Who wins the settlement layer race?
18 Feb 2026
Tahlia Kraefft examines the race to redefine how transactions are cleared and settled, and asks who comes out on top — tokenised fiats or central bank money?
Image: chaosamran_studio/stock.adobe.com
The settlement battleground
The rapid expansion of tokenised asset issuance and trading venues is reshaping financial market infrastructure, shifting from conventional, fragmented T+2 cycles to near-instantaneous atomic settlement. The ability to control settlement rails within the digital asset landscape is becoming a key factor for the maturation of tokenised assets. It serves as a foundation for interoperability, guaranteeing industry standards, and system-wide trust. Atomic delivery-versus-payment (DvP) on distributed ledger technology (DLT) uses smart contracts to allow simultaneous transfer of assets, cutting out principal risk, and minimising the necessity for intermediaries. However it presents challenges to the liquidity management and netting efficiencies in existing legacy systems.
Consensus among financial institutions points to a layered architecture, rather than a single digital money to secure institutional trust for finality at scale. Against this backdrop, tokenised deposits and wholesale Central Bank Digital Currencies (CBDCs) are preferred for high-value settlement, while regulated stablecoins are favoured in open onchain ecosystems. Assets servicers have a central role in facilitating this transition, given their function in custody, cash processing, and collateral management.
Joe Vollono, chief commercial officer at STBL, explains that global institutions seldom converge toward a sole dominant instrument: “They scale through interoperability. Sustainable adoption depends on compatibility with custody frameworks, clearing systems, capital treatment rules, and compliance standards. Different forms of digital money architectured for different use cases will certainly coexist as technical standards and regulatory frameworks coalesce.”
Vollono remarks that tokenised commercial bank deposits, wholesale CBDCs, and regulated stablecoins target different layers of the monetary system rather than addressing the same problem. He comments: “For starters, the Bank for International Settlements’ Principles of Financial Market Infrastructure specify that institutional settlement should be conducted in central bank money. Wholesale CBDC serves this function, while also improving interbank settlement and central bank liquidity.
“Tokenised deposits digitise commercial bank liabilities within the existing two-tier system, and stablecoins provide programmable liquidity across digital ecosystems and application layers. The data supports this layered distinction. Over 90 per cent of central banks are exploring CBDCs, largely centred on wholesale settlement and policy transmission, while stablecoins dominate on-chain liquidity and digital asset settlement. These trends reflect their functional differentiation. The more important question now is how these different forms of digital money interact without fragmenting liquidity.”
Tokenised fiats gather pace
The financial industry is experiencing a remarkable, two-pronged shift with tokenised fiats gaining momentum for efficiency, and tokenised commercial bank deposits being engaged to uphold the two-tier banking structure. This dual strategy is enabling financial institutions to use blockchain for near instantaneous, 24/7 settlement without undermining the traditional bank-based model. Banks such as J.P. Morgan and HSBC are piloting tokenised cash for wholesale settlement.
Tokenised fiats including bank-issued stablecoins and deposits tokens allow programmability and intraday liquidity efficiencies without cutting out the role of banks. They offer a straightforward regulatory path, as deposits stay within the current supervisory frameworks, appealing for custodians who already oversee commercial bank cash networks. Interoperability remains a core challenge to the scaling and widespread adoption of tokenised fiats, as blockchain networks and traditional banking systems grapple with effective communication.
Stablecoins: A challenger or structural support?
Stablecoins are emerging as direct competitors to bank-issued tokenised deposits for institutional flows, fueled by their ‘always-on’ liquidity, instant settlement capability, and widespread adoption in 2025-26. While tokenised deposits provide advantages in deposit protection and interest, stablecoins are gaining a lead in scalable, cross-border B2B transactions. Regulated fiat-backed stablecoins from issuers such as Circle and Tether illustrate 24/7 onchain liquidity, acting as key infrastructure for the market.
Thilo Derenbach, head of sales and business development for digital securities services at Clearstream, comments: “The accelerated digitisation and adoption of stablecoins, digital securities, and crypto assets create further options for market participants in Europe and globally. Stablecoins can bring several advantages, such as high flexibility, significant increase in processing speed for cross-border transactions, and settlement — becoming particularly important also in a T+1 world. The key to adoption, and avoiding on-chain silos, will be interoperability — seamless integration between legacy infrastructure and new technology.
