Bank rails and tokenized deposit systems now move a large volume of custody-backed digital cash away from the two largest public chains. A recent report published by CryptoSlate estimates the amount at $3.6T, a figure that directs focus to settlement mechanisms beyond Bitcoin and Ethereum.
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What the $3.6T figure means
The $3.6T figure refers to custody-backed balances and tokenized cash instruments that circulate on payment networks and private ledgers rather than on major public blockchains. This does not claim the cryptocurrency markets are shrinking; it shows that a sizable portion of digital fiat equivalents now moves through systems built by banks, custodians, and specialized settlement platforms. Such flows include bank deposits represented as tokens, ledger entries on private networks, and fast settlement rails offered by financial institutions.
How bank rails carry digital cash
Traditional payment systems and bank-operated tokens rely on trusted intermediaries and controlled access. Commercial banks and custodians create ledger entries backing tokenized deposits, and they can settle transfers inside closed networks without routing activity through Bitcoin or Ethereum. These methods favor speed and regulatory clarity for larger-value transfers, which explains why many institutions use them for wholesale settlement and treasury operations.
The use of private rails does not eliminate public blockchain activity; rather, it offers alternative channels for specific use cases. Where on-chain decentralization matters less than finality and legal certainty, financial institutions prefer these systems. That preference has led to significant volumes of digital cash circulating off public chains, as reflected in the recent analysis.
Reasons Bitcoin and Ethereum are bypassed
Bitcoin and Ethereum remain the default public chains for open-value transfers, but they do not always satisfy institutional needs. For one, transaction finality, legal frameworks for custody, and reconciliation practices differ between public chains and bank systems. Many corporate treasury teams require bilateral settlement agreements and audited custody that are easier to achieve on bank rails.
Cost and throughput also play roles. High-value payments require predictable settlement windows and limited counterparty risk. Private networks can provide those attributes without the broader exposure that comes from posting transactions to an open ledger. The result is that large pools of tokenized cash and custodial balances move on systems designed for institutional settlement rather than on general-purpose public chains.
Effects on on-chain metrics and monitoring
Analysts who rely on public-chain data must account for this tail of activity when they interpret market signals. A growing chunk of liquidity hides in systems that do not disclose transfers on public ledgers, so traditional on-chain indicators can understate the true movement of digital cash. Researchers and firms providing crypto analytics are adjusting models to include off-chain flows and custody reports, yet transparency challenges remain.
For wallets and consumer-facing services, the distinction matters. Users who expect to trace funds on-chain will find limits when balances move within custodial networks. The behavior of crypto wallets connected to custodians differs from self-custodial wallets because many custodial movements do not produce a public transaction record. This divergence complicates forensic analysis and reporting that depend strictly on public-chain visibility.
Regulatory and operational consequences
Regulators and compliance teams are taking note. Systems that maintain large custody-backed pools must answer questions about reserve backing, reconciliation processes, and dispute resolution. The migration of substantial value to private rails concentrates risk in fewer entities, which prompts calls for clearer reporting standards and stronger audit practices for tokenized deposits and custodial tokens.
Operationally, banks and custodians emphasize controls and legal enforceability. Those priorities explain why institutions often favor closed networks that integrate with existing compliance workflows. The tradeoff is reduced public transparency; regulators respond by asking for standard metrics that can demonstrate solvency and operational integrity without exposing proprietary transaction data.
Market risks and fragmentation
The coexistence of public chains and bank rails produces fragmentation in how digital cash circulates. Fragmentation increases complexity for cross-system settlement and for entities trying to move value between public and private systems. Liquidity fragmentation may also raise costs when parties need to convert between on-chain tokens and custody-backed balances.
Concentration risk follows from fragmentation because a small number of custodians can control large pools of tokenized cash. Failures or operational outages at those custodians could create disruptions that are not visible on public chains until they touch an exit point. That risk fuels interest in standardization, examinations, and contingency planning among market participants and regulators.
Practical considerations for market participants
Treasury operators, exchanges, and service providers must decide which rails suit each use case. For high-frequency retail transfers, public chains and layer-two networks may remain attractive. For large-ticket interbank settlement and corporate cash management, bank rails and tokenized deposits often provide necessary legal protections and operational features.
Firms that analyze flows should broaden their data sources. Combining public-chain feeds with custodial reports and industry filings helps produce a fuller picture of where digital cash rests and how it moves. This blended approach to monitoring and reporting will help reduce blind spots that pure on-chain observation cannot resolve.
What to watch next
Market observers will track how institutions report custodial holdings and how regulators respond. Increased disclosure from custodians would allow better assessment of the risks and the resilience of tokenized deposit systems. At the same time, developments in interoperability and settlement messaging may reduce friction between public and private rails, affecting where future flows accumulate.
The recent CryptoSlate estimate of $3.6T highlights a fact that requires attention from analysts, compliance officers, and policy makers: the movement of significant digital value occurs in channels that traditional on-chain metrics do not fully capture. Close observation and improved reporting will be necessary to assess systemic exposure and to inform measured policy responses.
For those watching the market, the balance between public rails and bank-operated channels will remain a key operational and regulatory issue. The practical consequence is that any comprehensive assessment of value motion must include off-chain settlement systems alongside public blockchain activity.