Five U.S. regional banks — Huntington Bancshares, First Horizon, M&T Bank, KeyCorp, and Old National Bancorp — are building a shared tokenized deposit network that could fundamentally alter the competitive landscape between traditional banking and crypto-native stablecoins. The Cari Network, led ...
"Banks should be leading the next phase of digital money, not reacting to it." — Gene Ludwig, CEO of Cari Network and former U.S. Comptroller of the Currency
Five U.S. regional banks — Huntington Bancshares, First Horizon, M&T Bank, KeyCorp, and Old National Bancorp — are building a shared tokenized deposit network that could fundamentally alter the competitive landscape between traditional banking and crypto-native stablecoins. The Cari Network, led by former Comptroller of the Currency Gene Ludwig and built on ZKsync's Prividium infrastructure, aims to let banks issue digital representations of FDIC-insured deposits that move at stablecoin speed — 24/7, near-instant settlement — without funds ever leaving the regulated banking system.
This is not a speculative pilot. The minimum viable product shipped in March 2026. A pilot program targeting live interbank transfers is scheduled for Q3, with full commercial availability expected by Q4. The initiative has the backing of the Mid-Size Bank Coalition of America and sits alongside parallel efforts by JPMorgan (whose Kinexys platform now processes over $3 billion daily) and a New York Fed staff report that explicitly frames the tokenized deposit vs. stablecoin contest as the defining monetary policy question of the decade.
With the stablecoin market now exceeding $311 billion and legislation like the CLARITY Act moving through Congress, banks face an existential choice: build their own programmable money rails or watch deposits migrate to nonbank issuers. This report examines why tokenized deposits are the banking industry's counteroffensive — and whether they can actually win.
The stablecoin market hit a record $313 billion in mid-March 2026, with Tether's USDT commanding roughly $183.5 billion (62.5% market share) and Circle's USDC holding approximately $79 billion (25.5%). More striking than the market cap figures is the velocity: USDC captured 64% of stablecoin transaction volume for the first time in nearly a decade as of March 15, 2026, signaling that institutional and commercial payment flows are consolidating around regulated, U.S.-domiciled stablecoin infrastructure.
Every dollar sitting in a stablecoin is a dollar that left the traditional banking system. Stablecoin reserves — parked in Treasury bills and money market instruments — generate yield for issuers like Circle and Tether, not for the banks whose customers originally held those funds. The American Bankers Association has characterized this as a deposit leakage problem: stablecoins are functionally narrow banks that take deposits, invest them in safe assets, and return zero yield to holders, while the issuers capture the spread.
For regional and mid-size banks, which depend heavily on deposit funding to support lending operations, this leakage is not theoretical. As the New York Fed's February 2026 staff report documented, banks holding significant stablecoin-related deposits are demonstrably lending less, as reserve requirements tied to these volatile, flight-prone balances constrain their balance sheet flexibility.
The Cari Network represents the most organized attempt by mid-size U.S. banks to build a shared tokenized deposit infrastructure. Its technical stack reveals a deliberate design philosophy: match stablecoin user experience while preserving the regulatory and economic properties of bank deposits.
Infrastructure layer. Cari runs on Prividium, a private, permissioned blockchain developed by Matter Labs (the team behind ZKsync). Prividium uses zero-knowledge proof technology to enable transaction privacy — balances and counterparty identities are shielded from other network participants — while maintaining a regulatory audit trail that supervisors can access. Transactions settle with finality on Ethereum's mainnet, inheriting its security guarantees without exposing bank data publicly.
How it works. A participating bank tokenizes a customer deposit, creating a 1:1 digital representation on the Cari network. That token can be transferred instantly to a customer at another participating bank, 24 hours a day, 7 days a week. Upon receipt, the token is redeemable for traditional dollars at par. Critically, the underlying deposit never leaves the banking system — it simply moves from one bank's balance sheet to another's. The token remains a bank liability throughout its lifecycle, subject to existing prudential regulation, FDIC insurance (up to $250,000 per depositor per institution), and Bank Secrecy Act / AML / KYC requirements.
Governance. The network is bank-governed. Only approved, regulated institutions can participate. Gene Ludwig's background — he served as Comptroller of the Currency under President Clinton and later founded Promontory Financial Group, a leading bank regulatory consultancy — signals that the initiative was designed from inception to operate within, not around, the existing supervisory framework.
Timeline. The MVP launched in late March 2026. The Q3 pilot will test live interbank transfers among the five founding banks. Full commercial availability is targeted for Q4 2026, with plans to onboard additional institutions and potentially connect with other tokenized deposit networks.
The economic argument for tokenized deposits is structural, not promotional. Three dynamics make this a survival question for deposit-funded institutions:
1. Preserving the deposit-to-loan channel. Tokenized deposits, unlike stablecoins, remain on bank balance sheets. This means they continue to support the fractional reserve lending that funds mortgages, small business loans, and commercial credit. When deposits migrate to stablecoin issuers, they are backed 1:1 by Treasuries and money market instruments — they do not support credit creation. The ABA Banking Journal's March 2026 analysis made the point explicitly: tokenized deposits preserve the economic engine of banking, while stablecoins hollow it out.
2. Recapturing the yield. Stablecoin issuers earn the spread between the yield on their reserve assets and the zero return they pay holders. Circle's reserve portfolio alone generates billions annually. Tokenized deposits allow banks to retain that yield-generating relationship with their customers, potentially even passing through interest — something the current stablecoin model structurally cannot do (and which the CLARITY Act, if passed, would explicitly prohibit for payment stablecoins).
