Britain's largest banks have completed their first interbank transfers of tokenized deposits, moving funds across blockchain infrastructure within the traditional banking system. Lloyds, NatWest, and Barclays executed two mortgage transactions as part of the trial, while a separate group of banks tested a simulated marketplace transaction. The initiative, conducted under the UK Finance Great British Tokenised Deposit project, demonstrates the central bank's preference for bank-issued tokens over privately issued stablecoins.
Tokenized Deposits vs. Stablecoins
Tokenized deposits are standard bank deposits represented as blockchain tokens, maintaining the same legal standing as conventional account balances. Unlike stablecoins, which are typically issued by private companies outside the banking system, tokenized deposits keep liabilities on banks' balance sheets.
Bank of England Governor Andrew Bailey has previously cautioned that bank-issued stablecoins could threaten financial stability, directing the sector toward tokenized deposits instead. The central bank has maintained issuance caps on stablecoins even as it relaxed other restrictions during the year.
How the Pilot Operated
The trial included a peer-to-peer transaction mimicking an online marketplace purchase, with HSBC and two other lenders participating. Programmable deposits held buyer funds until goods were confirmed as received, according to UK Finance.
Jana Mackintosh, UK Finance's managing director for Payments and Innovation, stated the structure could reduce fraud risk. She noted that international interest in the project has grown significantly.
"In the last 12 months, other jurisdictions have been speaking to us in earnest about what we've done, trying to understand how they can now catch up."
Next Steps
The project is advancing toward establishing a governing company and rulebook. Participating banks plan to issue three digital bonds in the first quarter of 2027, which would be tradable and settled using tokenized deposits.
The UK's tokenization efforts extend beyond banking, involving asset managers in a broader institutional push. In the United States, The Clearing House announced its own interbank tokenized deposit project in June. The sustainability of the UK's early advantage depends on how quickly the rulebook and 2027 bond issuance proceed.
