Overview
Blockchain is a brand new settlement and ownership layer characterized by programmability, openness, and a default global nature, capable of stimulating new forms of entrepreneurship, creativity, and infrastructure development. The overall trend of monthly active crypto addresses aligns with the trajectory of internet users reaching a billion, while stablecoin trading volumes have surpassed traditional fiat trading volumes. Relevant laws and regulations are gradually keeping pace with developments, as crypto enterprises are being acquired or going public.
Introduction
The combination of regulatory clarity and competitive pressure, along with the significant enhancement of business outcomes through blockchain and the increasing maturity of technology, is driving the traditional finance (TradFi) sector to urgently embrace blockchain technology as a core infrastructure. Traditional financial institutions are re-evaluating blockchain, viewing it as a transparent and secure value transfer tool that can provide institutions with future assurance while unlocking new sources of growth.
Executive teams are raising a new question: not “whether” or “when,” but “how now” to make blockchain have a real impact on business. This question is driving a wave of exploration, resource allocation, and restructuring within organizations. As institutions begin to make genuine investments in this field, two key themes are emerging:
- Business cases for blockchain-driven strategies
- Technical foundations for implementing strategies
This guide aims to help answer these questions. It is not a comprehensive survey covering all blockchain use cases or protocols, but rather an action guide from zero to one, elucidating key early decisions, sharing emerging patterns, and helping to redefine blockchain as no longer merely symbolic hype, but as core infrastructure. With the right application, blockchain can not only provide traditional financial institutions with future assurance but also unlock new growth potential.
Due to the differences in how banks, asset management firms, and fintech companies (including the increasingly well-known PayFi) interact with end-users, traditional infrastructure limitations, and regulatory requirements, we have categorized the following content to provide solid and actionable insights into blockchain applications for leaders in these industries, helping them transition from conceptual design to practical product implementation.
Banks
Banks appear to be modernized but still run on legacy software systems—primarily COBOL, a programming language that originated in the 1960s. Despite being outdated, it still supports systems that meet banking regulatory requirements. When customers click on a flashy webpage or use a mobile app, these front-end interfaces are essentially just translating operations into commands for decades-old COBOL programs. Blockchain offers a way to upgrade these systems without compromising regulatory integrity.
By integrating and utilizing blockchain technology, banks can move beyond the “internet-age bookstores” model to an Amazon-like approach: adopting modern databases and superior interoperability standards. Asset tokenization—whether stablecoins, deposits, or securities—could occupy a core position in future capital markets. To avoid being left behind in this transformation, adopting suitable systems is merely the first step. Banks need to genuinely master and lead this change.
In terms of retail clients, banks are exploring ways to provide customers access to crypto assets, such as offering Bitcoin and other digital assets through their affiliated brokerage firms as part of the overall customer experience. This access can be indirect through exchange-traded products (ETPs) or, as the U.S. Securities and Exchange Commission (SEC) abolishes accounting rule SAB 121 (which had effectively prevented U.S. banks from participating in digital asset custody), eventually direct participation. However, the potential of blockchain is even greater on the institutional and backend side, primarily focused on three emerging use cases: tokenized deposits, reassessment of settlement infrastructures, and collateral liquidity.
Application Scenarios
Tokenized deposits represent a fundamental shift in how commercial banks operate with currency. This is not a speculative concept; tokenized deposits are already being applied, such as JPMorgan’s JPMD token and Citibank’s Token Services for Cash project. These tokens are not synthetic stablecoins or digital assets backed by government bonds, but are backed by real fiat currency, stored in commercial bank accounts, and represented as regulated tokens at a 1:1 ratio, tradable on private or public chains.
Tokenized deposits can reduce settlement delays from several days to minutes or seconds, applicable in areas such as cross-border payments, cash management, and trade financing. As a result, banks can lower operational costs, reduce reconciliation work, and enhance capital efficiency.
Additionally, banks are actively reassessing their settlement infrastructures. Several major banks are participating in decentralized ledger settlement trials, often in collaboration with central banks or blockchain-native enterprises, to address the inefficiencies of the “T+2” system. For instance, zkSync (a Layer 2 solution on Ethereum that optimizes Ethereum’s performance through off-chain transaction processing) is collaborating with global banks to demonstrate near-real-time settlements in cross-border payments and intraday repo markets. The business impacts of these practices include improved capital efficiency, optimized liquidity utilization, and reduced operational costs.
Blockchain and tokens can also enhance banks’ ability to quickly and efficiently transfer assets between business units, geographic regions, and counterparties, referred to as “collateral liquidity.”
