By Evan Sparks
The first two months of 2026 were dominated by a debate in Congress over a loophole in the Genius Act. The plain text prohibits paying of interest on payment stablecoins, but stablecoin issuers tried getting around that by offering “rewards” through partners. The Genius Act envisions stablecoins as a payment mechanism, not a store of value equivalent to a bank deposit or an investment.
Understanding the terms — A payment stablecoin is a pretty narrow slice of the digital assets world. It is a digital token that is fully reserved on at least a one-to-one basis. And those reserves that are high-quality liquid assets have to be held in custody. They cannot be lent against. So while it feels like a deposit in many ways, there are really fundamental differences that make it very different from a bank deposit.
Another key aspect of tokenized deposits that I think is really important, that makes them very different from payment stablecoins, is the applicability of FDIC deposit insurance. A tokenized deposit represents an actual deposit. It would have all of the features of a deposit, including being eligible for FDIC insurance, as that deposit would in the ordinary course.
— Brooke Ybarra ABA’s SVP, innovation and strategy
The debate continues. Bankers have sent tens of thousands of messages to Congress to send a clear message that any so-called market structure legislation must close the loophole. As leaders in Congress listened to the feedback, they amended draft legislation — to the point that one of the top crypto CEOs pulled his support for the bill. With further action on Capitol Hill paused (at least when this article went to press), negotiations and conversations have shifted behind the scenes.
Perhaps for convenience or perhaps due to the inherent drama in the framing, many in the media have described this as a battle of banks versus crypto. But while that framing may drive clicks, it doesn’t accurately describe how banks are approaching stablecoins and other digital assets.
Many banks see these technologies, plus the regulatory clarity that is coming soon under the Genius Act and growing consumer interest, as a sort of kairos moment. For many banks, the time is propitious to move. Stablecoins are getting the headlines, but there are other ways of tokenizing money that offer similar features. “A tokenized deposit represents an actual deposit,” says ABA SVP Brooke Ybarra. It deploys the same underlying technology that stablecoin providers use to issue their tokens, but without the risks associated with deposit runoff.
As the policy debate goes on, banks of various sizes are moving past experimentation and into development and deployment of their own plays in digital asset arena. They are launching new digital deposit platforms, partnering with other banks to create shared coin platforms, and opening up new lines of business serving the burgeoning stablecoin sector.
Tokenizing bank accounts
Top use cases projected for Stablecoins- Cross-border transactions
- Smart contracts and programmability
- Reducing interbank transaction costs and time
- Merchant payments
In 2022, VersaBank launched a tokenized deposit pilot in Canada called “digital deposit receipts,” or DDRs. “A key difference for our offering is that we maintain the customer records on our own core system,” says David Taylor, VersaBank’s founder and president. “This is a digital reflection of evidence of having a real deposit with a real bank, as opposed to those that may be using the blockchain exclusively for their record-keeping,” he notes. In one sense, Taylor views the DDR solution as simply the next step on the journey from passbooks to certificates to digital records. DDRs are hosted in VersaVault, the company’s so-called digital vault for secure storage of highly sensitive documents and assets.
VersaBank also offers reward points with its DDRs, which — because they are bank deposits — clients are eligible to receive, unlike with stablecoin holdings. VersaBank is itself a B2B bank, Taylor notes, but its corporate partners reach the retail market — for example, VersaBank partners with several large Canadian banks’ investment arms, and the DDR product can be made available for consumers to access through their investment advisers’ platforms. “The holder gets not just the safety, soundness, security and interest of a bank, plus insurance, but they also have the functionality of a stablecoin,” Taylor explains.
For Taylor, the appeal of a tokenized deposit in the U.S. is that it can provide both interest under the Genius Act and the comfort of FDIC insurance. “It’s a real bank deposit, and it’s just as transferable to use for a payment vehicle.”
The appeal of rewards on tokenized deposits for VersaBank’s partners—which include large retailers—is what Taylor calls “a very easy-to-administer loyalty program” that fuels the bank’s deposit growth on a nationwide basis.
VersaBank intends to license and deploy DDRs through a network of bank partners, each of which would retain the deposits on their own balance sheet while employing the VersaBank interface.
