Original title: Blockchains for TradFi: What banks, asset managers, and fintechs should know
Original authors: Pyrs Carvolth, Maggie Hsu, Guy Wuollet, a16z
Original text translated: Deep Dive by A16z: The Blockchain Transformation Path for Banks, Asset Managers, and Fintech Companies
Blockchain is a new layer for settlement and ownership, characterized by programmability, openness, and a default global nature, capable of inspiring new forms of entrepreneurship, creativity, and infrastructure development. The growth trend of monthly active crypto addresses aligns with the trajectory of internet users reaching one billion, while stablecoin trading volume has surpassed that of traditional fiat currency, with related laws and regulations gradually catching up, and crypto companies being acquired or going public.
The overlay of regulatory clarity and competitive pressure, coupled with significant improvements in business outcomes due to 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 rethinking blockchain, seeing it as a transparent, secure value transfer tool that not only provides future assurance for institutions but also unlocks new sources of growth.
Executive teams are raising a new question: not 'whether' 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 real investments in this area, two key themes emerge:
1. The Business Case for Blockchain-Driven Strategy
2. The Technological Cornerstone of Strategic Implementation
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 that clarifies key early decisions, shares emerging patterns, and helps redefine blockchain as no longer symbolic hype but as core infrastructure. With the right application, blockchain can not only provide future assurance for traditional financial institutions but also unlock new growth potential.
As banks, asset management companies, and fintech companies (including the increasingly recognized PayFi) differ in their interaction with end users, traditional infrastructure limitations, and regulatory requirements, we have categorized the following content to provide solid and executable blockchain application understanding for leaders in these industries and help them move from concept design to actual product implementation.
Banks
Banks appear modern but still operate on outdated software systems—primarily COBOL, a programming language originating in the 1960s. Despite its age, it still supports systems that meet banking regulatory requirements. When customers click on slick web pages or use mobile applications, these front-end interfaces are essentially turning operations into instructions for decades-old COBOL programs. Blockchain provides a way to upgrade these systems without compromising regulatory integrity.
By integrating and leveraging blockchain technology, banks can move away from an internet era reminiscent of 'bookstores with websites' to a model akin to Amazon: adopting modern databases and superior interoperability standards. Asset tokenization—whether stablecoins, deposits, or securities—may occupy a core position in future capital markets. To avoid being eliminated in this transformation, adopting the right systems is just the first step. Banks need to truly master and lead this change.
For retail clients, banks are exploring ways to provide access to crypto assets, such as offering Bitcoin and other digital asset access through their affiliated broker-dealers as part of an 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 previously effectively prevented U.S. banks from participating in digital asset custody), eventually direct participation. However, in institutional and back-end aspects, the potential of blockchain is greater, primarily focused on three emerging use cases: tokenized deposits, reassessment of settlement infrastructure, 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 practically 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 real fiat currencies backed by commercial bank accounts, presented as regulated tokens at a 1:1 ratio, and can be traded on either private or public chains.
Tokenized deposits can reduce settlement delays from days to minutes or seconds, suitable for cross-border payments, liquidity management, trade finance, and more. As a result, banks can lower operational costs, reduce reconciliation work, and enhance capital efficiency.
Furthermore, banks are actively reassessing settlement infrastructure. Several major banks are participating in distributed ledger settlement trials, often in collaboration with central banks or blockchain-native enterprises, to address the inefficiencies of the 'T+2' system. For example, zkSync (which is an Ethereum Layer 2 solution that optimizes Ethereum performance by processing transactions off-chain) is collaborating with global banks to demonstrate near-real-time settlement in cross-border payments and intraday repurchase agreement (repo) markets. The business impacts of these practices include increased capital efficiency, optimized liquidity usage, and reduced operational costs.
Blockchain and tokens can also enhance banks' ability to transfer assets quickly and efficiently between business divisions, geographic areas, and counterparties, a concept known as 'collateral liquidity.' The Depository Trust & Clearing Corporation (DTCC) recently launched the Smart NAV pilot project aimed at modernizing collateral liquidity through tokenized net asset value (NAV) data. The pilot demonstrated how collateral can operate like a liquid, programmable currency, marking not just an upgrade in bank operations but an innovation supporting its broader strategy. Improving collateral liquidity enables banks to lower capital buffers, access a broader liquidity pool, and be more competitive in capital markets with a streamlined balance sheet.
For all these application scenarios—tokenized deposits, reassessment of settlement infrastructure, and collateral liquidity—banks need to make key decisions, starting with whether to use private or public chain networks.
