Stablecoins, tokenised deposits and tokenised money market fund shares can all appear as transferable digital tokens. That surface resemblance is misleading. The three instruments place the holder in different legal relationships, depend on different balance sheets and reach cash through different mechanisms.
A stablecoin is normally a claim governed by the issuer’s terms and the applicable digital-asset or payments regime. A tokenised deposit remains, if properly structured, a deposit liability of a licensed bank. A tokenised money market fund token represents a share or unit in an investment fund. Tokenisation changes how those claims are recorded, controlled and transferred. It does not, by itself, turn one category into another.
This distinction matters whenever a token is described as cash, cash-equivalent or cash-like. Those labels say little about who owes the holder money, whether the holder has a direct interest in underlying assets, when settlement becomes final or what happens if an issuer, bank, fund, custodian or blockchain service fails.
The decisive question is not whether an instrument is on-chain. It is what legal claim the token records and how that claim becomes central bank or commercial bank money.
Three instruments, three legal relationships
Stablecoin: a transferable claim on an issuer
A fiat-referenced stablecoin is generally designed to maintain a value against an official currency. Its issuer receives funds or other assets, holds a reserve and issues tokens. Depending on the law and contractual terms, a holder may have a redemption claim against the issuer. Holding the token does not necessarily make the holder the beneficial owner of an identifiable reserve asset.
The reserve sits on the issuer’s side of the architecture, potentially with banks, securities custodians or money market funds. The token sits on one or more distributed ledgers. Minting and burning connect the two layers, but a blockchain transfer does not normally transfer title to a particular Treasury bill, deposit or fund share in the reserve.
Legal status varies by jurisdiction. In the European Union, the provisions of Regulation (EU) 2023/1114, known as MiCA, concerning asset-referenced tokens and e-money tokens have applied since 30 June 2024. A cryptoasset that purports to maintain a stable value by referencing one official currency falls within MiCA’s definition of an e-money token. Holders have a right of redemption against the issuer at any time and at par value.
MiCA Article 54 requires at least 30 per cent of funds received in exchange for e-money tokens to remain in separate accounts at credit institutions. The remainder must be invested in qualifying secure, low-risk and highly liquid instruments denominated in the referenced currency. Those requirements do not convert the token into a bank deposit or fund share.
In the United States, the GENIUS Act, Public Law 119-27, was enacted on 18 July 2025. It establishes a federal framework for payment stablecoins, including one-to-one reserve, redemption-policy and disclosure requirements. It also excludes a payment stablecoin issued by a permitted payment stablecoin issuer from the definition of a security under specified federal securities statutes.
The commencement date requires a qualification. Section 20 provides that the Act and its amendments take effect on the earlier of 18 months after enactment, which is 18 January 2027, or 120 days after the primary federal regulators issue final implementing regulations. As at 8 September 2026, the principal OCC regulations remained proposed and the OCC expected to issue a final rule in November 2026. The framework was therefore enacted but not yet generally effective. The Act also prohibits permitted issuers from marketing a payment stablecoin as legal tender, as issued by the United States or as guaranteed or approved by the federal government.
The United Kingdom provides another example of rules published before commencement. On 30 June 2026, the Financial Conduct Authority published final rules for UK-authorised stablecoin issuers. They are due to apply to firms authorised under the new regime on or after 25 October 2027. The Bank of England published policy positions and a draft Code of Practice for systemic stablecoin issuers on 22 June 2026. On 8 September 2026, consultation remained open until 22 September, and the Bank intended to finalise the Code by the end of 2026. Neither future regime should be described as already operational.
Tokenised deposit: the bank still owes the depositor
A tokenised deposit is a deposit claim represented on a programmable platform. If tokenisation does not alter its underlying economics or the fundamental nature of the depositor’s claim, the issuing bank records a deposit liability and the depositor remains the bank’s creditor. The Bank of England stated on 30 July 2024 that the Prudential Regulation Authority would treat such a tokenised deposit similarly to a traditional deposit.
This is not a reserve-backed issuer model. Banks do not normally place every deposited pound or dollar into a segregated pool dedicated to individual depositors. Deposits are liabilities on a regulated banking balance sheet containing loans, securities, central bank reserves and other assets. Capital, liquidity, supervision and resolution requirements help support the bank’s payment obligations.
Deposit protection depends on the jurisdiction, customer, account structure and product design. In its 2024 paper, the Bank of England said that where banks take tokenised deposits from retail customers, the PRA expects this to be done in a way that meets its rules for eligibility for protection under the Financial Services Compensation Scheme. That does not justify calling every bank-affiliated token a protected deposit.
