The Tokenization Bifurcation
A Texas community bank shipped a dollar that can be a bank deposit and a stablecoin. Why it has to be both tells you a lot about what the rules are doing to the singleness of money.
Vantage Bank is a $4.8 billion lender out of Texas, and roughly a third of its customers do part of their banking across the border in Mexico. By its own account it pushes billion dollars a year into the country, which I suspect makes it one of the larger conduits for payments into Mexico anywhere. A bank like that has more to fear from stablecoins than most, because moving money across a border cheaply is the one thing stablecoins are already good at, and the dollars that walk out of a Vantage account into a stablecoin wallet stop funding Vantage’s loans the moment they leave.
So Vantage, with the Wyoming crypto bank Custodia handling the stablecoin issuance and the onchain machinery, built a token that is two things at once. Held by a member bank it is a deposit, sitting on a balance sheet, FDIC insured. Sent to an outside wallet the same token becomes a stablecoin, reserved one for one in cash and short Treasuries. It does not get redeemed and reissued at the border. The one smart contract relabels it as it crosses, and relabels it back when it returns to a member bank, so the customer’s relationship with the bank survives a trip out onto Ethereum instead of leaking to whoever issued the stablecoin they would otherwise have bought. The thing has been running on Ethereum mainnet since the spring, with a wider set of community banks due to join this year.
It really is a clever piece of work, and I definitely tip my hat to the team, but the cleverness is also just worth just slowing down on, because I think it can be easy to miss what the token is actually for.
What the token is really doing
I guess the standard reading is the one I gave above, a bank protecting its deposit base from a cheaper cross border rail. True, as far as it goes, but I think it may miss the bigger thing. What Vantage has built is the first serious attempt I have seen to manufacture the singleness of money privately, without the central bank underneath it.
Singleness is the property that a dollar is a dollar whatever form it takes, that the dollar in your bank account, the dollar in your wallet, and the dollar a stranger hands you all exchange one for one without anybody stopping to check whose dollar it is. There is no exchange rate between a Chase dollar and a Wells Fargo dollar, no haircut for paying in cash. It really is the dullest sounding idea in monetary economics and actually the one the whole system is built to protect, because even a small and recurring wedge between two forms of the same money introduces a friction that gets amplified every time it passes through another transaction. We did not always have it. In the free banking era before the Federal Reserve, private banknotes circulated as bearer instruments and traded at a discount that widened with distance from the issuer, as much as twenty percent in a far enough town, because a note was only worth what the next person believed the issuing bank was good for. The two tier system we built afterwards fixed that. Bank money trades at par because every bank settles with every other bank in central bank money, and a federal backstop sits behind all of it. The central bank is the thing that makes a dollar single.
Garratt and Shin at the BIS gave the tokenized version of this its cleanest statement. Private tokens that circulate as bearer instruments, which is what a stablecoin is, can drift from par, and do under stress. Tokenized deposits that never leave the banking system and settle in central bank money hold par, because the settlement leg does the work. Their prescription was conservative, route the new money through the central bank, and don’t wander back into free banking. Well, I don’t think that is the world GENIUS has actually built, and I think the Vantage token is the evidence.
Look at what it does. Inside the consortium it is a tokenized deposit, the form that holds par. Outside, in a stranger’s wallet, it is a bearer instrument, the form that drifts. It does not sit somewhere between the two models the BIS contrasted, it is engineered to be each one in turn. Vantage is refusing the binary. It wants the bearer instrument’s reach and the deposit’s par at the same time, and it gets there by toggling between them with a smart contract instead of choosing one. That is genuinely clever, but I think we have to just pause here, because what made the deposit side hold par was never the label. It was the central bank settlement leg and the federal backstop underneath it. Strip those out, as you must the moment the token is a bearer instrument in a wallet in Monterrey, and par stops being a property of the money and becomes a promise from Custodia’s reserves. A relabel is not the same as a settlement.
This is the pattern Dan Awrey has written extensively about, and I want to push it one step further than perhaps he does. His argument, across Bad Money and Beyond Banks, is that America keeps minting new forms of money, money transmitters, money market funds, now stablecoins, without the legal backing that makes bank deposits trade at par, and so we keep recreating money that lives on the issuer’s credibility instead of on a public guarantee. He reads it as a failure of the law, a fragmented system that keeps letting new money slip outside the regulatory perimeter, and he grades the current US regime an F. With GENIUS I’m not sure that diagnosis fits any more. I mean this time the omission was pretty deliberate. Congress had the deposit model sitting right in front of it, knew precisely what makes a dollar single, and then wrote a regime that withholds the two things that do it, insurance and central bank access, from the instrument it actually expects to circulate. It’s not so much that the state has failed to guarantee the singleness of the new money, it basically declined to, and left the banks to build it themselves.
I think two rules are doing the declining, and they’re working from opposite directions.