“Further embedding new tech, crypto, digital solutions, such as institution-grade stablecoins within regulated frameworks empowers market participants to confidently explore new possibilities in digital finance, backed by the security and market integrity of established market infrastructures.”
Vollono comments: “Stablecoins like USST are well positioned to act as a bridge currency, particularly in cross-border, cross-currency contexts where current sovereign solutions are inadequate.
“As it stands, large institutional players already consider them as such — J.P. Morgan described stablecoins as “email for money” in 2025. Broader adoption will depend on trust, which is a function of standards, laws, and regulations.”
Stablecoins function as key bridge assets between public and private blockchains, allowing the flow of value and data across fragmented ecosystems.
Through acting as tokenised representations of fiat currency, they enable near-instant, cost-efficient, and programmable settlements that link traditional finance, decentralised finance, and enterprise-controlled ledgers.
Growing regulatory scrutiny globally is driving trust and institutional stablecoin adoption, transitioning the market from speculative retail use to regulated institutional uptake.
Global stablecoin regulation is changing from opaque practices towards mandatory, bank-grade, and government-regulated regimes in many countries.
Major frameworks such as the EU’s MiCAR, US’ Genius Act, and the Bank of England’s proposed rules, all becoming finalised or enforced during 2026, now require 1:1 backing with high-quality liquid assets (HQLA), legally protected redemption rights, and monthly transparent audits.
These new regulatory framework requirements are driving a demand for traditional assets servicers to provide reserve custody and oversight services for stablecoins.
Asset servicers are closing the trust gap by implementing traditional asset servicing practices such as segregated accounts and independent valuation to digital assets.
Vollono notes: “Custody remains fundamental, regardless of whether assets are onchain or offchain.
“Assets must be held within legal and regulatory frameworks that ensure clear ownership, proper segregation, and institutional-grade risk management.
“Onchain assets do not remove these requirements. If anything, they increase the importance of qualified custodians who can ensure assets are securely held, legally protected, and properly segregated within regulated financial markets.”
Central bank’s developing role
Wholesale central bank digital currencies (wCBDCs) are being explored by national central banks and the Bank for International Settlements to enhance interbank settlements, cross-border payments, and asset tokenisation. wCBDCs are designed to provide immediate finality for high-value transactions.
They are recognised as the ultimate risk-free settlement asset. The Bank of England and European Central Bank are testing DLT for wholesale settlement using central bank money to improve transaction efficiency. wCBCDs’ use is more likely to be restricted to wholesale markets than retail use in the near future.
There is concern that in offering a direct, risk-free alternative to commercial bank money for settlement, wCBCD could diminish the role of banks, grow their funding costs, and disrupt credit creation. wCBDC also faces key hurdles such as aligning disparate national regulations, ensuring atomic settlement across jurisdictions, and building shared governance for multi-CBDC networks to oversee anti-money laundering (AML) and combating the financing of terrorism (CFT) compliance, risks and geopolitical and economic impacts.
Vollono argues: “Wholesale CBDCs are not replacements; they are onchain equivalents of the existing two-tier monetary system. Wholesale CBDCs represent central bank money used for interbank settlement. The shift to blockchain doesn’t change [their] roles, it simply modernises them.”
He continues: “Central banks are not monolithic, but they generally seek to preserve the two-tier monetary system, which suggests greater comfort with digitised forms of supervised commercial bank money. Stablecoins introduce additional considerations around reserve composition, governance, and systemic concentration.
“That said, regulatory developments in jurisdictions such as the US, the European Economic Area, and others indicate that stablecoins are increasingly being brought within defined supervisory frameworks.”
A race to define standards
The future of settlement is likely to be a coexistence of tokenised deposits, stablecoins, and wCBDCs rather than a winner-takes-all scenario. In this hybrid environment where financial instruments serve different, yet complementary roles: interoperability, standards, legal frameworks, and messaging protocols become the area of contest.
