The following is a guest post and opinion from Patrick Heusser, Head of Lending & TradFi at Sentora.
In traditional banking, commercial banks operate on fractional reserves. Deposits are only partially backed, and banks create money through lending. This model offers high capital efficiency and elasticity; banks can support economic growth by expanding credit, but at the cost of fragility, maturity mismatches, and systemic dependency on central banks.
Payment rails (ACH, SEPA, card networks) rely on netting, credit lines, and settlement-finality delays. Liquidity is managed across a network of intermediaries and backstops.
In contrast, stablecoins operate on a one-to-one reserve basis. Transactions settle instantly, transparently, and are irreversible. However, they require pre-funding and, by design, eliminate endogenous credit creation. Liquidity must be fully available before transactions occur. This rigidity offers trust minimization and atomicity, but also introduces capital intensity and an operational burden when interfacing with TradFi.
The concept of “singleness of money” is challenged by this divide: stablecoins cannot seamlessly substitute for fractional bank deposits unless deep interoperability and synchronized settlement are established.
A growing share of global liquidity is migrating into stablecoins. This movement represents more than technological preference—it is a shift in monetary architecture. As Marvin Barth articulates, this could effectively implement a modern version of the Chicago Plan, disintermediating banks and replacing deposit money with full-reserve alternatives.
Capital moving from bank accounts to stablecoins reduces the banking sector’s access to cheap funding, raises competition for deposits, and may necessitate credit contraction. In aggregate, this migration locks capital into instruments that, while liquid, are not economically leveraged.
The implications ripple beyond banking: as stablecoin issuers invest in T-bills and repos, they crowd out other credit users, distort short-term funding markets, and elevate systemic liquidity needs.
Sensing these pressures, JPMorgan has launched tokenized deposits—programmable, on-chain claims on the bank’s own liabilities that still sit inside a fractional-reserve, regulated framework. With this move, the bank aims to
It is, in essence, a defensive play: bring deposit money on-chain before stablecoins siphon it away. The architecture is technically elegant but not without trade-offs. Users may assume atomic, irrevocable settlement, yet the underlying asset remains embedded in a credit system subject to maturity transformation and regulatory intervention—an opacity that contrasts sharply with the transparent-reserves ethos of non-fractional stablecoins.
Concepts such as the one from JPMorgan mentioned above raise an interesting question. Can we avoid the binary choice between rigid, fully funded systems and elastic, credit-generating banks? Emerging solutions suggest that we can:
These hybrid models aim to balance capital efficiency with transparency and programmability. They are not frictionless, but they are functional.
Money itself is splintering into multiple on-chain and off-chain forms, yet the pool of deployable capital is finite. The contest between fractional-reserve banking and non-fractional stablecoins is therefore a fight over who gets to issue, settle, and earn the spread on digital dollars. Left unchecked, the shift could erode credit creation and the liquidity buffers that support traditional finance. Guided well, it promises a safer, faster, more programmable financial stack.
The landscape is consolidating around players that can straddle both worlds of money:
The real winners will be those who can intermediate between the two monetary systems and reduce the capital intensity of bridging them.