Yield
The GENIUS Act, signed last July, invented the legal category of the payment stablecoin and in the same breath forbade it from paying its holder anything. Section 4(a)(11) bars interest or yield in connection with the holding, use, or retention of the coin, and the drafting is wide enough to catch points and rewards as well as cash, so nobody can dress yield up as something else. Congress did not hide the reason. The Congressional Research Service describes the ban as a way to stop people parking large uninsured balances in stablecoins and pulling deposits out of the banking system, and the American Bankers Association had told the Senate, citing a Treasury estimate, that interest-bearing stablecoins could drag as much as $6.6 trillion off bank balance sheets. That figure is the lobby’s worst case, but the worry was real enough that lawmakers wrote it into the statute.
There is a singleness reading of the yield ban too, and it is the stronger one. A payment stablecoin that pays nothing stays a pure par claim, a dollar in and a dollar out, with no accrual that would make it drift from a deposit dollar or tempt it to behave like a fund share that can break the buck. Keep yield off it and you keep it the kind of thing that can plausibly trade at one. That is more than deposit flight insurance, it is an attempt to protect par.
A bank deposit sits on the safe side of the line. GENIUS excludes deposits from the stablecoin definition outright, including, in as many words, a deposit recorded on distributed ledger technology, and the FDIC confirmed in April that tokenizing a deposit changes nothing about how it is treated or insured. A bank can pay interest on a tokenized deposit the way it always has. A stablecoin issuer cannot pay a cent. So Vantage’s token earns money inside the consortium and earns nothing the moment it leaves. The yield does not travel with it.
Circulation
You would think that settles things in the banks’ favor, and on yield it does. The second rule runs the other way, and actually its the one that decides singleness.
I think we can all agree that a stablecoin is useless if it cannot change hands freely, and changing hands freely means passing between strangers the issuer has never checked. The rules allow exactly that. Under the customer identification proposal that FinCEN and the banking agencies put out in June, a permitted issuer has to identify and monitor the parties who mint and redeem with it directly and owes nothing on whoever holds the coin after that, because secondary transfers happen through a smart contract rather than through the issuer. It still has to freeze wallets on demand and screen for sanctions, but it does not have to know the holders. That freedom is what lets a stablecoin behave like cash, and it is also what turns it back into a bearer instrument, the form the BIS says cannot reliably hold par.
A bank gets none of that freedom for a deposit token. Its obligations sit in the Bank Secrecy Act program that already covers every account it runs, and there is no exemption in there for a deposit just because someone tokenized it. Put a deposit token into open circulation and each new holder is, in effect, a new customer the bank is meant to identify, with a compliance officer personally on the hook and an examiner due every year. Beneath the compliance problem lies a plainer one, and to me, its the singleness problem at its sharpest. A deposit is a named debt to a known creditor, and that name is what the FDIC insures. A bearer token belongs to whoever holds it, with no name attached. You cannot make one token both insured and anonymous, and the more freely a deposit token circulates the less the bank can say who owns it, which wears away the insurance that was the only reason to use a deposit token rather than a stablecoin. The FDIC has not resolved this. It blessed the form, then asked the industry to tell it how pass through insurance is meant to work once these things start moving through third parties, which is a regulator admitting it does not yet know how to keep this kind of dollar single.
So the deposit half of Vantage’s token never leaves home. It works among member banks that know their customers, and only the stablecoin half goes out into the world, stripped of the name, the yield, and the bank relationship that would have held it at par. And here the cross border story stops being a detail and actually becomes the whole point. A dollar issued in Texas that turns into an unnamed bearer instrument the moment it reaches Mexico, redeemable through an issuer a holder in Monterrey has no direct relationship with, is the free banking note discounted in a distant town, rebuilt in Solidity. Whether it trades at exactly one peso equivalent of a dollar everywhere it goes is now a question about the credibility of Custodia’s reserves and the depth of the secondary market, not a question the central bank has already answered. That is singleness left to the market.
The same answer twice
One bank doing this is a bit of a curiosity. Two banks at opposite ends of the industry doing it the same way is, for me, the rules starting to show through.
SoFi put a stablecoin in front of its fifteen million customers in late May, the first issued by a nationally chartered US bank, live in the app on Ethereum and Solana with reserves in cash at the Fed. It pays no interest and carries no insurance, because a payment stablecoin is not allowed to. What SoFi bolted on within weeks was a button to convert it into a tokenized deposit that does pay interest and does carry FDIC cover. Same split as Vantage, drawn differently. Vantage buries it inside one token that changes character at a border, SoFi puts it on the screen as a switch between two products. A community bank with a Mexican payments book and a fifteen million user national app have almost nothing in common, and they have landed on the practically an identical shape, because the shape was never really theirs to choose. The rules drew the line between the dollar that can circulate and the dollar that can pay, and now both these banks have built a hinge across it.
