Cash App and Alibaba Signal Blockchain-Based Settlement as Default Infrastructure

If you're reading this and still haven't signed up, click the subscribe button below!

Pssst. We also have a podcast… find that here on your favourite podcast player or here on YouTube 🙏 

Introduction

Welcome to the Tokenized newsletter, brought to you by the creators of the Tokenized Podcast Simon Taylor of Fintech Brainfood, Pet Berisha of Sporting Crypto, and Shwetabh Sameer of Molten Ventures.

We are the newsletter for institutions that need help preparing for a Tokenized future.

We run through the headlines every week, what it means for you and a market readout. Always with an institutional, business-focused perspective. 

Join us every week as we meet your Tokenization needs.

Simon’s Market Readout 💬 

The launch of Aave's consumer DeFi app with balance protection represents a fascinating shift at a distance. This is the first time I've seen something that looks like a consumer replacement to a bank that has almost no intermediary. This is entirely a front end on a DeFi protocol.

So unlike Celsius, and unlike many of the other failures in the last cycle, we're not talking about a centralized entity managing their own balance sheet and then passing on some unbelievable yield to consumers. We're talking about a protocol whose net interest margin is closer to 1% versus a bank's target NIM of 2-3%. As many readers will know, the net interest margin is the difference between what a bank can make in lending versus how much it has to pay out for its depositors as yield, less its costs.

When you put all of that together and get to the net interest margin of DeFi, why is it so low? Well, it can be so low because they have almost no costs. This is software that runs on the internet, and it builds something that looks like a private credit fund. The yield represents what's earned by lending consumer funds to borrowers, and those borrowers pay to access that lending. These protocols have run flawlessly in up cycles and down cycles. While in the last market in 2021 many entities crashed, DeFi itself did not. Aave was running absolutely fine throughout the whole thing.

And what's more, they're promoting balance protection now - up to $1 million per user, which is four times the $250,000 FDIC insurance limit. We haven't seen what this looks like with consumers holding a DeFi protocol directly and looking to earn about 5% yield, or even up to 9% through the cycle. We don't know if those rates will go down if crypto prices come down - I suspect they will. And what we don't know is if there is some major market event and something goes wrong with the Aave protocol, would that insurance pay out?

This is a fundamentally different risk model, and I think it's the first time I've seen direct-to-consumer DeFi done this way. Direct-to-consumer private credit without an intermediary that's clearly in the middle of it. What you have is the buyers of borrowing and sellers of capital on a marketplace, and a protocol that's managing that risk through over-collateralization. It looks like private credit on steroids.

If I were a bank, I'd be paying a lot of attention to this model. And if I were a non-bank fintech, I'd be looking at this and saying: is this something my users want, and are these yields sustainable? Because if you remember, in 2021 a lot of companies were adding DeFi yield to their treasury products, only to take them away when the yield went down.

So are we in a moment in time, or are we in something more durable?

Stories You Can't Miss 📰

💸  Cash App Adds Stablecoins as Bitcoin Lead Admits "I'd Build on Stablecoin Rails Today"

Cash App is launching stablecoin support in early 2026 for its ~58 million users. The mechanics: each user gets a blockchain address, stablecoins sent to that address automatically convert to dollars in the app, and dollars sent out convert back to stablecoins on-chain. The design is chain-agnostic and coin-agnostic, with USDC and Solana confirmed among initial integrations.

Key Points:

• Launch timing: Expected to be early 2026 rollout to ~58 million users

• Technical setup: Direct on/off-chain conversion between stablecoins and USD via user blockchain addresses

• Multi-chain approach: "Follow customer demand, not maximalism" with USDC and Solana confirmed

• Product bundling: Launching alongside Bitcoin Lightning payments and Moneybot AI features

• Market position: Cash App joins PayPal (PYUSD), Venmo, and Revolut in consumer stablecoin integration

The Tokenized Take:

The announcement itself isn't remarkable: every major payments app is adding stablecoins. What matters is the admission from Miles Suter, Cash App's Bitcoin Product Lead: "If I were founding Cash App today, I would build it on stablecoin rails natively."

