- VersaBank is piloting the USDVB deposit tokens pegged 1:1 to the bank’s US dollar deposits.
- The bank leverages Ethereum, Algorand, and Stellar networks for the issuance of the tokens.
VersaBank, an entity that prides itself as the world’s first fully digital financial institution, is making a big move in real-world asset (RWA) tokenization. On Tuesday, the company announced the launch of its internal pilot program for the USDVB deposit tokens.
Features of VersaBank’s Deposits Tokens
USDVBs are the US dollar version of the bank’s blockchain-powered Digital Deposit Receipts (DDRs), which recently successfully completed its pilot in Canada. VersaBank USA pegs the USDVB token 1:1 to the US dollar deposit it maintains.
The pilot will enable VersaBank’s US subsidiary to simulate small-scale transactions from its thousands of customers. The bank only limits its initial pilot phase to its internal network. After that, it will extend the pilot to external partners.
VersaBank has chosen Ethereum (ETH), Algorand (ALGO), and Stellar (XLM) as issuers of the tokenized deposits. Meanwhile, the bank will be responsible for the custody and management of the digital assets.
According to VersaBank, deposit tokens offer “superior security, stability, and regulatory compliance compared to stablecoins.” Additionally, it highlighted that these assets carry a “combination of safety and soundness” of traditional banking with blockchain technology’s efficiency, cost savings, security, and programmability.
Deposit Tokens Vs Stablecoins
Unlike stablecoins, which non-bank private entities issue, deposit tokens are within the controlled network of banks. Hence, they are subject to the stringent protections regulators offer to traditional finance (TradFi) institutions, such as Federal Deposit Insurance Corporation (FDIC) insurance. Banks also tailor the latter for enhanced compliance with the Know Your Customer (KYC) and Anti-Money Laundering (AML) standards.
Moreover, stablecoins are backed by off-balance sheet reserves managed by the private non-bank issuer, compared to the deposit tokens’ on-bank balance sheet, which is directly tied to customer accounts. Due to their nature, stablecoins take out liquidity from the banking system, unlike deposit tokens that support the financial stability and growth of banks.
In terms of use cases, stablecoins are more suited for cross-border payments, programmable payments, and decentralized finance (DeFi) applications like lending or yield farming on public blockchains. On the other hand, deposit tokens better cater to domestic real-time payments, business-to-business (B2B) transactions, and treasury automation, with potential future applications in regulated or institutional DeFi. Furthermore, subject to the issuing bank’s terms, deposit tokens are usually interest-bearing, and holders can use them as collateral for loans.
