Citi's efforts are underpinned by CIDAP, which serves as a unified foundation for various digital asset initiatives, enabling the tokenization of money, securities, and other assets directly integrated with Citi's existing products. The Citi Token Services (CTS) platform, operational in four markets, exemplifies this by using blockchain technology for instantaneous cross-border payments and liquidity transfers, offering a real-time alternative to traditional systems that can take days.

Financial Mechanics: Tokenized Deposits vs. Stablecoins

The distinction between tokenized deposits and stablecoins lies primarily in their regulatory and structural underpinnings. Tokenized deposits, as highlighted by JPMorgan analysts, retain the robust protections of traditional commercial bank deposits, including deposit insurance, capital requirements, lender of last resort support, and adherence to AML/Know Your Customer (KYC) rules. They gain programmability and blockchain interoperability while operating within a regulated banking framework. Regulators, particularly outside the United States, such as the Bank of England, show a clear preference for tokenized bank deposits, especially the non-bearer versions, which are settled between banks at par. This preference stems from the desire to preserve the "singleness of money," ensuring all forms of money are interchangeable at face value. Conversely, stablecoins, especially bearer-style ones, can exhibit volatility and drift from their peg due to market factors, credit risk, or liquidity imbalances, as observed during past crises involving entities like Terra, FTX, and Silicon Valley Bank.

Despite the U.S. GENIUS Act of 2025 providing regulatory clarity for stablecoins by classifying them as non-securities and mandating 1:1 reserve backing, the underlying preference from institutional players like Citigroup and global regulators leans towards the more integrated and regulated nature of tokenized deposits. Approximately 90% of stablecoin activity is estimated to be related to crypto trading, with only about 6% used for real-world payments, further underscoring their limited direct utility in traditional financial operations compared to the potential of tokenized deposits.

Business Strategy & Market Positioning

Citigroup's strategy under Jane Fraser signals a calculated move to integrate digital assets directly into core institutional banking operations, distinguishing it from approaches focused on retail cryptocurrency. The bank's Treasury and Trade Solutions (TTS) segment has become central to this shift, leveraging blockchain, tokenization, and programmable money for real-time, cross-border liquidity and payments. Citi's investment in the London-based stablecoin firm BVNK through Citi Ventures further demonstrates its interest in digital dollar technology, aligning with the increased regulatory clarity brought by the GENIUS Act. This strategic positioning contrasts with, yet complements, other major banks like JPMorgan, which launched its JPM Coin (a stablecoin-like deposit token), and HSBC, which has a tokenized deposit service. Bank of New York Mellon is also exploring tokenized deposits. Citi's focus on institutional, balance-sheet-backed tokenization aims to enhance the speed, transparency, and resiliency of existing financial infrastructure, aligning with its reported 9% revenue surge to $22.1 billion in Q3 2025, partially attributed to investments in digital assets and technology.

Market Implications

Citigroup's definitive stance on tokenized deposits is expected to have significant implications for the broader digital asset landscape. This institutional endorsement is likely to accelerate the development and adoption of tokenized deposit infrastructure within traditional finance, potentially redirecting focus and capital away from unregulated stablecoins for mainstream corporate applications. The emphasis on regulatory compatibility and existing protections offered by tokenized deposits may encourage regulators globally to prioritize and finalize frameworks that support their proliferation. For the Web3 ecosystem, this could mean a shift towards enterprise-grade blockchain solutions and programmable finance within regulated environments. Corporate treasuries, currently identified as a bottleneck for 24/7 finance readiness, will face increasing pressure and opportunity to adapt, leveraging the efficiencies offered by tokenized deposits for liquidity management and cross-border transactions. This institutional pivot could ultimately solidify investor sentiment around the long-term viability of regulated digital assets in traditional finance, contrasting with the more volatile and speculative aspects of the broader cryptocurrency market.