When a product leader says "if I were starting today," they're signaling that facts on the ground have changed. Cash App built on traditional banking rails: ACH for transfers, card networks for payments, correspondent banking for cross-border. Stablecoins bypass all of it. Suter is effectively saying the infrastructure they spent years building is legacy.

This is a philosophical shift for Block. They're supporting Bitcoin. They're supporting Lightning. Now stablecoins. The Bitcoin maximalist worldview is evolving into pragmatic infrastructure opportunism.

Three questions determine whether this is strategic or reactive:

Which stablecoins at launch? USDC signals market-following. Launching their own stablecoin (Block Coin?) would represent a revenue model shift - capturing reserve interest and transaction economics instead of treating stablecoins as commodity rails.

What's the fee structure? Free P2P transfers mean replacing expensive internal settlement with cheaper blockchain rails. Fees mean feature add-on. Critically, instant payments are a major revenue line today. Stablecoins that settle instantly for free could cannibalize high-margin services.

What's the custody model? Suter stated Cash App's "long-term vision centers on self-custody," allowing users to hold funds independently. But the launch mechanics - blockchain addresses that auto-convert to dollars in Cash App - suggest the initial implementation leans custodial. Users receive stablecoins as dollar balances, not as onchain assets they control. The differences between stated vision (self-custody) and launch product (hosted conversion) reveals this is likely a phased approach. Self-custody comes later, if at all.

The Competition: PayPal launched PYUSD and captures both payment volume and stablecoin economics. Banks are exploring consortium stablecoins through Early Warning Services (Zelle's operator). Cash App is launching as an agnostic platform - maximizing optionality but surrendering issuer economics. They look like a follower, not a leader.

But execution matters. Cash App processes ~$280-300 billion in annual customer inflows. If even 10% migrates to stablecoin rails, that's ~$28-30 billion in onchain settlement flowing through consumer payment infrastructure. That volume creates liquidity, drives merchant acceptance and forces platform interoperability.

There's a market gap for the onchain, global Cash App. They have the distribution to build it. The question is whether they're building next-generation infrastructure or defending existing business models. Suter's quote suggests the former. The product launch suggests the latter.

💸 Circle's xReserve Launches to Combat Stablecoin Issuance Commodification

Circle launched xReserve on November 18, positioning it as infrastructure enabling blockchain teams to launch USDC-backed stablecoins with seamless cross-chain interoperability. Canton Network and Stacks signed as initial partners. The strategic positioning reveals defensive stance rather than market expansion.

Key Points:

• The mechanics: Circle-deployed smart contracts hold USDC reserves backing partner chain tokens at 1:1, with attestation-based minting and burning verified by xReserve API rather than third-party bridges

• Interoperability claims: Tokens launched via xReserve can transfer 1:1 with USDC across 20+ supported chains using Circle's CCTP and Gateway infrastructure, with EURC support planned

• Initial partners signal institutional focus: Canton (Digital Asset's institutional DLT) and Stacks (Bitcoin L2) represent compliant, still-scaling ecosystems - not high-throughput DeFi chains

• Permissioned onboarding: Only select blockchain teams partnered with Circle can integrate - this isn't permissionless infrastructure

The Tokenized Take:

This is Circle's response to getting commoditized out of issuance. When Hyperliquid ran a governance vote in September to replace USDC with native USDH, they exposed the fundamental economics problem Circle faces: chains with sufficient volume can now partner with infrastructure provider to issue a compliant stablecoin and redirect most reserve economics to its own token and growth. When Hyperliquid can build their own infrastructure with Native Markets and capture the spread, why would the next high-volume chain accept Circle's economics? xReserve attempts to reposition Circle from "we issue the stablecoin" to "we provide the infrastructure for your stablecoin" - the AWS playbook for when you can't stop application builders from competing with you.

