Because banks, asset managers, and fintechs (including what’s increasingly known as PayFi) differ in how they interact with end users, legacy infrastructure constraints, and regulatory requirements, we’ve organized the sections below to give leaders in those industries a grounded, actionable understanding of how blockchains can be applied in their world and what it takes to go from whiteboard to working product.
Banks appear modern but run on ancient software — mostly COBOL, a programming language from the 1960s, which, while old, holds together systems that are compliant with banking regulations. While customers click slick web pages or tap on mobile apps, those front ends just translate their clicks into commands for decades-old COBOL programs. Blockchains can be a way to upgrade these systems without compromising regulatory integrity.
By integrating and building on blockchains, banks can take themselves out of the “book store with a website” era of the internet and move to a model that looks more like Amazon: modern databases and better interoperability standards. Tokenized assets — whether stablecoins, deposits, or securities — will likely play a central role in future capital markets. Adopting the right systems to avoid being displaced by this shift is just a starting point. Banks really have to own the shift.
On the retail side, banks are exploring ways to give their clients exposure to crypto via access to bitcoin and other digital assets through their affiliated broker-dealers as part of the total client experience, whether indirectly through ETPs or, eventually, directly given the repeal of the SEC’s accounting rule SAB 121 (which had effectively blocked U.S. banks from participating in digital custody). But there’s greater opportunity and utility on the institutional/back office side, which has three emerging use cases: tokenized deposits, reevaluating settlement infrastructure, and collateral mobility.
Use cases
Tokenized deposits represent a foundational shift in how commercial bank money can move and function. Far from being a speculative concept, tokenized deposits are already live, with JPMorgan’s JPMD token and projects like Citi’s Token Services for Cash. These are not synthetic stablecoins or a digital asset backed by treasuries — they’re backed by real fiat money, held in commercial bank accounts, represented 1:1 as regulated tokens that can be transacted across private or public-permissioned blockchains (more on this below).
Tokenizing deposits can reduce settlement latency from days to minutes or seconds for cross-border payments, treasury management, trade finance, and more. Banks benefit from lower operational overhead, reduced reconciliation, and greater capital efficiency.
Banks are also actively reevaluating settlement infrastructure. Several Tier 1 banks are participating in distributed ledger settlement trials — often in collaboration with central banks or blockchain-native players — to address the inefficiencies of “T+2” systems. For example, Matter Labs, the parent company of zkSync (an Ethereum Layer 2 or L2 that optimizes Ethereum’s performance by processing transactions offchain), is partnering with global banks to showcase near-real-time settlement in cross-border payments and intraday repurchase agreement (repo) markets. The business impact includes improved capital efficiency, better liquidity usage, and reduced operational overhead.
Blockchains and tokens can also enhance banks’ ability to quickly and efficiently move assets across business units, geographies, and counterparties — what’s known as collateral mobility. The Depository Trust and Clearing Corporation (DTCC), which provides clearing, settlement, and custody in traditional U.S. markets, recently launched their Smart NAV pilot, aimed at modernizing collateral mobility through tokenizing Net Asset Value data. The pilot showcased how collateral can behave more like liquid, programmable money — not just an operational upgrade for banks but an upgrade that can support their broader strategy. Improved collateral mobility allows banks to lower capital buffers, access broader pools of liquidity, and compete more aggressively in capital markets with a leaner balance sheet.
For all of these use cases — tokenized deposits, reevaluating settlement infrastructure, and collateral mobility — banks will have to make key decisions, starting with whether to use a private/permissioned blockchain or public blockchain networks.
Picking a blockchain
While banks were previously prevented from touching public blockchain networks, recent guidance from banking regulators including the Office of the Comptroller of the Currency (OCC) have opened up the possibilities. Partnerships such as R3 Corda’s integration with Solana highlight this. The partnership will enable permissioned networks on Corda to settle assets directly onto Solana.
Using tokenized deposits as the use case, we’ll discuss the early choices related to taking a product to market, from picking a blockchain to level of decentralization and more. While there are many ways to think about picking a blockchain, building on a decentralized public blockchain offers several product benefits.
* It provides a neutral developer platform that anyone can contribute to, increasing trust and extending the ecosystem supporting your product.
* Because anyone can contribute, it speeds product iteration through the ability to use, adapt, and combine others’ building blocks (aka composability).
* It increases platform trust. The best developers are most interested in building on decentralized chains that won’t suddenly change the rules on them, because it ensures their products will continue to be good businesses.
By contrast, centralized public blockchains, where the owners can change the rules or censor certain applications, and non-programmable blockchains, don’t benefit from composability.