We have done this before
This is Regulation Q with the polarity reversed. For half a century American law capped the interest banks could pay on deposits. While rates stayed low it cost nothing. When rates ran past the cap in the 1970s, savers stopped tolerating a below market return and moved their cash into money market funds, which sat outside the deposit rules, paid the going rate, and spent like a checking account. The cap meant to shield the banks built the industry that hollowed them out, and by the time it was unwound in the 1980s the money funds were a permanent part of the system.
GENIUS caps the new instrument rather than the old one and sends the yield seeking money back the other way, toward deposits and toward tokenized money market funds, which can pay because one is a deposit and the other is a security. The mechanism has not changed. A legal ceiling on what one kind of money may pay leaves the demand for yield untouched and only decides which instrument gets to satisfy it. What Regulation Q never threatened, though, was singleness itself. A capped deposit and a money fund share both still cleared at par against the dollar. The free banking precedent is the one that bears on singleness, and it feels like the one the bearer instrument design reopens.
Where all this goes
The money that wants a return will leave stablecoins for whatever is allowed to pay it, and I think the only live question is what catches it first. The FDIC controls whether banks ever get a deposit token that can really circulate, and the Bank Policy Institute and The Clearing House are already pressing it on exactly that. The SEC controls how fast tokenized money market funds slot into everyday settlement, and that side is moving now. BlackRock’s tokenized fund is near $2.4 billion, and tokenized Treasuries as a whole have passed $11 billion, while the deposit token question is still sitting in a comment file. Whichever regulator opens its lane wider first takes the balances that drain out of stablecoins once the rules are final.
Nobody writing these rules will call it sorting money into lanes, and I’m pretty sure nobody will call it deciding the singleness of the dollar either. On paper they are setting reserve requirements and defining what counts as an account. But add the proposals together and they come to a decision about which forms of the dollar get the central bank and the insurance fund standing behind them, and which forms are left to hold par on the strength of an issuer’s reserves and a smart contract’s promise. As a former Texan, I like that a bank in Texas worked out where that line falls before Washington has managed to say it out loud, which is why its dollar has two sides, one of them inside the system that keeps a dollar single, the other outside it.
Holding a dollar at par was the one monetary problem the state had completely solved. GENIUS hands a piece of it back to the issuers and the code, out at the border where there is no lender of last resort to call. A smart contract can rename a dollar. I’m not sure if we really know if it can stand behind one in the same way.
References
The bank tokens
Vantage Bank and Custodia release white paper unveiling “Hazel Network” (PR Newswire, June 2026): one token operating as an FDIC-insured tokenized deposit inside the member-bank consortium and a GENIUS-compliant stablecoin outside it; reference implementation live on Ethereum mainnet since March 2026, with a wider set of community banks due to join. Vantage figures and Shawn Main framing from ABA stablecoin interviews.
SoFiUSD becomes the first stablecoin issued by a US national bank to launch on a banking platform (SoFi, 27 May 2026); coverage in American Banker. In-app to ~15M members on Ethereum and Solana, cash reserves at the Federal Reserve, with tokenized-deposit conversion (FDIC-insured, interest-bearing) on the near roadmap.
Singleness of money
Rodney Garratt and Hyun Song Shin, Stablecoins versus tokenised deposits: implications for the singleness of money (BIS Bulletin No 73, 2023): the bearer-instrument versus tokenised-deposit distinction, the free-banking discount precedent, and settlement in central bank money as the thing that holds par.
BIS, The next-generation monetary and financial system (Annual Economic Report 2025, Chapter III): stablecoins and the singleness and no-questions-asked tests.
Dan Awrey, Bad Money (Cornell Law Review, 2020): why non-bank monetary liabilities lack the legal backing that holds bank deposits at par. See also Beyond Banks (Princeton, 2024). The “F” verdict on the US payments regime is from his Macro Musings interview (Mercatus, 9 February 2026).
Gary Gorton and Jeffery Zhang, Taming Wildcat Stablecoins (University of Chicago Law Review, 2023): the free-banking analogy and uniform-money argument.
Statute and rulemakings
GENIUS Act, Public Law 119-27, signed 18 July 2025: yield prohibition §4(a)(11); deposit exclusion §2(22)(B) (”including a deposit recorded using distributed ledger technology”).
FinCEN and the banking agencies, Permitted Payment Stablecoin Issuer Customer Identification Program (91 FR 37234): primary-market scoping and the smart-contract / secondary-transfer treatment; comments due 21 August 2026.
FinCEN, Permitted Payment Stablecoin Issuer AML/CFT Program and Sanctions Compliance Program Requirements.
FDIC, GENIUS Act Requirements and Standards for FDIC-Supervised Permitted Payment Stablecoin Issuers and Insured Depository Institutions (10 April 2026): tokenized-deposit treatment and the request for comment on pass-through coverage.
Congressional Research Service, The Stablecoin Yield Debate (IF13174).
Figures
ABA deposit-flight warning (up to $6.6 trillion): ABA and joint-trades letters to Senate Banking, 2026.
BlackRock BUIDL (~$2.4B) and the tokenized-Treasury sector (~$11B): CoinDesk and tokenization market trackers, 2026.