VersaBank Pioneers Tokenized Deposits on Major Blockchains in U.S. Pilot

VersaBank is piloting tokenized U.S. dollar deposits on the Algorand, Ethereum, and Stellar blockchains through its U.S. subsidiary. This initiative aims to offer a more secure and compliant alternative to stablecoins, leveraging blockchain technology for efficient money transfers.

Key Takeaways

• VersaBank is testing tokenized U.S. dollar deposits, branded USDVB, on Algorand, Ethereum, and Stellar.

• These tokens represent U.S. dollars held on deposit at VersaBank USA and are federally insured.

• The pilot aims to provide a safer and more compliant alternative to stablecoins, offering interest-earning capabilities similar to traditional deposits.

• The bank plans to complete the pilot by the end of 2025 and seek approval from the Office of the Comptroller of the Currency (OCC) before a public launch.

VersaBank's Tokenized Deposit Pilot

VersaBank, a Canadian digital bank specializing in business clients, has launched a pilot program to test its tokenized dollar deposits. The initiative, conducted via its U.S. subsidiary, VersaBank USA, utilizes the bank's proprietary blockchain-based Digital Deposit Receipts (DDRs) technology. Each token, known as USDVB, is pegged to one U.S. dollar held in reserve at VersaBank USA.

The pilot will involve simulating a high volume of small-value transactions, initially for internal testing and subsequently with select external partners. The management of these tokens will be handled through the bank's existing digital vault and e-wallet platforms. The tokens are being issued across three prominent blockchain networks: Ethereum, Algorand, and Stellar.

A Compliant Alternative to Stablecoins

While stablecoins, which are crypto tokens pegged to fiat currencies, have garnered significant market attention, banks are increasingly exploring tokenized deposits as a means to enhance the efficiency of money transfers through blockchain technology. Unlike typical stablecoins issued by private entities and backed by reserves held by third-party custodians, tokenized deposits represent a liability of a regulated bank, thereby adhering to established banking regulations.

VersaBank highlights that its tokenized deposits offer distinct advantages over many stablecoins. They are federally insured and have the potential to earn interest, mirroring the characteristics of traditional bank deposits while benefiting from the settlement efficiencies offered by blockchain technology. This approach positions tokenized deposits as a potentially more secure and regulated option within the digital asset landscape.

Industry Context and Future Outlook

This move by VersaBank follows similar explorations within the banking sector. Earlier this year, Custodia and Vantage Bank conducted trials tokenizing U.S. dollar demand deposits on the Ethereum network. Additionally, JPMorgan has experimented with its own deposit token on Coinbase's layer-2 network, Base. These initiatives underscore a growing trend of traditional financial institutions integrating blockchain technology into their core services.

VersaBank anticipates concluding its pilot phase by the close of 2025. Following the completion of the pilot, the bank intends to pursue approval from the Office of the Comptroller of the Currency (OCC) before considering any public rollout of the tokenized deposit service.

Sources

• VersaBank Kicks Off Tokenized Dollar Deposit Pilot Using Algorand, Ethereum and Stellar, CoinDesk.