🎙️ Ep. 58. Banks Are All in on Tokenized Deposits

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This week's episode features two guests joining Cuy Sheffield. Sam McInvale serves as Head of Product at OP Labs PBC, the team building the technology that powers Optimism, the leading blockchain infrastructure provider enabling developers and enterprises to build the next generation of onchain applications. Lesley Chavkin brings deep regulatory expertise as former Head of Global Policy at Paxos and recently joined Ribbit Capital.

Together, they unpack how traditional finance is rapidly moving onchain through tokenized deposits, what institutional adoption requires from both infrastructure and regulatory perspectives, and why the industry's messaging shift from "DeFi" to "financial infrastructure" matters for enterprise adoption.

🎙️Listen to the full episode here on your favorite podcast app or 📷 watch on YouTube.

Key Takeaways

Traditional Finance Moves OnChain With Bank-Led Infrastructure

The clearest institutional signal from this week came through Alibaba's commitment to use JPMorgan's tokenized deposit platform for cross-border payments. As Sam McInvale from OP Labs noted, "Financial companies and products are moving onchain... there is a trend where just financial companies and products broadly are moving onchain." The distinction between tokenized deposits and stablecoins continues to sharpen, with major banks like JP Morgan choosing to tokenize existing deposit bases rather than launch competing stablecoin products.

Lesley Chavkin captured the strategic dynamic driving this shift: "I wish I could see a chart of how many times banks talked about tokenized deposits before and after the GENIUS Act passed. Because I feel like once it was passed and it was like, who needs stablecoins? We're going to tokenize deposits." But she emphasized these aren't competing products, they serve different use cases. "I think tokenized deposits existing within a bank's ecosystem, right? When it moves outside of JP Morgan and goes to another institution, I think then what's where you may see some frictions that may be a better use case for stablecoins."

The infrastructure implications remain significant. Sam explained the TAM calculation banks are making: "I'm guessing there's way, way, way, way more bank deposits in the world, and I expect that folks like JPMorgan, Alibaba, who have banking entities that have large bank deposits, sort of look at the TAM available to them of doing something with their existing bank deposits, versus doing something with stablecoins, which is going to be a net new product that they need to drive dollars into."

The Critical Open Question: Can Tokenized Deposits Circulate Globally?

A technical and regulatory question continues to define whether tokenized deposits will truly compete with stablecoins. As Cuy noted, JPMorgan's deposit token includes an allowlist in the smart contract, restricting transfers to directly onboarded customers. The unresolved question: "Can a tokenized deposit be transferred outside the bank if JPMD wanted to? Could they just take the allow list off of it, and could they let a JPMD deposit circulate globally, the same way that a stable coin would and be traded on an exchange and not be tied to a customer?"

The answer appears to be no, for now. Traditional deposit structures require clear customer relationships and KYC before providing deposit accounts, even when blockchain technology serves as the ledger. But this raises another strategic question: if the GENIUS Act allows banks to issue stablecoins backed by high-quality liquid assets including deposits, "couldn't you theoretically have a bank issue a stablecoin that is just 100% backed by deposits? And so, like, what's the difference between a bank issued stablecoin, 100% backed by deposits and a tokenized deposit?"

Institutional Yield Products Navigate Volatility and Liquidity Premiums

The launch of a 15% yield product combining Solana staking with perpetual futures signals how crypto-native mechanisms are being packaged for institutional allocators. The product addresses two core institutional concerns with native staking: price volatility and liquidity lockups.

Sam explained the traditional staking challenge: "If you're going to stake, your tokens are going to be locked up for some amount of time. It might take you some time to unlock them, depending on the nuances of the protocol. So again, if you're an institution here, you're looking at like all of this volatility, but also now a liquidity premium." The new structure attempts to smooth both issues - offering USDC in, USDC out with hedging to neutralize price swings in the underlying SOL.

On the sustainability of the 15% rate, Sam noted skepticism: "15% seems like a high number. You tend to not see that in those sort of, like traditional instruments that you might use to go get yield... I wouldn't be surprised if that is subsidized in some way, because crypto.com and other folks involved here want to go out and aggregate deposits they're willing to pay for them."

Language Matters: From "DeFi" to "Financial Infrastructure"

The terminology shift from decentralized finance to blockchain-based financial infrastructure reflects strategic positioning for enterprise adoption. Sam articulated why the reframing works: "The language that we found resonates best with sort of fintechs, banks, existing financial institutions, is just financial infrastructure or financial technology. We believe, and like I think we can assert that crypto rails are better financial infrastructure, better financial technology to build financial products on top of than anything that's existed prior."

He outlined the specific advantages that resonate with traditional players: "They're 24/7, they're natively auditable, they're natively cross border. They're also very composable. You can pull something like Morpho running on the OP stack and use that very quickly to set up a crypto back loans product, versus building a proprietary, siloed back end to do all that work yourself."

Lesley confirmed this messaging evolution: "I think it's actually less about the ideology, and more that they see some real business use case here, and they want to move forward with it. And I think for a lot of big institutions, there is this sense of FOMO, for lack of a better term, that they were really kept out of this experimentation for quite a while, and now they're having to play catch up, so they're trying to go in there as fast as they can to see what's possible."

Privacy Emerges as the Next Critical Infrastructure Layer

As tokenized deposits and onchain financial activity scale, the transparency of public blockchains creates new privacy concerns for enterprise users. Lesley framed the regulatory perspective: "From the regulatory perspective, I think one advantage that is pretty clearly acknowledged in the policy space with all of this blockchain innovation is the transparency, right? I used to work at the Treasury Department, and I worked on illicit finance issues. You can't track cold, hard, physical cash... It's completely different when you're in the blockchain space, where you do have this transparency, that's great for law enforcement."

But she noted the challenge ahead: "The average person probably doesn't want the world to be able to figure out how many times they've ordered from DoorDash, right? Like they don't want that out there. That's not what they have with their current financial products and services."

Sam indicated technical solutions are closer than many realize: "I think we're basically there. The Op stack supports a myriad of different ways to implement privacy today... from everything fully shielded and opaque... to selectively shielding various pieces of a transaction, all the way to like more bespoke privacy pools." He highlighted the most promising approach: "Selectively transaction data that is sort of like selectively shielded and revealable to certain folks, whether that's a sequencer, validators, other trusted entities... hopefully the vast majority of information on the blockchain is still public. That's kind of the point. But those really key pieces of transactions, or transactor information... How can we shield those and make them private?"

The convergence of bank-led tokenization efforts, institutional yield products, clearer regulatory frameworks, and emerging privacy solutions suggests 2025 may mark the year blockchain infrastructure transitions from crypto-native experimentation to core enterprise financial rails.

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