The UAE's race to build the next generation of digital currency may be taking a path different from what the stablecoin boom originally envisioned.
On Tuesday, HSBC and Ant International completed real-time tokenized deposit transactions involving the UAE, including dirham-denominated domestic transfers and USD transfers initiated from the UAE to Hong Kong and Singapore. Ant International thus became HSBC's first Middle East client for its Tokenized Deposit Service.
On its own, this is just another blockchain banking pilot. But combined with a series of moves by UAE banks over the past few months, it points to something much bigger.
HSBC launched its tokenized deposit service in the UAE in June; Citi brought Citi Token Services to the UAE in September; First Abu Dhabi Bank (FAB) has participated in live transactions through Swift's new blockchain ledger; Mashreq also completed a real-time cross-border transaction through this same emerging infrastructure. Meanwhile, regulated dirham stablecoins continue to expand, with licensed issuers, a 110 million dirham DDSC transaction, and the completion of the first retail POS pilot.
But for institutional money, tokenized deposits may advance faster within the UAE banking system than stablecoins, because it does not require rebuilding a financial system around tokens—it digitizes the money, relationships, and infrastructure banks already have. This difference could become one of the most important themes in the next phase of the UAE's digital currency market.
HSBC puts dirham deposits on blockchain rails
HSBC launched its tokenized deposit service in the UAE on June 22, connecting the dirham to a network that already covers major financial centers.
The model is relatively straightforward: corporate clients designate their deposits held at HSBC, which are mapped 1:1 to digital tokens on the bank's private blockchain, and can then be transferred 24/7 between HSBC's participating branches and corporate wallets.
This is not newly issued private money, not a stablecoin backed by reserves held elsewhere, and not a central bank-issued CBDC. The client's money remains at HSBC; the token is merely a digital representation of that bank deposit.
HSBC says eligible corporate and institutional clients in the UAE can use this infrastructure for domestic and cross-border transfers, available 24/7, and can connect to existing treasury management operations.
Ant International has already moved this infrastructure from "available" to "actually used." Through its blockchain-based treasury management platform WhaleRTP, Ant completed real-time dirham tokenized deposit transactions within the UAE and initiated USD-denominated transactions from the UAE to international markets such as Hong Kong and Singapore. WhaleRTP is already supported by more than 20 global banks, covering over 17 currencies, which makes the UAE's connection more significant than a single bilateral proof of concept. Ant International also said it plans to establish a global treasury management center in the Middle East.
So the story is not just HSBC putting deposits on a blockchain, but the UAE being connected to an existing global corporate liquidity network.
Citi and Swift fill in the "interoperability" lesson
On September 28, Citi announced that Citi Token Services had launched in the UAE and Japan, bringing the number of served markets to seven. The service uses a private permissioned chain to tokenize deposits within Citi's banking network. In the UAE, it initially supports USD and EUR transactions, allowing corporate and institutional clients to move liquidity between enabled Citi branches without traditional cut-off times or holiday restrictions.
Citi says the platform has already reached billions of dollars in global transaction volume. Earlier this year, the bank told investors that before its UAE expansion, hundreds of clients were already moving nearly $1 billion per day through its tokenized deposit capability.
This point is crucial: HSBC and Citi are not experimental fintech companies seeking bank access, but two of the world's largest transaction banks, plugging tokenized commercial bank money directly into their existing treasury management networks.
A new layer is also forming between banks. In July, Swift announced that 17 banks from six continents would begin live testing of its tokenized deposit blockchain ledger, including HSBC, Citi, Standard Chartered, First Abu Dhabi Bank, and Mashreq. FAB subsequently completed one of the earliest live transactions in the Middle East on that ledger with Citi, while HSBC and Standard Chartered completed the first interbank tokenized deposit transaction through that infrastructure in August.
This begins to address the biggest previous shortcoming of tokenized deposits: interoperability. Deposit tokens circulating only within HSBC are useful to HSBC clients, and tokens circulating only within Citi are likewise useful, but both are closed networks. If these deposits can increasingly interact on shared infrastructure like Swift, the proposition changes—tokenized deposits begin to look like a new digital layer of commercial bank money itself.
Why the institutionalization path for tokenized deposits in the UAE is shorter
Stablecoins and tokenized deposits have functional similarities, but their starting points are completely different.
Stablecoins require an issuer, regulatory authorization, reserves, issuance and redemption mechanisms, custody arrangements, wallet infrastructure, distribution channels, and ultimately enough counterparties willing to accept the token.
