Tokenized Deposits, Zero-Knowledge Disclosure, and Bank Runs: How Blockchain Infrastructure Reshapes Financial Fragility

Abstract

Tokenized deposits settle continuously and nearly instantaneously, but faster withdrawal execution compresses the coordination game among depositors and increases funding fragility even for solvent banks. This paper examines how disclosure design interacts with settlement speed to determine run risk and welfare in tokenized banking environments. We compare conventional disclosure with verifiable compliance disclosure implemented via Zero-Knowledge Proofs (ZKPs), which allow banks to certify regulatory liquidity compliance without revealing precise balance sheet positions. ZKP disclosure eliminates coordination-driven runs on compliant banks by pooling institutions near the regulatory threshold, at the cost of weaker market discipline as sophisticated depositors acquire less private information. A calibrated simulation using FDIC call report data for large US commercial banks, including the five Cari Network members, quantifies run probabilities and welfare across settlement speeds and depositor compositions. Tokenization without enhanced disclosure amplifies fragility; combining fast settlement with verifiable compliance disclosure improves welfare, particularly for retail-oriented funding bases. Disclosure architecture is not ancillary to tokenized deposit regulation, it is central to it.