Another use case commonly cited by digital asset advocates is cross-border payments and settlement. As a bank that operates in both Canada and the U.S., VersaBank’s DDRs are available in both currencies and can be used to conduct real-time settlement of payments. Taylor notes that “in the blockchain transfer, there’s cents versus dollars” compared to a wire transfer.
Taylor thinks that a tokenized deposit product is what community banks have been looking for—something that gives consumers the functionality they desire but that allows the banks to “hang on to their deposits and fund their borrowers as they have since the beginning of banking.”
Reducing interbank friction
The Bank of North Dakota is an unusual bank. Part bankers’ bank, part economic development agency and part miniature Federal Reserve, BND is the only state-owned bank in the U.S., and it has a mission of serving both the state government’s financial needs and complementing the loan capacity of the state’s 91 community banks and credit unions. (See the November/December 2019 issue of the ABA Banking Journal for more on BND’s centennial.)
North Dakota banks rely on $11 billion-asset BND for help to navigate the fintech marketplace, says President and CEO Don Morgan. “The Genius Act was really a jumping-off point.” Once the legislation passed, that laid the groundwork for banks of all sizes to experiment with payment stablecoins within the regulatory perimeter.
“We’re less interested in the digital asset piece of stablecoins,” Morgan adds. “We’re much more excited about the banking transaction framework evolution that we can do with the tools like a Genius-compliant stable token.”
Morgan rehearses the history of payments, noting that much of the banking industry’s payment rails—for all of the robust investment in security, capability, resilience and end-user experience—remains built on half-century-old payment rails. “Banking needs to evolve and move into on-chain payment rails for banking, so we can get the value that those on-chain payment rails are promising to provide.”
To deliver that option for North Dakota banks, BND is developing RoughRider Coin. Named in honor of Theodore Roosevelt — who spent several formative years in his 20s ranching in the Badlands of the Dakota Territory — the token is being built on Fiserv’s white-label FIUSD stablecoin product.
RoughRider Coin will roll out in a series of phases, Morgan explains. Phase one will involve bank-to-bank transactions within North Dakota — for example, loan payoffs as part of a refinancing. The digital token can replace cutting a cashier’s check, which is still used for loan payoffs, Morgan says. Another phase one project involves loan participations. BND is famously not a direct lender—instead, it participates in loans originated by local banks and credit unions, amplifying their loan capacity. BND does $2 billion worth of loan participations each year, which involves “all of that back and forth with payments, P&I, splits, interest only, construction draw advances, line of credit advances, splitting among us and other participants,” Morgan says — all of it managed on Excel spreadsheets, batch files and ACH wire lines. “Eventually, we believe it can all go on a RoughRider Coin payment rail, and you get that instantaneous 24/7/365, you can do away with Excel, you can do away with batch files — with no float.”
Morgan also envisions integrating so-called smart contracts — self-executing loan terms via blockchain — for promissory notes, loan agreements and covenants “are smart contacted right on the blockchain, and they automatically trigger.”
The second phase—once banks get comfortable with using RoughRider Coin—is to move toward adoption by sellers in the marketplace. “At some point, banks, commercial and ag customers are going to want those value-adds from a payment rail on-chain in stablecoin, because they get global settlement, currency on-and-off-ramps, instantaneous settlement, 24/7/365-day access—things they can’t get now,” he explains. The goal here: If and when clients want to transact on-chain, the bank won’t lose the client to another bank or a nonbank.
Does every bank need its own stablecoin? “Ideally, we wouldn’t have 91 financial institutions creating their own stablecoin, their own on-chain payment rail, then trying to make them all interoperable,” Morgan says. “That’d be inefficient, ineffective and expensive.”
And how does this intersect with tokenized deposits? Morgan notes that there is potential to tokenize a deposit initially within a bank, switch it into RoughRider Coin, do the transfer instantly, then switch back into a tokenized deposit at the other bank.”
Custody play
Minneapolis-based U.S. Bank is one of the nation’s largest custody banks with more than $12 trillion under administration. It was also one of the first American banks — as early as 2021 — to custody bitcoin for its fund and institutional clients. Last fall, the company brought back bitcoin custody services, which had been paused due to regulatory uncertainty — and expanded them to include bitcoin exchange-traded funds.
