Blockchain as a New Settlement and Ownership Layer
Blockchain is a revolutionary settlement and ownership layer characterized by programmability, openness, and an inherent global nature, capable of stimulating new forms of entrepreneurship, creativity, and infrastructure development. The growth trend of monthly active crypto addresses aligns with the trajectory of internet users reaching a billion, while stablecoin transaction volumes have surpassed those of traditional fiat currencies. Regulatory frameworks are gradually catching up with these developments, and crypto firms are being acquired or going public.
The combination of regulatory clarity and competitive pressure, along with the significant enhancement of business outcomes through blockchain and the increasing maturity of the technology, is driving the traditional finance (TradFi) sector to urgently embrace blockchain technology as its core infrastructure. Traditional financial institutions are redefining blockchain, viewing it as a transparent and secure value transfer tool that not only provides future security for organizations but also unlocks new sources of growth.
Executive teams are posing a new question: not “if” or “when,” but “how now” to make blockchain have a tangible impact on business. This question is driving a wave of exploration, resource allocation, and organizational restructuring. As institutions begin to make genuine investments in this area, two key themes emerge:
1. Business cases for blockchain-driven strategies
2. Technological foundations for implementing strategies
This guide aims to help answer these questions. It is not a comprehensive survey of all blockchain use cases or protocols but rather a zero-to-one action guide that clarifies critical early decisions, shares emerging models, and helps redefine blockchain as not merely symbolic hype but as core infrastructure. Through proper application, blockchain can provide traditional financial institutions with future security while unlocking new growth potential.
Given the differences in how banks, asset management firms, and fintech companies (including the increasingly recognized PayFi) interact with end users, the limitations of traditional infrastructure, 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 concept design to practical product implementation.
Banks
Banks may appear modern, yet they still operate on ancient software systems—primarily COBOL, a programming language that originated in the 1960s. Despite its obsolescence, it still supports systems that comply with banking regulatory requirements. When customers click on a slick website or use a mobile app, these front-end interfaces are merely translating operations into commands for decades-old COBOL programs. Blockchain offers a way to upgrade these systems without undermining regulatory integrity.
By integrating and leveraging blockchain technology, banks can move away from the internet era’s “bookstores with websites” model toward an Amazon-like paradigm: adopting modern databases and superior interoperability standards. Asset tokenization—whether stablecoins, deposits, or securities—may occupy a central position in future capital markets. To avoid being left behind in this transformation, adopting the right systems is just the first step. Banks need to truly master and lead this change.
On the retail side, banks are exploring ways to provide customers access to crypto assets, such as offering Bitcoin and other digital assets through affiliated broker-dealers as part of the overall customer experience. This access could 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 engaging in digital asset custody), ultimately direct participation. However, on the institutional and backend side, the potential of blockchain is greater, focusing primarily on three emerging use cases: tokenized deposits, reassessing settlement infrastructure, and collateral liquidity.
Use Cases
Tokenized deposits represent a fundamental shift in how commercial banks operate with currency. This is not a speculative concept; tokenized deposits are already in practical use, 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 supported by real fiat currency held in commercial bank accounts, represented as regulated tokens at a 1:1 ratio, and can be traded on private or public chains.
Tokenized deposits can reduce settlement delays from days to minutes or seconds, applicable in cross-border payments, cash management, trade financing, and more. As a result, banks can lower operational costs, reduce reconciliation work, and enhance capital efficiency.
Additionally, banks are actively reassessing settlement infrastructure. Several major banks are participating in decentralized ledger settlement trials, typically in collaboration with central banks or blockchain-native enterprises, to address the inefficiencies of the “T+2” system. For example, Matter Labs, the parent company of zkSync (a Layer 2 solution for Ethereum that optimizes Ethereum’s performance through off-chain transaction processing), is working with global banks to demonstrate near real-time settlement 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 swiftly and efficiently transfer assets across business departments, 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 highly liquid programmable currency, representing not just an upgrade to bank operations but an innovation supporting its broader strategy. Improving collateral liquidity enables banks to reduce capital buffers, access a broader pool of liquidity, and become more competitive in capital markets with a streamlined balance sheet.