Circle's Coinbase partnership demonstrates another challenge. The revenue-sharing agreement made sense when USDC was establishing market dominance, but it creates a structural disadvantage in today's issuance-as-a-service landscape. Circle can't offer competitive yield-sharing to potential partners when the majority of economics flow to Coinbase. Renegotiating now would be complex - Coinbase has built significant business around USDC reserve income, and any modification would impact their earnings.

Meanwhile, Bridge (acquired by Stripe), Agora, and MoonPay (with M0) are offering exactly what emerging chains want: branded stablecoins with faster deployment timelines and better revenue splits. Bridge's infrastructure already supports Phantom, MetaMask, and Hyperliquid - proof that standardized issuance rails work at scale. These platforms aren't constrained by legacy partnerships and can optimize purely for client economics.

So where does xReserve fit? It's Circle's attempt to occupy the middle ground. Chains that want regulatory credibility and instant access to USDC's liquidity network but aren't large enough to justify building independently now have an option. The xReserve tokens are interoperable with each other, creating potential network effects. For mid-tier chains evaluating the build-versus-partner decision, xReserve offers a faster path than Hyperliquid's approach with more brand control than standard USDC deployment.

But the constraint remains: Circle can't compete aggressively on economics. They're selling compliance infrastructure and liquidity access, not compelling revenue shares. High-volume chains may prefer to choose independence just like Hyperliquid did. Growth-oriented mid-tier chains will evaluate multi-issuer platforms with better economics. Circle's addressable market for xReserve may be narrower than they need - chains large enough to value compliance credibility but not so big to justify full independence.

The broader trend is undeniable: stablecoin issuance is commodifying. The infrastructure, compliance frameworks, and technical know-how are standardizing. Bridge's $1.1 billion acquisition validated this shift. When issuance becomes a commodity service, value accrues to distribution channels and application layers, not necessarily to the issuer. Circle's xReserve is a rational response, but success depends on whether enough chains exist in that middle - more compliance-focused for multi-issuer platforms, not large for independence, but willing to accept constrained economics for Circle's brand.

🏛️ Alibaba to Launch Tokenized Fiat Payments with JPMorgan

Key Points:

• Alibaba.com is planning to launch a tokenized fiat payment system in December using JPMorgan's technology for cross-border B2B transactions on its e-commerce platform

• The system uses tokenized USD and EUR - not stablecoins - allowing Alibaba to operate legally despite Beijing's ban on private stablecoin issuance by Chinese entities

• Separately, UBS signed a partnership with Ant International to explore tokenized deposits using UBS Digital Cash for treasury management

• Beijing previously killed Ant Group and JD.com's Hong Kong stablecoin initiatives in October 2025, citing concerns over "who controls the ultimate right of coinage"

The Tokenized Take:

Alibaba identified a compliant path through Beijing's stablecoin restrictions. A few weeks after China's stablecoin pause sidelined Ant Group's Hong Kong initiative, Alibaba announces tokenized fiat payments with JPMorgan. The distinction matters: they're not issuing stablecoins, they're using bank deposit tokens issued by a U.S. institution for cross-border commerce. Beijing halted the former; the latter remains technically permissible for business operations.

In October 2025, the People's Bank of China ordered Ant Group and JD.com to halt stablecoin work in Hong Kong, explicitly asking "who has the ultimate right of coinage?" Beijing's concern wasn't fraud - it was monetary sovereignty. When Alipay processes ~$20 trillion in transaction volume annually and wants to issue dollar-pegged tokens, that creates a parallel monetary system outside PBoC control. The digital yuan has struggled precisely because state control limits functionality compared to WeChat Pay and Alipay's user experience.

