The head of the world’s largest stablecoin issuer has publicly challenged the Bank for International Settlements over the future of digital money, escalating a debate that now sits at the heart of global financial regulation.
Tether CEO Paolo Ardoino took aim at the BIS preference for tokenized bank deposits on Sunday, arguing that fully reserved stablecoins give savers a safer alternative to money held inside the fractional reserve banking system. His comments came just days after BIS General Manager Pablo Hernández de Cos laid out the case for tokenized deposits at the Jackson Hole Economic Symposium on August 28.
The BIS case for tokenized deposits
According to de Cos, stablecoins still fall short of several core properties required to function as money at scale. He pointed to problems with redeemability at par, interoperability between networks, financial integrity, and the risk that heavy stablecoin use outside the United States could undermine monetary sovereignty through what analysts have described as digital dollarization.
In the BIS model, tokenized deposits remain liabilities of commercial banks and settle through central bank accounts. De Cos argued this structure preserves the “singleness” of money, because different bank liabilities stay redeemable at par through central bank settlement. Stablecoins behave differently: a user holding USDT who needs to pay someone accepting only USDC may first have to exchange one token for the other on a secondary market, where prices can drift from their pegs during periods of stress.
Public blockchains raise additional concerns for the Basel-based institution. Stablecoins can circulate across multiple networks and through self-custody wallets, and moving the same asset between chains can require bridges or other infrastructure. De Cos said that structure creates interoperability headaches and makes consistent enforcement of anti-money laundering and counterterrorism financing controls more difficult.
Tether’s counterargument: reserves versus fractional banking
Ardoino’s response focused squarely on what backs each form of digital money. Stablecoins, he argued, can be backed almost entirely by liquid reserves, including United States government debt, while commercial banks operate under a fractional reserve system in which only part of their liabilities are held in liquid assets.
“BIS is rightfully worried about the fact that stablecoins are exposing the emperor without clothes,” Ardoino wrote, adding: “Why someone should choose to put his savings into a fractional reserve product while stablecoins are fully reserved?”
The distinction matters in practice. A tokenized bank deposit remains on the issuing bank’s balance sheet even when represented on a blockchain. Customer funds do not move into a separate reserve portfolio and can remain available to support the bank’s lending operations — a structural difference that stablecoin proponents say puts depositors at greater risk during bank stress, and that banks say is precisely what makes deposits stable and redeployable into credit for the real economy.
Banks are not standing still
The banking sector has begun building infrastructure around the tokenized deposit model as stablecoins claim a larger share of digital payments. JPMorgan Chase, Bank of America, Citigroup and Wells Fargo are developing a shared deposit token network through The Clearing House, with a launch targeted for the first half of 2027. The planned system would initially give multinational companies access to programmable treasury and cross-border payment services.
SWIFT has pursued a similar route, testing how existing bank messaging rails can connect tokenized asset settlement. The race is effectively two-track: incumbents extending bank money onto blockchains, and stablecoin issuers offering a parallel dollar instrument that clears on public networks without a bank intermediary.
The fight has reached Washington
The debate is no longer confined to conference halls in Wyoming. United States lawmakers are weighing the question as banking groups warn that stablecoin rewards programs could pull deposits out of banks and shrink the funding pool available for lending. Industry associations have previously estimated that trillions in bank deposits could be exposed to competition from interest-bearing stablecoins if regulation permits them at scale.
For regulators, the stakes involve both financial stability and oversight. Stablecoins operating on public blockchains sit partly outside the traditional supervisory perimeter, while tokenized deposits keep digital money inside the regulated banking system by design. The BIS framing effectively asks governments to favor the latter; Ardoino’s rebuttal argues that choice should belong to users, not to institutions protecting their deposit franchises.
Why it matters for crypto markets
The outcome of this argument could shape the competitive landscape for years. If tokenized deposits become the dominant regulated format for on-chain dollars in the United States and other major economies, issuers like Tether and Circle could face pressure on their core market among institutional users, even as retail and cross-border demand for stablecoins continues to grow.