Derenbach, notes: “Despite the accelerated adoption of onchain markets, traditional market infrastructures will still favour hybrid tokenisation models, where assets remain anchored in existing custody and clearing systems while being mirrored onchain for financing and collateral use.
“This will drive deeper collaboration between crypto-native platforms and incumbents. As a result, 2026 will mark a wave of partnerships.
“CSDs and exchanges will collaborate with stablecoin issuers, crypto-native tokenisation platforms and onchain trading venues. This is not a digital race and there won’t be one winner. Stablecoins, CBDC, crypto, traditional assets — they are all part of the solution mix. The two imperatives for efficient digital markets are choice and interoperability. We must continue to build solutions that fit different needs — and work together globally.”
Vollono agrees a layered model model is the most logical outcome, where central bank money anchors final settlement, while tokenised deposits and stablecoins handle liquidity and programmability layers.
He says: “This is not a replacement of the current system; it’s an onchain analog. Central bank money will remain the foundation of settlement and finality.
“Tokenised deposits serve as digital representations of commercial bank liabilities and continue to support credit provisioning and financial intermediation.
“Stablecoins enable liquidity, composability, and seamless movement of value across digital markets and applications.”
“Stablecoin 2.0 reflects this evolution by introducing clear structural separation between the settlement layer and the liquidity or yield layer, ensuring settlement integrity while enabling programmable liquidity.
He continues: “Central banks are not known for tech innovation, but central bank participation will accelerate institutional adoption by clarifying legal status, settlement finality, and capital treatment. Institutions require that clarity before integrating new instruments into core treasury and risk systems.”
A spokesperson from BNY comments: “Global capital markets are currently at an inflection point, moving towards an always-on operating model while DLT, including blockchain, are becoming mainstream.
“The current marketplace shift isn’t about blockchain technology immediately replacing traditional systems — it’s about the two coexisting to unlock new possibilities and different solutions for different client needs.”
This multi-rail approach provides specific solutions for different use cases, however it poses a high risk of fragmentation if regulatory and technical standards differ across jurisdictions.
Industry consortiums and infrastructure providers have the potential to shape common rails and messaging standards.
For asset servicers, the test becomes preparing for an ecosystem where multiple forms of digital cash coexist and settlement strategy is the competitive edge.
The rapid expansion of tokenised asset issuance and trading venues is reshaping financial market infrastructure, shifting from conventional, fragmented T+2 cycles to near-instantaneous atomic settlement. The ability to control settlement rails within the digital asset landscape is becoming a key factor for the maturation of tokenised assets. It serves as a foundation for interoperability, guaranteeing industry standards, and system-wide trust. Atomic delivery-versus-payment (DvP) on distributed ledger technology (DLT) uses smart contracts to allow simultaneous transfer of assets, cutting out principal risk, and minimising the necessity for intermediaries. However it presents challenges to the liquidity management and netting efficiencies in existing legacy systems.
Consensus among financial institutions points to a layered architecture, rather than a single digital money to secure institutional trust for finality at scale. Against this backdrop, tokenised deposits and wholesale Central Bank Digital Currencies (CBDCs) are preferred for high-value settlement, while regulated stablecoins are favoured in open onchain ecosystems. Assets servicers have a central role in facilitating this transition, given their function in custody, cash processing, and collateral management.
Joe Vollono, chief commercial officer at STBL, explains that global institutions seldom converge toward a sole dominant instrument: “They scale through interoperability. Sustainable adoption depends on compatibility with custody frameworks, clearing systems, capital treatment rules, and compliance standards. Different forms of digital money architectured for different use cases will certainly coexist as technical standards and regulatory frameworks coalesce.”
Vollono remarks that tokenised commercial bank deposits, wholesale CBDCs, and regulated stablecoins target different layers of the monetary system rather than addressing the same problem. He comments: “For starters, the Bank for International Settlements’ Principles of Financial Market Infrastructure specify that institutional settlement should be conducted in central bank money. Wholesale CBDC serves this function, while also improving interbank settlement and central bank liquidity.