The UAE has deliberately built this framework. Under the central bank's Payment Token Services Regulation, payment token issuers operate under a dedicated regulatory regime covering issuance, redemption, custody, and transfer; licensed issuers face capital requirements and strict reserve rules, including segregation of backing assets.
Tokenized deposits start from a different point: clients already have bank accounts, banks have completed onboarding and compliance, corporate treasury management systems are already connected to banks, and liquidity is already on their balance sheets. Tokenization only changes how that deposit moves.
This creates an important asymmetry: stablecoins must build distribution from scratch, while banks already have distribution. For institutional treasury departments, the question may not be whether to "adopt crypto" or hold a new digital asset, but simply whether they want their existing bank deposits to move 24/7, become programmable, and connect to tokenized financial infrastructure. This proposition is substantially easier.
The Bank for International Settlements (BIS) has also pointed out another structural difference: tokenized deposits can maintain the relationship between commercial bank money and central bank settlement while introducing programmability and composability; stablecoins, especially those circulating as bearer instruments, raise different issues around the "singleness of money."
Stablecoins have not lost; they are just building something else
This does not mean the UAE stablecoin market is being held back.
There are currently five dirham stablecoin projects advancing within the central bank system, including four bank-linked projects and one non-bank participant. In September, Network International brought DDSC into a new scenario through the UAE's first in-store dirham stablecoin pilot, allowing consumers to pay at designated merchants using existing POS infrastructure. AE Coin is also expanding through wallets, regulated crypto-to-dirham conversion, and merchant acceptance, while Zand is developing its own regulated dirham stablecoin model.
Therefore, this comparison should not be reduced to which technology generates more transactions. The more meaningful question is: which model has the shortest path into key financial use cases.
In retail payments, stablecoins have greater portability potential; in public chain settlement, DeFi, tokenized assets, cross-border FX, and the digital asset ecosystem, stablecoins retain advantages that closed bank deposit networks are hard-pressed to replicate. But in corporate treasury management, liquidity management, and institutional payments, tokenized deposits have a huge structural advantage from the start—they are already where corporate funds are.
The stablecoin narrative is changing
The moves by HSBC and Citi raise another possibility: what if banks do not need to issue separate stablecoins at all to achieve some of the same institutionalization goals?
If a multinational company can move its existing bank deposits between Dubai, Hong Kong, Singapore, London, and New York almost in real time, 24/7, the economic boundary between traditional commercial bank money and programmable digital currency begins to blur.
This will not eliminate the stablecoin use case, but it will force it to become clearer.
Public money, stablecoins, and bank money are converging
The UAE may move toward a more complex landscape than "stablecoins versus banks, winner takes all." A three-layer digital currency system is taking shape.
At the sovereign level is the digital dirham representing central bank money; alongside it are regulated dirham stablecoins, designed as payment tokens that can circulate in digital networks; and now commercial banks are putting tokenized deposits on blockchain rails while keeping deposits within the regulated banking system.
Developments around the digital dirham show that these systems are being developed in parallel, rather than as mutually exclusive alternatives. While advancing the digital dirham, the central bank is also regulating an expanding dirham stablecoin ecosystem and broader digital payment infrastructure.
The next round of competition may not be about which form of currency survives, but about where each type of digital money is best suited for settlement.
Stablecoins may have the advantage in scenarios where funds need to flow publicly across networks; CBDCs may provide sovereign settlement and public money infrastructure; tokenized deposits may have the advantage when enterprises need programmability and 7×24 settlement without moving liquidity out of their banking relationships.
Banks may put deposits on-chain before stablecoins "disintermediate" them
This may be the bigger takeaway from the HSBC and Ant International deal.
Stablecoins were initially described as a technology that could bypass banks. But banks seem to have reached a different conclusion: rather than waiting to be bypassed, they should put bank money on the same technological track.
HSBC's tokenized deposits now cover six markets, Citi has expanded to seven, Swift is building interoperability among 17 major banks, and FAB and Mashreq have joined from the UAE.
The result is not monetary decentralization in the crypto sense, but the tokenization of commercial banking itself.
Stablecoins still have advantages that tokenized deposits do not, especially portability, public chain access, and the ability to move beyond a single bank network. As financial assets increasingly settle on-chain, stablecoins' role in tokenized markets may ultimately be much larger.
But within institutional finance, the UAE is revealing another race: stablecoin issuers are building new networks around new digital representations of money, while banks are making the money already in corporate accounts programmable. For corporate treasury management, the second path may be faster. If the moves by HSBC, Citi, FAB, Mashreq, and Swift represent the market direction, then tokenized deposits may enter the institutional financial system before stablecoins complete the infrastructure needed for competition.