Choosing Blockchain
For all these use cases—tokenized deposits, reassessing settlement infrastructure, and collateral liquidity—banks need to make critical decisions, starting with whether to use a private or public blockchain network.
In the past, banks were prohibited from accessing public blockchain networks, but this restriction has been relaxed with new guidance from banking regulators, including the Office of the Comptroller of the Currency (OCC), expanding the possibilities for blockchain applications. For instance, the partnership between R3 Corda and Solana is a landmark case, allowing Corda’s permissioned network to settle assets directly on Solana.
Taking tokenized deposits as a use case, we will discuss early decisions from choosing a blockchain to the degree of decentralization for product launch. Although there are many approaches to selecting a blockchain, building products on decentralized public chains offers several advantages:
1. Neutral developer platform: It provides a neutral development platform where anyone can contribute, increasing trust and expanding the ecosystem supporting the product.
2. Accelerated product iteration: Because anyone can contribute, the ability to use, adjust, and combine components from others (i.e., modular composability) accelerates product iteration.
3. Enhanced platform trust: Top developers are more inclined to choose decentralized blockchains because these platforms do not suddenly change rules or censor, 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 blockchain’s current speed is still slower than centralized internet services, significant performance improvements have been made in recent years. Layer 2 rollups on Ethereum (various types of off-chain scaling solutions), such as Coinbase’s Base, along with faster Layer 1 blockchains like Aptos, Solana, and Sui, can now achieve transaction costs below one cent and keep latency under one second.
Considerations of Decentralization
When choosing a blockchain, banks must weigh the appropriate degree of decentralization based on specific use cases. 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, relaxes this requirement by raising the hardware demands needed for validation while significantly improving chain performance.
Additionally, even within the realm of public chains, banks need to carefully consider the extent of centralization effects. For instance, if the number of validating nodes in the network is relatively small and the foundation controlling the network holds a large proportion of validating nodes, the chain may actually be subject to significant centralization effects, leading to a degree of decentralization lower than it appears. Similarly, if entities associated with the public network (such as foundations or labs) hold a substantial amount of tokens, they may leverage 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 institutions possess certain necessary information without revealing specifics. For example, it can prove that someone is over 21 years old without disclosing their birth date or place of birth.
Zero-knowledge-based protocols (such as zkSync) can enable private transactions on-chain while meeting regulatory compliance requirements. Banks need to be able to view and trace transactions when necessary; in this case, a “view key” (developed by Aleo, a privacy-supporting L1 key) can provide access to transactions for regulators and auditors while maintaining privacy.
Solana’s token extension capabilities offer compliance functionalities, making privacy features more flexible. Avalanche’s Layer 1 has a unique capability to enforce verification logic encoded through smart contracts.
These privacy features also apply to stablecoins, one of the currently most popular blockchain applications, which has become one of the cheapest methods for remitting one dollar. Besides lowering costs, they offer permissionless programmability and scalability—allowing anyone to integrate global fast currency into products while developing new fintech functionalities. With the introduction of the GENIUS Act, banks face higher transparency requirements regarding stablecoin trading and reserves. Companies like Bastion and Anchorage are providing transparent trading and reserve solutions to help banks meet this demand.
Custody Strategy Choices
When formulating a cryptocurrency asset custody strategy (i.e., who will manage and store cryptocurrency assets), most banks tend to collaborate with custody service providers rather than self-managing cryptocurrency assets. Some custody banks, such as State Street, are actively exploring the possibility of offering self-custody services for cryptocurrencies.
If choosing to collaborate with a custody service provider, banks need to consider the following factors: licensing and certification, security, and operational practices.
In terms of licensing and certification, custody institutions must adhere to strict regulatory frameworks, such as federal or state bank or trust licenses, virtual currency business licenses, state-level 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 the federal OCC.