While blockchains are currently slower than centralized internet services, their performance has increased drastically over the past few years. L2 rollups (offchain scaling solutions of varying flavors) on Ethereum, like Coinbase’s Base, and faster Layer 1 (L1) blockchains, like Aptos, Solana and Sui, have made it possible to send transactions for under a cent with less than a second of latency.
Level of decentralization
Banks must also consider the appropriate level of decentralization for their specific use case. The Ethereum blockchain protocol and community prioritizes making sure anyone on earth can independently validate each transaction on the chain. Solana, meanwhile, relaxed that requirement by increasing the hardware required for validation, but they also drastically increased the performance of the chain.
Banks should also contemplate the degree of centralized influence, even when it comes to public blockchains. For example, if the total number of validators in the network is relatively small and that network’s foundation controls a relatively large percent of the validator set, then that chain would experience significant centralized influence, making it less decentralized than it may seem. Similarly, if an entity associated with the public network (like a foundation or labs entity) holds a significant amount of tokens, they could use those tokens to influence or control decisions about the network.
Privacy considerations
Privacy and confidentiality are critical considerations for any bank-related transaction, partly by law. The rise and use of zero-knowledge proofs can help shield sensitive financial data even on public blockchains. These systems work by proving they know a specific piece of information that the institution needs without revealing the contents of the specific information itself — for instance, that a person is over 21, but not their birthdate or birthplace.
Zero knowledge-based protocols (such as zkSync) can be used to enable private onchain transactions. To maintain compliance with regulations, banks need to also be able to view and roll back transactions as needed. This is where a “view key” (developed by Aleo, a confidential L1) maintains privacy but still allows regulators and auditors to view transactions as needed.
Solana’s token extensions offer compliance features that allow for confidential features. Avalanche L1s have the unique capability to enforce any validation logic that can be encoded via smart contracts.
Many of these features apply to stablecoins as well. One of the most popular blockchain-based applications today, stablecoins are already one of the cheapest ways to send a dollar. But besides cutting fees, they’re also permissionlessly programmable and extensible — so any one can integrate globally available, fast money into their product using stablecoin rails while also building new fintech features. Post-GENIUS Act, banks need transparency in both transactions and reserves for stablecoins. Companies such as Bastion and Anchorage enable both transaction and reserve transparency.
Custody decisions
When considering a strategy for custody — who is managing and storing the crypto assets — most banks look to partner instead of custodying their own crypto. Some custodian banks, such as State Street, are looking to offer their own crypto custody services.
But if partnering with a custodian, banks should consider its: licenses and certifications, security posture, and other operational practices.
For licenses and certifications, custodians should adhere to a regulatory framework with things like a banking or trust charter (federal or state), virtual currency business license, state-level transmitter licenses, as well as certifications such as SOC 2 compliance. For example, Coinbase operates its custody business via a NY Trust Charter, as does Fidelity through Fidelity Digital Asset Services; and Anchorage operates its custody business via a federal OCC charter.
For security, custodians should also have robust encryption; hardware security modules (HSMs), which prevent unauthorized access, extraction, or tampering; and multi-party computation (MPC) processes, which split private keys across multiple parties for greater security. These measures help to protect against hacks and operational failures.
For their operations, custodians should also employ other best practices including asset segregation to ensure client assets are protected in the event of insolvency; transparent proof-of-reserves, which allows users and regulators to verify that reserves match liabilities; and regular third-party audits to fraud, errors, or security breaches. For instance, Anchorage uses biometric multi-factor authentication and geographically distributed key sharding for enhanced governance. Finally, custodians should have clear disaster recovery plans to ensure business continuity.
Where do wallets come into custody decisions? Banks increasingly recognize that crypto wallet integrations are a strategic necessity to stay competitive with auxiliary providers like neobanks and centralized exchanges. For institutional customers — like hedge funds, asset managers, or corporations — wallets are positioned as enterprise-grade tools for custody, trading, and settlement. For retail customers — like small businesses or individuals — wallets are largely obfuscated as an embedded feature enabling access to digital assets. In both cases, wallets aren’t just simple storage solutions; they enable secure, compliant access to assets like stablecoins or tokenized treasuries via private keys.
“Custodial wallets” and “self-custody wallets” represent two ends of the spectrum in terms of control, security, and responsibility. Custodial wallets are managed by a third party service which holds keys on the users behalf, as opposed to the user managing their own keys through self-custody. Understanding the difference is crucial for banks aiming to meet varying demands — from the compliance-heavy needs of institutional customers to the autonomy-seeking desires of sophisticated customers to the convenience-seeking preferences of mainstream retail customers. Custody providers like Coinbase and Anchorage have integrated wallet offerings suited to address institutional needs, while companies like Dynamic and Phantom have complementary offerings that help modernize banking apps.