A stablecoin issued by a banking group can remain legally separate from the group’s deposits. In May 2026, the Bank of England said banking groups could issue stablecoins through a non-deposit-taking, insolvency-remote group entity with branding distinct from deposits. It also stated that those stablecoins would not be covered by deposit insurance.
Tokenised deposits can be designed differently. A non-transferable claim may support an instruction to move balances between customer accounts, with payments to another bank ultimately settling in central bank money. A transferable claim may pass to the recipient as a claim against the issuing bank. The Bank of England distinguishes these models and notes that a recipient of a transferable claim may become a customer of the issuing bank.
Money market fund token: an investment-fund share
A tokenised money market fund is a money market fund whose shares are issued and recorded as digital tokens on a distributed ledger. That is the definition used by the European Central Bank in April 2026. In the EU, tokenised money market funds remain within the existing Money Market Fund Regulation.
The investor holds a share or unit in a collective investment undertaking. The fund owns a portfolio that may contain government securities, commercial paper, certificates of deposit, repurchase agreements and cash, depending on its mandate and jurisdiction. The investor’s economic exposure is to the fund’s net assets, income, expenses and liquidity arrangements.
The claim is not equivalent to a debt claim requiring a stablecoin issuer to exchange each token for one currency unit regardless of portfolio value. Even where a money market fund seeks a constant dealing price, its legal and economic structure remains that of an investment fund.
In the EU, Regulation (EU) 2017/1131 has generally applied since 21 July 2018. Certain provisions applied from 20 July 2017, and Article 44 gave existing funds until 21 January 2019 to submit the documents needed to demonstrate compliance. The Regulation recognises variable net asset value, public-debt constant net asset value and low-volatility net asset value funds. Article 33 generally requires issue and redemption at net asset value, subject to specified constant-price mechanisms for public-debt constant-NAV and qualifying low-volatility-NAV funds.
In the United States, Rule 2a-7 under the Investment Company Act governs registered money market funds. Government and retail money market funds may seek to maintain a stable net asset value, commonly one dollar per share. Institutional prime and institutional tax-exempt funds generally transact at a floating net asset value. A stable dealing price is a regulated valuation mechanism, not a guarantee that the portfolio cannot incur losses.
The cash instrument behind each token
Asking what is behind a token can produce three different answers.
- Stablecoin: a reserve portfolio supports the issuer’s redemption obligation. Permitted assets depend on the governing regime and terms.
- Tokenised deposit: the instrument is itself a commercial bank deposit. The bank’s regulated balance sheet supports the liability; it is not normally matched to a segregated one-for-one reserve.
- Money market fund token: the token records a fund share or unit, and the fund’s portfolio determines its value and return.
A stablecoin reserve may itself hold money market fund shares where applicable law permits. That does not merge the products. It creates a chain of claims: the stablecoin holder has rights against the issuer; the issuer or reserve vehicle owns fund shares; and the fund owns portfolio assets. The holder’s outcome can depend on the legal and operational integrity of each link.
Nor does cash held with a bank make the end product a deposit issued to the token holder. The bank may owe money to the stablecoin issuer or fund, while the end holder has no direct depositor relationship with that bank. Trust, segregation and insolvency rules determine how those assets are treated if the issuer fails.
Settlement is not redemption
Stablecoin settlement
A stablecoin transfer changes the ledger record identifying control of the token. On a public blockchain, the token may move without the issuer updating a conventional customer account for each transfer. Legal finality still depends on the arrangement’s rules, governing law and treatment of competing ledger states or forks.
In July 2022, the Committee on Payments and Market Infrastructures and the International Organization of Securities Commissions explained that some stablecoin arrangements may feature probabilistic settlement. The state of the ledger and legal finality can diverge because the probability of revocation may diminish without reaching zero, or because a fork produces competing records.
An on-chain transfer settles the stablecoin leg within that arrangement. It does not necessarily deliver sovereign currency or a bank-account balance. Conversion may require redemption from the issuer, use of an authorised intermediary or a secondary-market sale. Market prices can diverge from the reference value when access to those routes is uncertain or constrained.
Tokenised-deposit settlement
Within one bank, a payment may reallocate that bank’s deposit liabilities between customers. Across banks, conventional payment architecture requires the institutions to settle their resulting obligation in central bank money. That interbank settlement helps anchor different banks’ deposits to the same unit of account.