Conversely, a regulatory framework that treats fully reserved stablecoins as a legitimate complement to bank money would cement the role of instruments like USDT, which already commands the largest circulation of any stablecoin worldwide. With Tether simultaneously facing its first real regulatory squeeze in Europe and new competition from bank-led alternatives, Ardoino’s clash with the BIS is less a philosophical exchange than a battle over which architecture of digital money inherits the dollar’s next decade.
For now, both camps are moving fast: the BIS continues to publish its vision of tokenized bank money, the major US banks are targeting a 2027 launch for their shared network, and Tether is defending the reserve model that turned it into one of the most profitable companies in crypto. The winners will be decided less in symposium speeches than in the statutes and charters now being drafted in capital markets around the world.
de Cos has a point on redeemability. if you hold USDT and need to pay someone in USDC you go through a secondary market, and we all watched USDC drift to 87 cents in March 2023
USDC at 87 cents was a bank failure problem, not a stablecoin design problem. SVB held the reserves, the token itself worked exactly as coded
the token worked as coded but holders still ate 13 cents of drawdown because the reserves sat in one bank. from a saver view that distinction meant nothing
Ardoino lecturing the BIS about fractional reserve risk while tether still refuses a full audit is a bold move lol
they publish reserve attestations now, its not a full audit sure but its honestly more transparency than most commercial banks offer on a random tuesday
Ardoino calling stablecoins safer than bank deposits is wild when USDT still never had a full audit. both sides are selling something here
true, but the bis acting like fractional reserve banking is the safety benchmark is rich. those deposits are only as good as the lender of last resort behind them
and the bis has one. thats the whole point de cos keeps making, the lender of last resort is real infrastructure. ardoino has attestation pdfs
fractional reserve banks literally create money out of debt, at least tether publishes reserve data. not saying they are saints but the comparison is not crazy
every issuer is selling something, but at least tether ships reserve reports monthly. the bis response is a pdf essay and a conference in the alps
monthly attestations from the auditor tether pays for. im on ardoinos side of this fight but lets not pretend those reports are adversarial reviews
^ an audit would settle this in a week. an attestation is a snapshot, an audit is a verdict. tether knows the difference
the bis keeps warning about digital dollarization from stablecoins, but banks issuing tokenized deposits is somehow fine. the sovereignty argument only ever cuts one way for these people
exactly. every tokenized deposit pilot settles in dollars or euro too. the dollarization argument somehow only applies when banks arent the ones doing it
jackson hole aug 28 and ardoino answered by sunday. dude does not let a BIS paper age more than 48h lol. tokenized deposits just keep deposits trapped on bank balance sheets during the next failure
de Cos wants banks to keep the pie and blockchains to be the plate. of course BIS prefers tokenized deposits, those are still bank liabilities
the singleness argument is actually their strongest point tbh. swapping USDT for USDC during a stress event is not gonna trade 1:1
the singleness gap is plumbing, not physics. fedwire settles 1:1 because the plumbing exists, nothing stops chains from building the same rails
plumbing exists because member banks are legally required to join fedwire. who compels circle and tether to honor each others redemptions at par? id love to know
fedwire settles 1:1 because member banks are required to plug in. nobody can compel two stablecoin issuers to honor each other at par, thats the actual gap de cos means
there is a middle road nobody mentions, clearing between issuers like banks do today. compel par through a shared settlement layer instead of pretending the gap is physics
shared settlement between tether and circle would need both to accept each others redemption risk. nobody volunteers for that without a regulator forcing it
de cos never said issuers owe each other par, he said tokenized deposits inherit the guarantee. ardoino arguing past that is the whole pr play
even granting that, the guarantee is only as good as the deposit insurance behind it. holders above the cap eat the same loss either way, par or no par
tokenized deposits settle through central bank rails, so the bis pitch amounts to banks keep everything and chains get nothing. ardoino is self interested but the framing holds