What stablecoins and tokenization change about cross-border liquidity

Barath Narayanan, Global BFSI and Europe Geo-Head at Persistent Systems, shares his opinion on the impact of stablecoins and tokenization on cross-border liquidity. 

Cross-border payments have been getting faster for a decade, but the capital behind them has not. A payment sent from London to Singapore can clear in seconds via SWIFT GPI or a local real-time rail, yet the bank sending it holds liquidity in a nostro account in Singapore for weeks or months, waiting for the instruction. The industry-wide shift to ISO 20022 improved data quality and reconciliation, but it has not changed the underlying requirement to pre-position capital in every corridor. 

Stablecoins and tokenization change the required timing for capital settlement. Under the old model, banks pre-funded all served corridors by anticipating demand, absorbing the cost of idle liquidity, foreign exchange (FX) exposure, and opportunity across dozens of accounts. A significant share of cross-border payment costs was only from pre-funded nostro balances. Stablecoins and tokenized deposits change the pre-funding requirement by enabling programmable settlements. 

Pre-funding: the capital that has not moved

Under a programmable settlement model, capital moves with the transaction, so the funding decision starts days or weeks before the transaction runs. This structural change in cross-border banking economics makes stablecoins and tokenized deposits worth the operational effort of piloting them: funding, the compliance check, and the transfer – these all happen after one instruction (that can either complete or not). Atomic settlement, in which both sides of a transaction clear in an all-or-nothing method, removes the reconciliation lag that pre-funding had to address. 

A digital bank serving institutional cryptocurrency markets ran into this constraint at scale. Its treasury unit was pre-funding trading positions across multiple custodians and blockchain networks, tying up working capital that could not be redeployed intraday. The bank connected its core banking systems, external custodians, and blockchain infrastructure through an orchestration layer, with smart contracts settling stablecoin trades in real time in place of end-of-day reconciliation. Pre-funded positions became a treasury option, a logic that applies beyond digital assets: when settlement assets are programmable, how much capital sits in a corridor becomes an active decision. 

Which flows benefit first from stablecoins and tokenization?

High-volume domestic retail payments run efficiently on existing rails and should remain so, since the marginal tokenization liquidity benefit is smaller than the operational cost of running two parallel settlement environments. 

Stablecoins and tokenization change the economics of payment flows where delays or trapped liquidity create a recurring, measurable cost: cross-border settlement, intraday liquidity, repo, collateral movement, and delivery-versus-payment. 

Three variables determine which flow to move first: 

1. Regulatory clarity

Regulation is highly relevant as payment flows enabled by a stablecoin or tokenized-deposit framework can advance without tailored compliance built in. Frameworks that made this practical in the last eighteen months are: MiCA in Europe, which sets clear terms for tokenized deposits and e-money tokens, and the GENIUS Act in the US, which gives stablecoins federal treatment with 1-1 reserve backing and embedded anti-money laundering (AML) compliance. The approaches differ: European banks are leaning into tokenized deposits to protect their existing deposit franchise; US institutions are more open to stablecoin issuance because the domestic market already accommodates non-bank payment instruments. In practice, the effect is the same. Institutions can now run pilots without having to build their own compliance roadmap from scratch. 

2. Counterparty readiness

This is the second variable determining payment flow, as intrabank flows require one side to be ready, while interbank flows require shared rulebooks and liquidity commitments. 

3. Current infrastructure costs

The third variable, and the one deciding the business case, is the cost of the current infrastructure for the specific payment flow. A corridor with heavy, predictable pre-funding requirements and stable volume is a stronger first candidate than one with light pre-funding and volatile flows, regardless of counterparties’ readiness. Unified ledger models, in which cash and securities settle on a single record, have the most benefits in liquidity and the highest bar for industry alignment. 

Early evidence at wholesale scale

For a treasury or payments head evaluating this development, the concern is whether it works at institutional volumes rather than in isolated pilots. Recent activity suggests that it does. 

A Bank for International Settlements initiative spanning seven central banks and more than 40 private financial institutions, Project Agora, demonstrated atomic multi-currency wholesale settlement using tokenized central bank reserves and commercial bank deposits on a shared ledger. 

Fnality’s live sterling settlement network and Partior’s multi-currency interbank platform show parallel commercial progress, with institutions moving value across programmable rails. 

These three initiatives have something in common worth noting: they operate within a defined counterparty perimeter instead of trying to address the open network issue of arbitrary participants and open onboarding. This design made the pre-funding reduction noticeable, as it kept compliance, credit risk, and operational risk within a group agreeing on shared standards. It is also the approach banks moving their own flows should try to replicate. 

The compression of the pre-funding revenue model

Banks also need to model pre-funding revenue compression. The  payments industry remains the most valuable part of financial services, generating USD 2.5 trillion in revenue per McKinsey's 2025 Global Payments Report. Cross-border payments are a significant source of that revenue for banks, and a meaningful portion comes from holding pre-funded liquidity across correspondent networks. Cross-border pricing rests on two foundations: pre-funding cost and settlement float. Banks earn the difference between the cost of holding capital and what they charge treasury clients for cross-border access. When pre-funding requirements shrink, and settlement turns near-instant, both foundations will compress. 

Once started, this compression will not be corridor-by-corridor, giving banks time to adjust product economics by individual client. It will be simultaneous, across the entire cross-border model, because treasury clients driving the largest payment flows will choose the provider that offers the new settlement model first. The pricing benchmarks used for other corridors will follow naturally. 

How banks should prepare:

• Sequence pilots compliant with the framework in each relevant market: tokenized deposits under MiCA in Europe, stablecoin issuance under the GENIUS Act in the US.
• Start with intrabank flows within a defined counterparty perimeter before moving to interbank or unified ledger models.
• Filter first-pilot candidates by the cost of the current arrangement, not by regulatory or counterparty readiness alone.
• Keep tokenization inside the broader modernisation roadmap alongside ISO 20022 and core decoupling, so that settlement events, reconciliation, and monitoring don’t need redesigning when the tokenization pilot scales.
• Embed sanctions, travel rule, and AML checks into the settlement flow, so that compliance becomes a precondition of settlement rather than a post-trade review.

The engineering work behind this industry development is more advanced than most cross-border commentary suggests. Programmable settlement assets, atomic settlement, and compliance-as-precondition currently operate at institutional scale, inside defined counterparty perimeters. Banks should ask which flows need to move into that architecture first, and how quickly they can shape their modernisation roadmap to accommodate this. 

About the author

Barath Narayanan is Global BFSI and Europe Geo-Head at Persistent Systems. His role involves driving strategy, growth, go-to-market, delivery, client and partner relationships, and business operations. With deep expertise in leading digital transformation for global enterprises, Barath has successfully managed large P&L portfolios, shaped strategic deals, led consulting practices, and delivered complex programmes that accelerate growth and profitability. His leadership is rooted in a customer-first and employee-success mindset with a strong understanding of markets across regions.

 

About Persistent Systems

Persistent Systems is a global services and solutions company delivering AI-led, platform-driven digital engineering and enterprise modernisation to businesses across industries. With over 28,500 employees located in 21 countries, Persistent Systems is committed to innovation and client success. Persistent offers a comprehensive suite of services, including software engineering, product development, data and analytics, CX transformation, cloud computing, and agentic business automation.