Stablecoins and digital assets were next. Speaking at the Clearing House’s annual conference in New York late last year, Chairman and CEO Gunjan Kedia joked that stablecoin as a payment mechanism is “like a new baby” — lots of potential, but not much current practical use. “We don’t have any consumers walking into the branch and saying, ‘Hey, where’s my stablecoin,’” she said.
As a result, the bank is leaning into experimenting with the stablecoin ecosystem through its custody business. In late 2025, the bank announced that it would begin offering custody services for stablecoin reserves, the cash-equivalent assets that are designed to ensure stablecoins never “break the buck.” (In early 2026, VersaBank made a similar announcement for a solution in Canada.)
“It was a super easy decision for us,” says U.S. Bank Vice Chairman Stephen Philipson. “There are these high-quality assets backing the stablecoin, and we’re just providing that same custody service that we would for any other institutional holder of assets, like a pension fund or a government or a corporation.”
U.S. Bank launched with Anchorage Digital Bank, a stablecoin issuer that holds an OCC charter.
Stablecoins may be intriguing to consumers who have dabbled in crypto, but the entire crypto sector is continuing to build confidence among the broader market. As a result, “there’s this level of assurance that people need, which is part of the whole rationale behind a stablecoin,” says Philipson. Banks’ reputation for stability can help provide that assurance. “You do get this sort of added golden stamp when you have a high-quality, large financial institution providing that assurance that those assets that are supposed to be underlying the stablecoin are actually there.”
Philipson has a historical perspective. “Corporate trust came around during the [California] Gold Rush, because there needed to be these assurance around the gold claims and the gold moving in and out of banks,” he says. And after the market crash of 1929, with mutual funds, “people wanted a fund administrator to check the accounting and make sure that the assets were actually there. That’s the way we look at this industry as it develops, stablecoin and the cryptocurrency spaces. There’s value in that third-party assurance as the asset class develops.”
Ongoing challenges
One question about this future: If stablecoins proliferate, what does that do for interoperability? “It might start out with lots of different chains, with all the merchant adoption stuff they’re all working on,” says Morgan. “But at some point, unless that interoperability is absolutely seamless, it’s probably going down to a smaller number of chains with true interoperability, and that’s what we’re hoping to be a part of.” Coins built on FIUSD are interoperable with each other, says Sunil Sachdev, head of embedded finance and digital assets at Fiserv.
Another big challenge for companies active in digital assets is the speed of change. At Fiserv, launching FIUSD was a big shift. “A service provider would have commercialized something once banks demanded it,” says Kim Ford, SVP for government relations. “Faster payments shifted that model. We’re not doing this because banks’ customers are demanding it — we’re doing it so our bank and credit union clients will be equipped when the customer base does demand it.”
And that assumes that bankers eventually know what they want to do with the assets in question. One bank CTO I spoke with said the bank was doing a stablecoin pilot, not because they knew what they wanted to do with it but because they didn’t want to be left behind if and when it picks up steam. Tokenized deposits get less of the ink but they have more utility to banks. Indeed, today’s interest in stablecoin “may be the bridge” that leads the industry toward tokenized deposits, Ford says.
A final obstacle? Federal agencies have yet to finish writing several rules implementing the Genius Act. The FDIC recently delayed its comment deadline until May. While many banks have announced stablecoin pilots, including U.S. Bank, Philipson says that his bank “won’t do anything until there’s sort of regulatory clarity coming out of the Genius Act in terms of what we can do.”
Preserving what makes banks unique
The banks that are experimenting in this area are clear that they view their purpose as complementary to banks. “We’re not looking to take any deposits and liquidity out of our North Dakota banks,” remarks Morgan. “That’s actually against our founding principles and documents. We are not to compete with our North Dakota financial institutions, and from a business standpoint, we just wouldn’t anyway.”
For Morgan, the interest is much more in the potential of the underlying payment rail and transaction framework. And BND is aiming to deliver its first successful transactions this summer after careful planning and testing.
“We’re looking at it as a way to at least allow our banks to compete in the space,” says Morgan. “They will have the tools to compete in the space, if they so choose.”
Access ABA resources on digital assets at aba.com/stablecoin.