Tokenized bank deposits from JPMorgan occupy different regulatory territory. Alibaba isn't issuing currency-like instruments; they're leveraging existing banking relationships for payment infrastructure. JPMorgan issues the tokens, holds the reserves, manages compliance. Alibaba just uses them for B2B settlement on their platform. From Beijing's perspective, this doesn't challenge yuan sovereignty because it's explicitly foreign currency transactions for international commerce - activity that already happens through correspondent banking.

The framing matters. Alibaba.com's B2B platform connects Chinese manufacturers with global buyers. Those transactions already settle in USD and EUR through traditional banking rails. Tokenizing those flows doesn't create new dollar exposure - it makes existing cross-border commerce faster and cheaper. Beijing tolerates dollar usage for trade; they just won't allow private Chinese entities to create dollar-substitution infrastructure at scale.

The UBS-Ant partnership follows the same playbook. Ant International is using UBS Digital Cash specifically for internal treasury transfers across jurisdictions - operational liquidity management, not consumer payments. The regulatory framing: enterprise treasury optimization using foreign bank infrastructure, not domestic monetary system competition.

China's stablecoin ban has practical limits. Beijing can prevent domestic issuance, but it cannot block Chinese enterprises from using foreign bank tokens for international commerce without crippling cross-border trade flows. Onchain forensics suggest that Tether already processes billions through gray-market OTC channels, precisely because capital controls create demand for dollar access. Alibaba's approach makes that explicit and compliant: use regulated U.S. bank infrastructure for legitimate business transactions.

If tokenized bank deposits provide sufficient functionality for cross-border B2B payments, the use case for third-party stablecoins narrows. Merchants don't need Circle or Paxos if JPMorgan can deliver instant settlement with direct bank reconciliation. Banks are tokenizing their own deposits and competing on distribution rather than losing payment flows to crypto infrastructure.

December deployment means this infrastructure is already built. Alibaba isn't piloting; they're launching with merchant integrations and compliance approvals in place. The question becomes whether other Chinese enterprises can replicate this model, or whether Beijing will close the loophole once they recognize the scale. For now, Alibaba found the narrow path - foreign bank tokens for international trade- that keeps them compliant with Chinese regulators while accessing blockchain settlement infrastructure.

🚀 Aave Launches Neobank App - DeFi's First Real Run at Retail Banking

Key Points:

• Aave Labs announced a consumer savings app offering 5-9% yields through a neobank-style interface, opening waitlist for Apple App Store launch

• The app will connect to 12,000+ U.S. banks and debit cards, support stablecoin deposits, and provide $1 million insurance-backed protection (4x the FDIC standard)

• Users earn yield from Aave's lending protocol while Aave Labs takes a margin between underlying protocol rates and consumer-facing APY

• The launch follows Aave's October acquisition of Stable Finance, a San Francisco fintech focused on consumer savings apps

The Tokenized Take:

Aave just built the interface DeFi has needed since 2020. The protocol reports ~$70 billion in deposits, but until now those users had to navigate blockchain wallets, gas fees and protocol-specific UX. The new app abstracts all of that - bank account connection, automated deposits, instant withdrawals - while delivering yields that make traditional savings accounts look weak.

The timing puts Aave in direct competition with recent moves from crypto's largest players. Coinbase integrated Morpho in September, offering up to 10.8% yields on USDC directly in their app through DeFi lending markets on Base. Galaxy Digital launched GalaxyOne with 4-8% yields through a combined crypto-stock platform. Both represent distribution plays - existing exchanges adding yield features. Aave is building the opposite: a pure-play savings product that happens to use crypto rails.

The question becomes whether this expands DeFi's addressable market or consolidates existing users. Coinbase and Galaxy are testing whether their existing crypto users want yield products. Aave is testing whether non-crypto consumers will adopt DeFi for superior returns captured through direct protocol access rather than intermediated products.

Traditional fintech companies face a choice. Neobanks like Chime and SoFi built businesses on superior UX and slightly better rates than traditional banks. Aave just matched their interface while offering 1.5x-2x their yields through fundamentally lower cost infrastructure. Those companies either adopt stablecoin infrastructure for yield generation or accept margin compression.

