In a speech delivered at the Jackson Hole Economic Symposium, hosted by the Federal Reserve Bank of Kansas City, de Cos said that while both technologies use tokenization, they have important differences in terms of the monetary system.
In terms of singleness, or the ability of monetary units to be redeemed at par into central bank money, stablecoins fall short because there is no mechanism to enforce singleness and because transactions may not go through at par when one type of stablecoin must be sold in a secondary market to purchase another type, de Cos said.
Tokenized deposits, on the other hand, are account-based bank liabilities, have interbank settlement through central bank accounts in the background, and preserve singleness, de Cos said.
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In terms of interoperability across instruments and platforms, stablecoins may not be interoperable on different chains without risky or costly workarounds, de Cos said.
Tokenized deposits typically circulate on permissioned platforms that are also not genuinely interoperable, but the introduction of tokenized central bank reserves as a safe settlement asset would make them more fungible across banks and more interoperable, de Cos said.
In terms of financial integrity, or the ability to flow at par without undermining the rule of law, stablecoin balances are largely held in self-custodied wallets and are increasingly transferred from wallet to wallet, which complicates the enforcement of anti-money laundering and combating the financing of terrorism (AML/CFT) rules, de Cos said.
Tokenized deposits, in contrast, are account-based and supervised, which makes this challenge more manageable, de Cos said.
“These contrasts do not prejudge outcomes,” de Cos said. “But they do indicate that, in their current form, stablecoins do not yet uphold the foundational properties of money. Notable gaps would need to be closed to approach the ‘no-questions-asked’ standard of money.”
Later in the speech, de Cos said: “Tokenized deposits offer a more direct path to harness tokenization while preserving the monetary system’s foundations. The task now is to tackle the practical challenges of scaling this up.”
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