Tokenised deposits are rapidly gaining the attention of global banks, with Lloyds becoming the latest. But what are the motives and potential behind the tokenised deposit explosion?
Lloyds Bank completed the first tokenised pound sterling deposit transaction in the UK on January 7.
The transaction was settled between Lloyds Bank Corporate Markets and London-based digital asset company Archax, leveraging the Canton Network blockchain.
Lloyds purchased a tokenised gilt from Archax with tokenised deposits, with the latter moving the underlying back into its Lloyds account. The UK bank hailed the process, stating it demonstrated “how easily transactions can flow between blockchain and traditional banking systems”.
The Canon Network was the preferred blockchain ledger for Lloyds, as opposed to private ledgers, as it enables opportunities for mass adoption across the UK banking industry while also preserving confidentiality of tokenised transactions.
Lloyds was also able to process a validator node which verifies and secures the transaction on the Canon Network. This allows the bank to manage customer resources and ensure the security of the transaction is the same as it would be for traditional payments and cash deposits.
“This transaction offers a glimpse into the future of finance; faster, smarter, and more efficient,” said Surath Sengupta, Head of Transaction Banking Products at Lloyds.
“Crucially, these advantages come without losing the benefits of traditional cash, as tokenised deposits can continue to earn interest and remain protected by the Financial Services Compensation Scheme. This pilot is a critical step towards building the financial ecosystem of the future.”
Why are banks turning to tokenised deposits?
Lloyds becoming the first UK bank to settle a sterling-backed tokenised deposit represents a global shift occurring throughout the banking industry.
US banks began their exploration into tokenised deposits in recent years, with JP Morgan settling on its own dollar-denominated token, JPM Coin, in November 2025. Citi, HSBC, UBS, and DBS are some of the other global banks beginning to launch pilots to settle in dollar and euro-backed tokenised deposits… but why?
Settling on funds on the blockchain has often been reserved for private cryptocurrencies and stablecoins, with the latter gaining large momentum across the traditional finance sector in use cases for instant cross-border settlement.
However, banks are unable to earn interest on private stablecoin deposits and transfers, which is where tokenised deposits enter the equation.
As Lloyds outlined in its announcement yesterday, tokenised deposits offer the following:
- Increased utility: enabling businesses the ability to access and trade a wider range of securities, both on blockchain networks and through traditional markets, using the same cash asset.
- Instant settlement: completed in real-time, reducing risk and improving liquidity.
- Smart contracts: automated agreements that can execute transactions and processes instantly, reducing manual steps and operational risk.
- Transparency and security: distributed ledger technology provides a clear, permanent record of transactions, enhancing trust and compliance.
But above all else, tokenised deposits are built into existing banking frameworks, allowing banks to control limits, liquidity and earn interest, with traditional regulations in place. This is why Naveen Mallela, Global Co-Head of Kinexys by JP Morgan, called tokenised deposits a “superior alternative to stablecoins” in an interview with Bloomberg in June 2025
Richard Baker, Founder and CEO of Tokenovate, tells Payment Expert that due to tokenised deposits offering “more efficient capital flows”, banks will continue to launch pilots and develop use cases in the future.
“Tokenised deposits have the potential to deliver real-time settlement, greater transparency and more efficient capital flows.
“The next step is ensuring tokenised deposits can move from landmark transactions to everyday use, which will depend on how well interoperability, security, data privacy and governance are designed into these systems from the outset.”
The UK is waking up
Having been labelled as a country that has lagged behind blockchain innovations, the UK began to build the foundations of a market that is encouraging adoption of digital assets and blockchain-based services last year.
The UK explored blockchain opportunities by allowing asset managers to tokenise their funds in October 2025.
The Financial Conduct Authority (FCA) confirmed it will launch a “direct to fund” tokenisation platform to allow asset managers tokenise investments and capital onto the blockchain. This is to help settlement times accelerate from days to minutes, while also being typically cheaper and pay end investors directly into a fund instead of an investment manager.
“This technology will offer some really practical benefits to make fund management more efficient and reduce costs over time,” said Nike Trost, FCA’s Head of Department, Buy-Side.
In September 2025, UK Finance brought onboard Lloyds, HSBC, Barclays, NatWest, Nationwide and Santander to unlock new use cases for tokenised sterling deposits for consumers and businesses.
This collaborative project will run until mid-2026, with Lloyds becoming the first of the aforementioned participating banks to settle its first tokenised deposit. It is expected that the other UK banks will also launch their own tokenised deposit service to test person-to-person transfers with digital asset companies and online marketplaces.
“The issuance of sterling tokenised deposits on a public blockchain is a significant moment for the UK market, signalling that tokenised money is moving from concept to live, regulated use while remaining integrated with existing banking systems,” says Baker.
Opportunities to scale
With tokenised deposits seeming to be at the tip of every banks’ tongue around the world at the moment, there appears to be a range of benefits they can offer banks, businesses and consumers.
In an interview with The Financial Times, Lloyds Chief Executive Charlie Nunn believes tokenised deposits can become a “wow moment” for the mortgage and lending sector.
He said, within the next five years, could bring mortgage and lending documents onto the blockchain and be paid off via the use of tokenised deposits to become a “more personalised, more intuitive and simpler,” system.
“Take mortgages: the whole conveyancing, document sharing, value exchange and payments process can be built into a smart contract, and the whole thing can be guided with or without a broker, with an agent giving advice to customers,” said Nunn.
While the vision to tokenise every real-world asset has been championed by BlackRock CEO Larry Fink in recent years, for tokenised deposits to grow safely, Baker believes it requires the support of existing traditional payment rails.
“(This) requires clear standards, shared infrastructure and collaboration across the ecosystem,” he adds.
“A standards-based foundation with frameworks such as the Common Domain Model (CDM) and open-API architectures will be critical in turning landmark transactions like this into trusted, scalable infrastructure for the future digital economy.”