3. Maintaining regulatory control. As Biswarup Chatterjee, Citi's Global Head of Partnerships, noted: "Within the bank's network, tokenized deposits are an efficient way for our clients to get that 24/7, always-on availability." The emphasis on "within the bank's network" is deliberate. Tokenized deposits keep value transfer inside the perimeter of prudential regulation, where capital requirements, stress testing, and supervisory oversight apply. Stablecoins, by contrast, are moving toward a separate regulatory track that many banks view as insufficiently rigorous.
The regulatory environment has shifted decisively in favor of tokenized deposits in early 2026:
Interagency capital guidance (March 5, 2026). The Federal Reserve, OCC, and FDIC jointly clarified that tokenized securities receive the same capital treatment as their non-tokenized counterparts. The guidance is technology-neutral: the medium of issuance does not change the regulatory classification. While this specifically addressed securities, it established the principle that tokenization does not create new regulatory categories — a principle that directly supports the treatment of tokenized deposits as ordinary bank deposits.
FDIC deposit insurance clarity. Acting FDIC Chairman Hill stated publicly that tokenization does not change the legal nature of a bank deposit. The FDIC is developing formal guidance clarifying the relationship between deposit insurance and tokenized deposits, following the recommendations of the President's Working Group on Digital Asset Markets.
State regulator engagement. The Conference of State Bank Supervisors (CSBS) has issued guidance acknowledging tokenized deposits as a legitimate innovation within the existing regulatory framework, distinct from stablecoins, which require separate licensing and oversight.
This regulatory alignment is not accidental. Banks and their trade associations have spent two years making the case that tokenized deposits should be treated as what they legally are — deposits — rather than being subjected to novel crypto-specific regulation. The early 2026 guidance suggests that argument has prevailed.
The New York Fed's February 2026 staff report (SR 1179), authored by Xuesong Huang and Todd Keister, reframed the entire stablecoin vs. tokenized deposit competition as a modern incarnation of the narrow banking debate — a question that has resurfaced repeatedly since the 1930s.
The core tension: stablecoins are essentially narrow banks. They take deposits (user funds), invest exclusively in safe assets (Treasuries), and perform no credit intermediation. Tokenized deposits, by contrast, preserve the full-reserve banking model where deposits fund a diversified portfolio including risky lending.
The Fed researchers identified three regulatory scenarios:
The implication is that there is no universally correct answer — the right policy depends on the prevailing regulatory environment and the banking system's risk appetite. But with U.S. regulators actively tightening bank supervision post-SVB and simultaneously opening the door to tokenized deposits, the current trajectory favors the tokenized deposit model for institutional and wholesale use cases.
The Cari Network is not operating in a vacuum. JPMorgan's Kinexys platform has been processing tokenized deposit transactions since 2020 and now handles over $3 billion daily. In early 2026, JPMorgan announced plans to bring its JPM Coin (JPMD) deposit token natively to the Canton Network, a privacy-enabled public blockchain, and has already deployed on Coinbase's Base network.
BNY Mellon has also entered the arena. Chief Product and Innovation Officer Carolyn Weinberg stated: "Tokenized deposits provide us with the opportunity to extend our trusted bank deposits onto digital rails."
The risk is fragmentation. If JPMorgan builds on Canton, Cari builds on Prividium/ZKsync, and BNY Mellon builds on yet another infrastructure, the industry could end up with incompatible deposit token networks — each fast and efficient internally but requiring bridges or intermediaries to interoperate. The ABA Banking Journal's March 2026 analysis flagged the need for an on-chain equivalent of Fedwire: a shared settlement layer that ensures all tokenized deposits can move seamlessly across networks.
McKinsey's most recent tokenization forecast projects $1.1 trillion in tokenized cash and deposits by 2030, while BCG and Ripple estimate the broader tokenized asset market at $9.4 trillion by the same date. Either way, the infrastructure being built today — Cari, Kinexys, and their successors — will determine which institutions capture that value.
Five U.S. regional banks are building the Cari Network, a shared tokenized deposit platform on ZKsync's Prividium, with commercial launch targeted for Q4 2026.
Tokenized deposits are the banking industry's structural response to stablecoins. They match stablecoin speed (24/7, near-instant settlement) while preserving FDIC insurance, bank balance sheet lending, and regulatory oversight.
The regulatory environment has turned favorable. Joint interagency guidance, FDIC deposit insurance clarity, and technology-neutral capital treatment all support tokenized deposits operating within existing frameworks.
The New York Fed frames this as the narrow banking debate for the digital age. The policy outcome depends on whether regulators prioritize credit expansion (favoring tokenized deposits) or risk containment (favoring stablecoins).
Fragmentation is the primary risk. Multiple competing networks (Cari, Kinexys, Canton) without shared interoperability standards could undermine the efficiency gains that tokenization promises.
The economic stakes are existential for deposit-funded banks. Every dollar that moves to a stablecoin is a dollar removed from the credit creation engine. Tokenized deposits are how banks fight to keep that dollar on their balance sheet.
The launch of the Cari Network marks a turning point. For the first time, a coalition of regulated U.S. banks is collectively building programmable money infrastructure designed to compete directly with crypto-native stablecoins — not by adopting crypto's philosophy, but by bringing banking's core advantages (FDIC insurance, credit intermediation, regulatory certainty) onto blockchain rails.
The question is no longer whether banks will tokenize deposits. It is whether they can do it fast enough, and whether the industry can avoid building a fragmented patchwork of incompatible networks. With $311 billion in stablecoins already circulating and growing, and with legislative frameworks like the CLARITY Act poised to formalize the competitive divide, the window for banks to establish tokenized deposits as the institutional standard for digital money is measured in quarters, not years.
Gene Ludwig built the Cari Network on a bet that regulated money, properly upgraded, beats unregulated money every time. The next two quarters will determine whether the rest of the banking industry agrees.