Woofun AI reports that Laurie Rosini, partner at McDermott Will & Schulte, and Morva Rohani, executive director of the Canadian Web3 Council, delineate the structural divergence between tokenized deposits and stablecoins, emphasizing that banks will retain permissioned environments for deposit liabilities while stablecoins serve open networks.

The migration of deposits onto blockchain rails is occurring within strictly controlled boundaries, not as a move toward permissionless circulation. Citi and BNY are deploying private blockchain infrastructure to manage these assets, ensuring that the underlying technology remains isolated from public access. JPMorgan has taken a different approach by launching JPMD, a permissioned deposit token operating on the public Base blockchain, yet it remains restricted to authorized participants. Regardless of the technical infrastructure, tokenized deposits remain permissioned because they represent deposit liabilities of regulated banks, a status that fundamentally separates them from stablecoins, which are designed for broader circulation.

Stablecoins function as bearer-like instruments intended to circulate in secondary markets, where the issuer's liability travels with the token without forming a customer relationship with each successive holder. The GENIUS Act imposes Bank Secrecy Act (BSA) and Anti-Money Laundering (AML) obligations on permitted issuers but does not alter this basic characteristic of circulation. Instead, it establishes a regulated payment product backed at least one-for-one by specified liquid reserves.

In contrast, bank deposits are not backed dollar-for-dollar by a dedicated pool of cash or Treasuries; a deposit is a claim against the bank itself, whose assets include loans, securities, cash, and other investments, all subject to prudential requirements. Therefore, a deposit token represents an ongoing relationship with a particular bank, not a fully reserved instrument that circulates independently, and this relationship dictates how the token can be transferred.

Compliance obligations place practical limits on the circulation of tokenized deposits, as banks must know their customers, screen for sanctions, monitor for suspicious activity, and meet recordkeeping and Travel Rule requirements. A deposit token cannot simply move to an unidentified wallet, through a decentralized exchange, and on to unknown holders, as the bank must retain control over who can hold and transfer it to satisfy these obligations. Privacy provides another constraint, particularly on public blockchains, where transaction amounts, addresses, and histories are publicly visible, and blockchain analytics can often tie pseudonymous addresses to particular entities. Institutional customers are unlikely to want competitors or other observers identifying their treasury movements, trading activity, or commercial relationships, which further reinforces the need for permissioned environments.

Settlement mechanics differ significantly depending on whether the transaction occurs within a single bank or across institutions. Between two customers of the same bank, no interbank settlement is needed, as the bank simply shifts its liability from one customer to the other, with the blockchain serving as the authoritative ledger or mirroring the conventional ledger.

However, when a payment crosses bank balance sheets, the resulting interbank obligation still requires settlement, which for domestic U.S. dollar payments can occur through Fedwire by moving reserve balances between banks, while cross-border payments may require correspondent accounts. Putting the customer-facing payment on a blockchain does not eliminate this settlement layer, as the underlying financial obligations remain tied to traditional banking infrastructure.

Interoperability protocols can connect separate permissioned networks without making either permissionless, allowing consortiums to expand the reach of tokenized assets. Participating banks can agree on customer eligibility, compliance standards, acceptance of each other's tokenized deposits, and netting and settlement mechanisms, creating a larger walled garden. This infrastructure is essential for Tokenized Treasuries, money market funds, securities, and other traditional financial assets moving onto programmable ledgers, as banks need commercial bank money that can interact with these assets and other regulated institutions. The goal is not to integrate with decentralized finance (DeFi) but to ensure that regulated institutions can operate on compatible infrastructure, maintaining control over identity, compliance, and privacy.

The long-term vision is not necessarily an open blockchain financial system but a network of permissioned environments that can communicate with one another. In this model, bank money, securities, funds, and collateral move across interoperable rails while identity, compliance, and privacy controls remain intact, as noted by Laurie Rosini. This approach allows banks to participate in the future of programmable finance without exposing their core liabilities to the risks of permissionless circulation. The focus is on creating a secure, compliant ecosystem where regulated institutions can settle transactions efficiently while maintaining the necessary controls to satisfy regulatory requirements.

Morva Rohani explains that stablecoins serve use cases that permissioned networks cannot, such as remittances, businesses in markets with limited correspondent banking, fintechs without direct access to bank rails, and tokenized markets that settle around the clock. These transactions require a settlement asset that moves without a customer relationship at each step, leading to two systems running in parallel: permissioned bank money for institutional settlement and stablecoins for open networks and retail payments. Most clients will eventually touch both systems, making the connection point critical, as value must convert between them at a specific cost and under defined compliance obligations. Converting between them today still means a fiat transfer between banks on traditional rails, which is one reason central banks are testing tokenized settlement of their own.

Woofun AI data shows that in Canada, stablecoins and tokenized deposits are on separate regulatory tracks, with stablecoins having a dedicated federal framework under the Stablecoin Act, which has passed and is now in the development phase for operational regulations. The objective is to allow domestic and foreign stablecoins to operate under Canadian oversight and provide Canadians with regulated options in Canadian dollars.

Tokenized deposits are at an earlier stage, as they fall under existing banking regulation, with open questions regarding deposit insurance coverage, inter-institutional movement, and interaction with the stablecoin regime. The Spring Economic Update 2026 initiated this work, committing the government to engage federally regulated financial institutions on the development and use of stablecoins and other tokenized assets, with targeted discussions to follow with industry, regulators, and the provinces and territories.

For advisors, the practical point is that both instruments will operate under federal oversight, but the rulebooks are arriving at different times, with stablecoin rules likely coming first, as draft regulations are expected to be published in the Canada Gazette by this fall. The treatment of tokenized deposits has a less certain timeline, but Budget 2026 will likely provide more information on the potential policy approach from the current Liberal government.

Meanwhile, Citi plans to launch bitcoin custody services through its Custody+ platform, offering 24/7 access, near-instant settlement, and secure key management for institutional clients later this year. Visa is looking for a new stablecoin settlement partner after the BVNK sale to Mastercard, and the U.S. Securities and Exchange Commission has issued a proposed rule meant to clear a path for offering crypto offerings without triggering certain regulatory demands as securities.