“Tokenised deposits digitise commercial bank liabilities within the existing two-tier system, and stablecoins provide programmable liquidity across digital ecosystems and application layers. The data supports this layered distinction. Over 90 per cent of central banks are exploring CBDCs, largely centred on wholesale settlement and policy transmission, while stablecoins dominate on-chain liquidity and digital asset settlement. These trends reflect their functional differentiation. The more important question now is how these different forms of digital money interact without fragmenting liquidity.”
Tokenised fiats gather pace
The financial industry is experiencing a remarkable, two-pronged shift with tokenised fiats gaining momentum for efficiency, and tokenised commercial bank deposits being engaged to uphold the two-tier banking structure. This dual strategy is enabling financial institutions to use blockchain for near instantaneous, 24/7 settlement without undermining the traditional bank-based model. Banks such as J.P. Morgan and HSBC are piloting tokenised cash for wholesale settlement.
Tokenised fiats including bank-issued stablecoins and deposits tokens allow programmability and intraday liquidity efficiencies without cutting out the role of banks. They offer a straightforward regulatory path, as deposits stay within the current supervisory frameworks, appealing for custodians who already oversee commercial bank cash networks. Interoperability remains a core challenge to the scaling and widespread adoption of tokenised fiats, as blockchain networks and traditional banking systems grapple with effective communication.
Stablecoins: A challenger or structural support?
Stablecoins are emerging as direct competitors to bank-issued tokenised deposits for institutional flows, fueled by their ‘always-on’ liquidity, instant settlement capability, and widespread adoption in 2025-26. While tokenised deposits provide advantages in deposit protection and interest, stablecoins are gaining a lead in scalable, cross-border B2B transactions. Regulated fiat-backed stablecoins from issuers such as Circle and Tether illustrate 24/7 onchain liquidity, acting as key infrastructure for the market.
Thilo Derenbach, head of sales and business development for digital securities services at Clearstream, comments: “The accelerated digitisation and adoption of stablecoins, digital securities, and crypto assets create further options for market participants in Europe and globally. Stablecoins can bring several advantages, such as high flexibility, significant increase in processing speed for cross-border transactions, and settlement — becoming particularly important also in a T+1 world. The key to adoption, and avoiding on-chain silos, will be interoperability — seamless integration between legacy infrastructure and new technology.
“Further embedding new tech, crypto, digital solutions, such as institution-grade stablecoins within regulated frameworks empowers market participants to confidently explore new possibilities in digital finance, backed by the security and market integrity of established market infrastructures.”
Vollono comments: “Stablecoins like USST are well positioned to act as a bridge currency, particularly in cross-border, cross-currency contexts where current sovereign solutions are inadequate.
“As it stands, large institutional players already consider them as such — J.P. Morgan described stablecoins as “email for money” in 2025. Broader adoption will depend on trust, which is a function of standards, laws, and regulations.”
Stablecoins function as key bridge assets between public and private blockchains, allowing the flow of value and data across fragmented ecosystems.
Through acting as tokenised representations of fiat currency, they enable near-instant, cost-efficient, and programmable settlements that link traditional finance, decentralised finance, and enterprise-controlled ledgers.
Growing regulatory scrutiny globally is driving trust and institutional stablecoin adoption, transitioning the market from speculative retail use to regulated institutional uptake.
Global stablecoin regulation is changing from opaque practices towards mandatory, bank-grade, and government-regulated regimes in many countries.
Major frameworks such as the EU’s MiCAR, US’ Genius Act, and the Bank of England’s proposed rules, all becoming finalised or enforced during 2026, now require 1:1 backing with high-quality liquid assets (HQLA), legally protected redemption rights, and monthly transparent audits.
These new regulatory framework requirements are driving a demand for traditional assets servicers to provide reserve custody and oversight services for stablecoins.
Asset servicers are closing the trust gap by implementing traditional asset servicing practices such as segregated accounts and independent valuation to digital assets.
Vollono notes: “Custody remains fundamental, regardless of whether assets are onchain or offchain.
“Assets must be held within legal and regulatory frameworks that ensure clear ownership, proper segregation, and institutional-grade risk management.
“Onchain assets do not remove these requirements. If anything, they increase the importance of qualified custodians who can ensure assets are securely held, legally protected, and properly segregated within regulated financial markets.”
