Tether CEO Paolo Ardoino has pushed back against the Bank for International Settlements’ (BIS) preference for tokenized bank deposits, arguing that fully backed stablecoins offer a stronger and safer alternative to traditional bank deposits.
The debate began after BIS General Manager Pablo Hernández de Cos said stablecoins still face major challenges, including redeemability, interoperability, financial integrity, and concerns over monetary sovereignty. He argued that tokenized bank deposits are better positioned to function as money at scale because they remain connected to the traditional banking system and central bank settlement networks.
Ardoino responded by focusing on a different issue: reserves.
According to the Tether chief, stablecoins can be fully backed by highly liquid assets such as U.S. Treasury bills, while traditional banks operate under a fractional reserve system, where only a portion of customer deposits is held in liquid form.
He questioned why people would choose to keep their savings in a fractional reserve banking system when fully reserved stablecoins are available.
Ardoino argued that stablecoins are exposing weaknesses in the current financial model, suggesting that users may increasingly prefer digital assets backed by liquid reserves rather than bank deposits that are partially lent out.
The BIS, however, maintains that tokenized deposits have important advantages. Under its model, tokenized deposits remain liabilities of commercial banks and can be redeemed through central bank-backed settlement systems. The organization believes this structure helps maintain trust and consistency across the financial system.
The BIS also raised concerns about stablecoins operating across multiple blockchains, saying that transfers between networks can create interoperability challenges and make regulatory oversight more difficult. It further warned that widespread use of dollar-backed stablecoins outside the United States could increase dependence on the U.S. dollar and weaken the effectiveness of local monetary policies.
Meanwhile, major banks are moving ahead with their own tokenized deposit projects. Institutions including JPMorgan Chase, Bank of America, Citigroup, and Wells Fargo are developing a shared deposit-token network aimed at improving cross-border payments and treasury operations. Other banking groups and financial networks are also building blockchain-based systems centered on tokenized deposits.
At the same time, stablecoins continue to grow rapidly. The expansion of the sector has fueled concerns among banks that customers could move money away from traditional accounts and into digital dollar products.
Several U.S. banking organizations have warned lawmakers that stablecoin reward programs could encourage deposit outflows, reducing the funds banks use to provide loans to households and businesses. Similar concerns have been raised by banking executives who argue that large-scale migration from bank deposits to stablecoins could increase funding costs across the financial sector.
Ardoino sees the situation differently. He suggested that if consumers begin viewing stablecoins as a safer place to store value, the movement of funds away from traditional banking products could accelerate.
The discussion highlights a growing competition between stablecoin issuers and banks as both sides race to bring dollar-based financial services onto blockchain networks. While the BIS believes tokenized deposits should become the primary form of digital money for everyday use, stablecoin advocates argue that fully backed digital assets provide a more transparent and secure alternative.
For now, both models continue to develop in parallel, with regulators, banks, and crypto companies debating which approach will play the larger role in the future of digital finance.