Distribution via Apple's App Store, combined with Aave's VASP authorization in Europe, suggests the compliance and consumer-protection stack is mature enough for mainstream distribution - and gives other DeFi protocols a concrete regulatory playbook to follow.

If Aave adds $5-10 billion in consumer deposits over the next 12 months, expect competing consumer apps from other top-tier DeFi protocols by mid-2026. If adoption stalls below $1 billion, institutional B2B distribution stays the dominant path for stablecoin adoption

📰 Some More News:

🏦 Tokenization, Stablecoins & Finance

• Figment, OpenTrade debut Solana-based stablecoin product targeting 15% APR (Read more here)

• HSBC Makes 'Big Bets' on Blockchain With Tokenization Expansion (Read more here)

• Paxos Labs and LayerZero Launch USDG0 to Expand Global Dollar Across DeFi (Read more here)

• Toku and PDAX roll out stablecoin payroll in the Philippines (Read more here)

• TZero adds crypto and stablecoin funding (Read more here)

• Ondo wins Liechtenstein approval to offer tokenized stocks in Europe (Read more here)

• Trump International Maldives Hotel Will Offer Tokenized Real Estate Investments (Read more here)

• 'Permissionless Assets': Robinhood's 3-Phase Tokenization Plan to Disrupt TradFi (Read more here)

• Coinbase working on prediction markets website backed by Kalshi (Read more here)

• New Hampshire approves first-of-its-kind $100M Bitcoin-backed municipal bond (Read more here)

• Ethereum Foundation reveals latest work on 'Interop Layer' to make L2 ecosystem 'feel like one chain' (Read more here)

• Cboe to launch perpetual-style Bitcoin and Ether futures in US (Read more here)

• Sky authorizes up to $2.5 billion to back Obex-incubated crypto yield projects (Read more here)

• Vitalik Buterin unveils Kohaku, a privacy-focused framework for Ethereum (Read more here)

🤑 Funding and M&A

• Kraken bags $800M for expansion plans at $20B valuation (Read more here)

• French crypto banking startup Deblock raises €30m (Read more here)

• Cathie Wood's Ark Invest stocks up on Coinbase, Circle and Bullish shares (Read more here)

• 0xbow raises $3.5 million seed round for Ethereum Foundation-backed Privacy Pools project (Read more here)

• Figure Stock Jumps as Druckenmiller Invests $77M, Analysts Raise Price Targets (Read more here)

• Apex Group Said to Buy Broker Dealer Globacap for U.S. Tokenization Push (Read more here)

• Digital Asset-Focused LevelField Financial Aims to Acquire Chicago-Based Burling Bank (Read more here)

💼 Government & Policy

• US and UK revolt forces Basel to rethink brutal crypto capital rules for banks (Read more here)

• Africa Embraces Stablecoins Via IOTA to Unlock $70B Pan-Continent Trade Tech (Read more here)

• Senator Tim Scott pushes for December vote on crypto market bill (Read more here)

• Senators warn Trump-linked crypto firm may pose national security threat (Read more here)

• US Senators Call for Probe into World Liberty Financial (Read more here)

• Regulator clarifies US banks can handle gas fees using crypto holdings (Read more here)

• OCC says banks can hold certain cryptocurrencies to pay gas fees in latest guidance (Read more here)

• Canada Approves Budget That Advances Policy for Stablecoins (Read more here)

• White House moves closer to allowing IRS to surveil international crypto transactions (Read more here)

• Kenya's new crypto law faces stress test as Bitcoin ATMs appear in malls (Read more here)

• Banks' Capital Rules When Holding Crypto Need to Be Reworked, Says Basel Chair: FT (Read more here)

Thanks so much for reading the Tokenized Newsletter!

Please share this edition or share it with your colleagues if you enjoyed it!

Disclaimers