Central bank’s developing role
Wholesale central bank digital currencies (wCBDCs) are being explored by national central banks and the Bank for International Settlements to enhance interbank settlements, cross-border payments, and asset tokenisation. wCBDCs are designed to provide immediate finality for high-value transactions.
They are recognised as the ultimate risk-free settlement asset. The Bank of England and European Central Bank are testing DLT for wholesale settlement using central bank money to improve transaction efficiency. wCBCDs’ use is more likely to be restricted to wholesale markets than retail use in the near future.
There is concern that in offering a direct, risk-free alternative to commercial bank money for settlement, wCBCD could diminish the role of banks, grow their funding costs, and disrupt credit creation. wCBDC also faces key hurdles such as aligning disparate national regulations, ensuring atomic settlement across jurisdictions, and building shared governance for multi-CBDC networks to oversee anti-money laundering (AML) and combating the financing of terrorism (CFT) compliance, risks and geopolitical and economic impacts.
Vollono argues: “Wholesale CBDCs are not replacements; they are onchain equivalents of the existing two-tier monetary system. Wholesale CBDCs represent central bank money used for interbank settlement. The shift to blockchain doesn’t change [their] roles, it simply modernises them.”
He continues: “Central banks are not monolithic, but they generally seek to preserve the two-tier monetary system, which suggests greater comfort with digitised forms of supervised commercial bank money. Stablecoins introduce additional considerations around reserve composition, governance, and systemic concentration.
“That said, regulatory developments in jurisdictions such as the US, the European Economic Area, and others indicate that stablecoins are increasingly being brought within defined supervisory frameworks.”
A race to define standards
The future of settlement is likely to be a coexistence of tokenised deposits, stablecoins, and wCBDCs rather than a winner-takes-all scenario. In this hybrid environment where financial instruments serve different, yet complementary roles: interoperability, standards, legal frameworks, and messaging protocols become the area of contest.
Derenbach, notes: “Despite the accelerated adoption of onchain markets, traditional market infrastructures will still favour hybrid tokenisation models, where assets remain anchored in existing custody and clearing systems while being mirrored onchain for financing and collateral use.
“This will drive deeper collaboration between crypto-native platforms and incumbents. As a result, 2026 will mark a wave of partnerships.
“CSDs and exchanges will collaborate with stablecoin issuers, crypto-native tokenisation platforms and onchain trading venues. This is not a digital race and there won’t be one winner. Stablecoins, CBDC, crypto, traditional assets — they are all part of the solution mix. The two imperatives for efficient digital markets are choice and interoperability. We must continue to build solutions that fit different needs — and work together globally.”
Vollono agrees a layered model model is the most logical outcome, where central bank money anchors final settlement, while tokenised deposits and stablecoins handle liquidity and programmability layers.
He says: “This is not a replacement of the current system; it’s an onchain analog. Central bank money will remain the foundation of settlement and finality.
“Tokenised deposits serve as digital representations of commercial bank liabilities and continue to support credit provisioning and financial intermediation.
“Stablecoins enable liquidity, composability, and seamless movement of value across digital markets and applications.”
“Stablecoin 2.0 reflects this evolution by introducing clear structural separation between the settlement layer and the liquidity or yield layer, ensuring settlement integrity while enabling programmable liquidity.
He continues: “Central banks are not known for tech innovation, but central bank participation will accelerate institutional adoption by clarifying legal status, settlement finality, and capital treatment. Institutions require that clarity before integrating new instruments into core treasury and risk systems.”
A spokesperson from BNY comments: “Global capital markets are currently at an inflection point, moving towards an always-on operating model while DLT, including blockchain, are becoming mainstream.
“The current marketplace shift isn’t about blockchain technology immediately replacing traditional systems — it’s about the two coexisting to unlock new possibilities and different solutions for different client needs.”
This multi-rail approach provides specific solutions for different use cases, however it poses a high risk of fragmentation if regulatory and technical standards differ across jurisdictions.
Industry consortiums and infrastructure providers have the potential to shape common rails and messaging standards.
For asset servicers, the test becomes preparing for an ecosystem where multiple forms of digital cash coexist and settlement strategy is the competitive edge.
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