The Bank of England’s 2024 analysis distinguishes non-transferable claims, which retain this account-based model, from transferable claims that pass between holders. A transferable claim may be self-settling as a transfer of the issuing bank’s liability, but that does not by itself settle an obligation between two issuing banks. Interoperable arrangements may still require an RTGS connection, central bank money or another settlement bridge.
Atomic settlement can make delivery of a tokenised asset conditional on receipt of the payment asset. This can reduce principal risk by preventing one leg from completing alone. It does not eliminate the credit or liquidity risk of the chosen settlement asset.
Money market fund settlement
Transferring a tokenised fund share changes ownership of an investment interest. It does not itself deliver cash. A subscription requires the investor to provide an accepted settlement asset. A redemption requires the fund or its agent to cancel shares, apply the relevant valuation and deliver proceeds through available payment rails.
The ECB notes that tokenised money market funds may support near-continuous transfers while fund operations and traditional markets retain limited operating hours. A token may therefore trade when the fund’s official valuation, primary subscription or redemption process is unavailable. Secondary-market liquidity should not be confused with contractual redemption from the fund.
Redemption promises differ
A regulated fiat-referenced stablecoin is designed around conversion into the referenced currency. The precise right belongs to the holder only where legislation or the issuer’s enforceable terms grant it. Eligibility checks, fees, minimum amounts, operating hours, intermediaries and suspension powers can affect practical access.
A tokenised depositor ordinarily withdraws or transfers a bank-account balance at par under the account terms. If the bank fails, the outcome depends on resolution law, creditor ranking and any applicable deposit-protection scheme. The obligation is supported by the bank’s balance sheet and liquidity arrangements, not by a wallet-specific reserve.
A money market fund investor redeems at the applicable net asset value or a constant price permitted under the relevant fund regime. Proceeds can reflect portfolio valuation, income, expenses and any lawful liquidity-management measure. Regulatory liquidity requirements do not turn a fund share into an insured deposit or central bank liability.
Redemption is also different from sale. A holder selling a stablecoin or fund token on a trading venue accepts the market price and that venue’s settlement arrangements. The trade does not itself exercise the issuer’s or fund’s primary redemption obligation.
Where issuer and custodian risks sit
- Stablecoin risk: holders depend on the issuer’s ability and legal obligation to honour redemptions. They can also be exposed to reserve custodians, banking partners, administrators, smart contracts, blockchain networks and bridges.
- Tokenised-deposit risk: the issuing bank is the debtor. Prudential supervision, resolution and eligible deposit protection may mitigate the exposure, while wallet and ledger services add operational risk.
- Fund-token risk: investors bear portfolio and liquidity risk through the fund. They also depend on the manager, depositary or custodian, transfer agent, valuation process and token infrastructure.
Asset segregation can protect reserves or fund property from claims against an issuer, manager or custodian, but the result depends on the governing documents and insolvency law. Segregation does not guarantee market value or immediate liquidity.
Self-custody changes control of a private key, not the underlying obligor or asset class. A self-custodied stablecoin remains subject to the issuer relationship. A self-custodied fund token remains a fund interest. A tokenised deposit remains the liability identified in its legal documentation. Wrapped tokens and bridges can introduce a separate claim against another operator or smart contract.
A practical classification test
- Identify the obligor. Is payment owed by a bank, a stablecoin issuer or an investment fund?
- Identify the holder’s right. Is it a deposit claim, an issuer redemption claim or a share in pooled assets?
- Locate the assets. Are they on a bank balance sheet, in a segregated reserve or in a fund portfolio?
- Test redemption. Who can redeem, at what price, during which hours and subject to which restrictions?
- Trace finality. Does transfer become final under a blockchain protocol, bank ledger, RTGS system, securities register or combination of systems?
- Map failure scenarios. Consider the issuer, bank, fund, custodian, administrator, smart contract, bridge and key-management provider separately.
- Check jurisdiction and date. A final rule may not yet be effective, and the same product may receive different treatment across borders.
The categories can interact without becoming interchangeable. Stablecoins can hold fund shares in reserve. Funds can accept tokenised bank money for subscriptions. Tokenised securities can settle against stablecoins, deposits or central bank money. These connections may improve programmability, but they can also lengthen the chain between a token and final payment.
The clean distinction is architectural and legal. A stablecoin records rights against an issuer and is supported by whatever reserve and safeguarding structure applies. A tokenised deposit represents a bank’s deposit liability. A tokenised money market fund represents an investment-fund share. Similar technology can carry all three, but it cannot erase the differences in claim, settlement, redemption and allocation of loss.
This article provides general information as at 8 September 2026. It is not legal, tax or investment advice.