Columbia Business professor casts doubt on tokenized bank deposits

Tokenized bank deposits lack the flexibility and technical features of stablecoins, making them an inferior product, according to Omid Malekan.

Banks and financial institutions have started experimenting with tokenized bank deposits, bank balances recorded on a blockchain, but the technology is doomed to lose out to stablecoins, according to Omid Malekan, an adjunct professor at Columbia Business School.

Overcollateralized stablecoin issuers, who must maintain 1:1 cash or short-term cash equivalent reserves to back their tokens, are safer from a liability perspective than the fractional reserve banks that would issue tokenized bank deposits, Malekan said. 

Stablecoins are also composable, meaning they can be transferred across the crypto ecosystem and used in various applications, unlike tokenized deposits, which are permissioned, have know-your-customer (KYC) controls, and have restricted functionality.

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