By Simon McLoughlin, CEO, Uphold
Stablecoins. Tokenized funds. On-chain rails. DeFi. Sure, go ahead and roll your eyes. It's tempting to tune out blockchain industry jargon. However, leaders of banks and credit unions do so at their own peril.
The crypto world of today isn't your grandson's speculative side hustle. It's transitioned into a financial system infrastructure overhaul — blockchain for your business — and it warrants a greater share of attention.
"Competitive convergence" is a buzz phrase making the rounds and keeping heads of institutions up at night as they fret how to stem the loss of wallet share steadily migrating to on-chain platforms and super apps in a world of 24/7 tokenized stock trading abetted by AI assistants.
Many of the biggest financial institutions agree. Regardless of whether sweeping digital asset market structure legislation gains passage in the Senate, commercial banks, money managers and payments processors are already moving ahead with ambitious plans.
First movers lighting the way
Some titans of the financial services realm are putting the rest of the pack on notice: Citi launched a suite of token services; Morgan Stanley is preparing to pursue a blockchain-centric wealth advisory model that leans on tokenization of assets and liabilities; JP Morgan is leading a consortium of heavyweights set to launch a stablecoin.
Even the central bank of central banks, the BIS, is floating the idea that tokenized money market funds and digitally steeped banks will share a harmonious world with access to central bank spigots.
BlackRock's BUIDL fund is a tokenized money market fund that records share ownership on Ethereum. Franklin Templeton operates the Franklin OnChain U.S. Government Money Fund (FOBXX), utilizing blockchain ledgers to process transactions and record share ownership. And Goldman Sachs built its proprietary GS DAP™ digital assets platform to issue tokenized bonds, structured products, and asset-backed securities for institutional clients. The list of multinational financial giants not just dabbling, but adopting blockchain, is growing daily. Société Générale created its SG-FORGE subsidiary to issue EURCV (a euro-denominated institutional stablecoin) and tokenized green bonds on public blockchains and Fidelity Investments operates dedicated digital asset management and execution arms, offering tokenized fund products and institutional-grade crypto custody.
Even smaller banks are betting on blockchain as a way of accelerating deposit growth, attracting digital native customers and opening up brand-new revenue streams. Vast Bank based in Tulsa, Oklahoma is offering tokenised USD deposit accounts.
This means they're issuing US Dollars directly on the blockchain as a superior alternative to stablecoins since tokenised deposits pay interest, are eligible for FDIC insurance, enjoy all the consumer protections of the U.S. banking system and count as cash on corporate balance sheets. Yet for digital natives, tokenised USD is programmable money that can be moved 24/7 and offers a seamless bridge to digital assets, blockchains and decentralised finance.
That opens up a worldwide audience. A transformation in Total Addressable Market.
There is no better technology to accelerate a bank's deposit growth.
But are banks ready? Apparently not. A recent American Banker survey suggests most (more than half) are not yet even discussing blockchain technology, and very few community banks or credit unions are taking steps to build "on-chain rails" (okay, that's just inescapable jargon, but suffice to say it connotes systems and technology stacks that accommodate innovative services that soon will be the norm).
Interestingly, middle-sized banks appear keen to take their shot at the brave new world opening up. Among regional/medium-sized banks there is a glimpse of the ball moving up the field. Per the survey, some 54% of respondents from the middle market said "we are in early discussions" regarding plans for using on-chain technology.
Trillions in transaction volume
Regulatory clarity is coming (one way or another) as the crypto cycle enters its "third chapter" that's much more about adoption of tokenized securities and commodities at scale and less about niche crypto trading. Traditional finance is quickly, unabashedly adopting blockchain to facilitate products like tokenized T-bills. That's the exciting part of the industry. Whether Bitcoin will go to $200,000 or to $20,000 is almost an afterthought.
Banking infrastructure will change gradually but ultimately, we predict, the metamorphosis will accelerate to a much faster pace within 12 to 18 months if only because of the clear disadvantage that will manifest across many business lines if it does not. With the advent of conversational AI and agentic commerce, this transformation will speed up further.
For example, the $300 billion stablecoin market generates trillions worth of transaction volume. Visa and Mastercard transaction activity looks puny by comparison.
Robinhood, partnering with an infrastructure provider, Arbitrum, just launched its own blockchain network that'll serve as a bridge between the world of traditional finance and that of decentralized finance, or DeFi. Robinhood has also announced that on-chain Agentic Accounts will begin rolling out soon. That's right: AI agents will be continuously scanning millions of data points and executing strategies the moment the market turns. A brave new world indeed. How can your clients connect to it? How can you?
Structural changes within banking are happening at a dizzying pace. We're seeing it accelerate every single day.
Over the next several articles, we'll explore the future of banking in the age of blockchain, from basic accounts to lending and an array of ancillary activities some you may not have even yet envisioned. The future is now. Do not shy away. Let's face it down together.
