Definition ∞ On-chain bank liability refers to the obligations of a financial institution that are recorded and verifiable directly on a blockchain network. This concept applies when banks issue digital representations of their liabilities, such as tokenized deposits or stablecoins, directly on a distributed ledger. Such a system offers transparency and real-time settlement capabilities for these specific liabilities. It represents a significant shift from traditional ledger systems, allowing for cryptographic proof of reserves.
Context ∞ The concept of on-chain bank liability is gaining traction as central banks and commercial banks explore central bank digital currencies and tokenized deposits. Discussions center on the regulatory implications, operational complexities, and potential benefits of moving traditional bank liabilities onto blockchain infrastructure. A critical future development involves the establishment of clear legal and technical standards for issuing and managing these on-chain liabilities, ensuring financial stability and regulatory compliance. This innovation could transform payment systems.
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