The U.S. Depository Trust & Clearing Corporation (DTCC) recently launched the Smart NAV pilot program aimed at modernizing collateral liquidity through tokenized Net Asset Value data. This pilot demonstrates how collateral can function like a liquid, programmable currency, representing not only an upgrade in bank operations but also an innovation supporting its broader strategy. Improving collateral liquidity enables banks to reduce capital buffers, access a broader liquidity pool, and be more competitive in capital markets with a streamlined balance sheet.
Choosing Blockchain
For all these application scenarios—tokenized deposits, reassessment of settlement infrastructures, and collateral liquidity—banks need to make key decisions, starting with whether to use a private or public chain network.
In the past, banks were prohibited from accessing public chain networks, but recent guidance from banking regulatory bodies, including the Office of the Comptroller of the Currency (OCC), has relaxed this restriction, expanding the possibilities for blockchain applications. For example, the collaboration between R3 Corda and Solana is a landmark case. This collaboration will allow Corda’s permissioned network to settle assets directly on Solana.
In the context of tokenized deposits as an application scenario, we will discuss early decisions related to product launch, from choosing a blockchain to the degree of decentralization. While there are many ways to approach blockchain selection, building products based on decentralized public chains has several advantages:
- Neutral developer platform: Provides a neutral developer platform that anyone can contribute to, which not only increases trust but also expands the ecosystem supporting the product.
- Accelerated product iteration: Because anyone can contribute, the ability to use, adjust, and combine others’ components (i.e., modular composability) accelerates product iteration.
- Enhanced platform trust: Top developers are more likely to choose decentralized blockchains, as these platforms do not suddenly change rules or engage in censorship, ensuring their products can remain profitable.
In contrast, centralized public chains may lose developer trust due to rule changes or application censorship, while non-programmable blockchains cannot enjoy the advantages of modular composability.
Although the current speed of blockchain is still slower than centralized internet services, performance improvements have been significant over the past few years. Layer 2 rollups on Ethereum (various types of off-chain scaling solutions), such as Coinbase’s Base, and faster Layer 1 blockchains like Aptos, Solana, and Sui, have achieved transaction fees under one cent and kept latency below one second.
Considerations of Decentralization
Banks must weigh the appropriate level of decentralization based on specific application scenarios when choosing a blockchain. The Ethereum blockchain protocol and its community prioritize ensuring that anyone globally can independently verify every transaction on the chain. Solana, on the other hand, has relaxed this requirement by raising the hardware requirements for validators while significantly enhancing chain performance.
Moreover, even in the realm of public chains, banks need to carefully consider the extent of centralization impacts. For example, if the number of validating nodes in the network is relatively small and the foundation controlling a large proportion of them, the chain may actually be subject to significant centralization, resulting in a lower degree of decentralization than it appears. Similarly, if entities associated with public networks (such as foundations or labs) hold a large number of tokens, they may use these tokens to influence or control network decisions.
Privacy Considerations
Privacy and confidentiality are critical considerations for any banking-related transactions, partly due to legal regulations. The rise and use of zero-knowledge proofs can help protect sensitive financial data even on public chains. This system can prove that an institution possesses certain necessary information without revealing specifics. For instance, it can prove that someone is over 21 without disclosing their birth date or birthplace.
Zero-knowledge based protocols (e.g., zkSync) can enable private on-chain transactions while meeting regulatory compliance requirements. Banks need to be able to view and trace transactions when necessary; this is where “view keys” (developed by Aleo, a privacy-supporting L1 key) can provide transaction access to regulators and auditors while maintaining privacy.
Solana’s token expansion capabilities offer compliance features, making privacy functionalities more flexible. Avalanche’s Layer 1 uniquely enforces the verification logic coded through smart contracts.
These privacy features are also applicable to stablecoins, one of the most popular blockchain applications today, which have become one of the cheapest methods for one-dollar remittances. In addition to lowering costs, they also possess permissionless programmability and scalability—thus enabling anyone to integrate globally fast currency into products while developing new fintech functionalities. Following the introduction of the GENIUS Act, banks face higher demands for transaction and reserve transparency in stablecoins. Companies like Bastion and Anchorage are providing transparency solutions for transactions and reserves to help banks meet this demand.
Custody Strategy Decisions
When formulating cryptocurrency asset custody strategies (i.e., who will manage and store cryptocurrency assets), most banks tend to collaborate with custody service providers rather than manage cryptocurrency assets independently. Some custody banks, such as State Street, are actively exploring the possibility of providing self-custody services for cryptocurrencies.
If banks choose to partner with custody service providers, they need to focus on the following factors: licensure and certification, security, and operational practices.
Regarding licensure and certification, custody institutions must adhere to strict regulatory frameworks, such as federal or state banking or trust licenses, virtual currency business licenses, state trading licenses, and compliance certifications like SOC 2. For example, Coinbase operates its custody business through a New York trust license, Fidelity’s custody services are provided by Fidelity Digital Asset Services, and Anchorage operates under a federal OCC license.