DALLAS — Widespread adoption of tokenized bank deposits could significantly reduce U.S. banks’ capacity to fund longer-term loans and potentially increase borrowing costs for consumers and businesses, according to a new analysis from the Federal Reserve Bank of Dallas.
The Dallas Fed analysis estimates that a 10% increase in the interest-rate sensitivity of deposits could reduce banks’ appetite for duration risk by about $700 billion in 10-year-equivalent terms.
A separate scenario found that a 10% reduction in the average amount of time deposits remain at banks could shrink the banking system’s maturity-transformation capacity by about $580 billion in 10-year equivalents.
The findings were published Aug. 25 by Dallas Fed researchers Rosie Levy and Srini Ramaswamy, who examined how large-scale adoption of tokenized deposits could affect bank liquidity and maturity transformation — banks’ practice of using deposits to finance longer-term assets such as loans.
Researchers Share Caution
The researchers cautioned that tokenized deposits remain in the early stages of development and that the magnitude of their potential effects is uncertain.
Tokenized deposits are traditional bank deposits represented on distributed ledgers, such as blockchains. Unlike stablecoins, tokenized deposits remain within the existing banking regulatory framework and can pay interest to depositors, according to the Dallas Fed.
Their ability to move rapidly, however, could change the behavior of bank deposits.
What Instant Settlement Would Do
The Dallas Fed said instant settlement could allow depositors seeking higher yields to move money from one bank to another almost immediately. Agentic artificial intelligence combined with programmable deposit tokens could potentially automate those movements without requiring depositors to take direct action.
That could make deposits less “sticky,” meaning funds that banks historically have been able to count on remaining relatively stable could become more sensitive to interest rates and easier to move.
The implications could be significant because deposits support much of the banking industry’s ability to make longer-term loans.
What the Estimates Reveal
Using Federal Reserve H.8 data, the Dallas Fed estimated commercial banks had about $25.7 trillion in assets as of July 15. Researchers calculated approximately $7 trillion in 10-year-equivalent asset-side duration exposure.
About $5.8 trillion of that exposure, or roughly 80%, is supported by the duration characteristics of deposits, according to the analysis.
The Dallas Fed estimated the aggregate duration of banks’ deposit base at approximately 2.8 years. Assuming deposits have a weighted average life of five years, that would imply an aggregate deposit beta — a measure of how much deposit rates change in response to market interest rates — of about 0.44.
Tokenization could push both measures in a direction that makes it more difficult for banks to fund longer-term assets, according to the Dallas Fed.
Shortened Average Life
Faster movement of deposits could shorten their average life, while greater competition for deposits could make rates more sensitive to changes in market interest rates.
Banks could respond by changing their pricing or relying more heavily on longer-term debt rather than deposits to support lending, the researchers said.
But replacing deposits with wholesale debt could make lending more expensive.
The Dallas Fed said lending funded through wholesale debt would more closely resemble the economics of nonbank financial firms and would “likely adversely impact the cost of credit for consumers and businesses.”
Banks Could Hold More Liquid Assets
Tokenized deposits could also prompt banks to hold more highly liquid assets rather than loans, according to the analysis.
Banks maintain portfolios of high-quality liquid assets to meet regulatory requirements and prepare for potential deposit withdrawals. Because tokenized deposits could be transferred virtually instantaneously, widespread adoption could increase the volatility of deposit balances and uncertainty about potential outflows.
The Dallas Fed said banks might respond by increasing holdings of reserves and U.S. Treasury securities that can provide immediate or near-immediate liquidity.
Brazilian Facts
Evidence from Brazil’s instant-payment system offers one indication of how faster payments could affect banks, the researchers said.
Brazil launched its Pix instant-payment system in 2020. By the first quarter of 2026, it had about 200 million active users and was processing approximately $650 billion in transactions per month, according to the Dallas Fed.
The Dallas Fed cited 2025 research finding that greater use of Pix increased banks’ demand for liquid assets, particularly government securities, while reducing credit intermediation.
The researchers said those findings are consistent with some of the potential consequences of widespread tokenized-deposit adoption in the United States.
The Dallas Fed stressed that tokenized deposits remain at an early stage and that existing instant-payment systems are not perfect comparisons.
Still, researchers said widespread adoption could have implications extending beyond individual banks, including effects on payment systems, monetary policy, differences between large and small banks and the Federal Reserve’s role as lender of last resort.
“Tokenized deposits are in the early stages of development in the U.S., and how design and implementation proceed now may well bear on their end state,” the researchers said.