Choosing a Blockchain
In the past, banks were prohibited from accessing public chain networks, but this restriction has been relaxed with the latest guidance from banking regulators, including the Office of the Comptroller of the Currency (OCC), thereby 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, we will discuss early decisions for product launch, from choosing a blockchain to the degree of decentralization. While there are many ways to choose a blockchain, building products on decentralized public chains has multiple advantages:
· Neutral developer platform: Provides a neutral developer platform where anyone can contribute, increasing trust and expanding the ecosystem supporting the product.
· Accelerated product iteration: Because anyone can contribute, the ability to use, adjust, and combine components from others (i.e., modular composability) accelerates product iteration.
· Enhanced platform trust: Top developers are more inclined 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 developers' 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 has improved significantly over the past few years. Layer 2 rollups on Ethereum (various types of off-chain scaling solutions), such as Coinbase's Base, as well as faster Layer 1 blockchains like Aptos, Solana, and Sui, have been able to achieve transaction fees below one cent and control delays to under one second.
Considerations for the Degree of Decentralization
When choosing a blockchain, banks must weigh the appropriate degree of decentralization based on specific application scenarios. The Ethereum blockchain protocol and its community prioritize ensuring that anyone globally can independently verify every transaction on the chain. In contrast, Solana has relaxed this restriction by raising the hardware requirements for validation while significantly improving the chain's performance.
Additionally, even in the realm of public chains, banks need to carefully consider the extent of their centralization impact. For instance, if the number of validating nodes in a network is relatively small, and the foundation controlling the network holds a large proportion of the validating nodes, then the chain may actually be subject to significant centralization, with its level of decentralization potentially lower than it appears. Similarly, if entities associated with the public network (such as foundations or labs) hold a significant amount of tokens, they may leverage these tokens to influence or control network decisions.
Privacy Considerations
Privacy and confidentiality are key considerations for any bank-related transaction, 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 entity possesses certain necessary information without revealing specifics. For example, it can prove someone is over 21 without disclosing their birth date or place of birth.
Zero-knowledge-based protocols (like zkSync) can achieve on-chain private transactions while meeting regulatory compliance requirements. Banks need to be able to view and roll back transactions when necessary; at this time, 'view keys' (developed by Aleo, a privacy-supporting L1 key) can provide regulatory bodies and auditors with transaction access while maintaining privacy.
Solana's token expansion features provide compliance functionalities, making privacy features more flexible. Avalanche's Layer 1 has unique capabilities for enforcing verification logic coded through smart contracts.
These privacy features are also applicable to stablecoins, one of the most popular blockchain applications currently, which has become one of the cheapest ways to send a dollar. In addition to reducing costs, they also offer permissionless programmability and scalability—thus anyone can integrate global rapid currency into their products while developing new fintech functionalities. (GENIUS Act) has imposed higher standards on banks regarding transaction and reserve transparency for stablecoins. Companies like Bastion and Anchorage are providing trading and reserve transparency solutions to help banks meet this demand.
Custody Strategy Choices
When formulating cryptocurrency asset custody strategies (i.e., who manages and stores cryptocurrency assets), most banks tend to collaborate with custody service providers rather than managing cryptocurrency assets themselves. Some custodial banks, such as State Street, are actively exploring the possibility of offering self-custody services for cryptocurrency.
If choosing to collaborate with custody service providers, banks need to focus on factors such as licenses and certifications, security, and operational practices.
In terms of licensing and certification, custodians 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, while Anchorage manages its custody operations through a federal OCC license.
In terms of security, custodians need to have strong cryptographic technologies, hardware security modules (HSMs to prevent unauthorized access, data extraction, or tampering), and multi-party computation (MPC, where private keys are distributed among multiple participants to enhance security). These measures can effectively guard against hacking and operational failures.
In terms of operational practices, custodians need to adopt other best practices such as asset isolation to protect customer assets from bankruptcy risks; provide transparent proof of reserves to facilitate user and regulatory verification of reserves matching liabilities; and conduct regular third-party audits to prevent fraud, errors, or security loopholes. For example, Anchorage employs biometric multi-factor authentication and geographically distributed key sharding technology to enhance governance capabilities. Furthermore, custodians should develop clear disaster recovery plans to ensure business continuity.
What role do wallets play in custody decisions? Banks are increasingly recognizing that integrating crypto wallets is a strategic necessity to remain competitive, especially when facing emerging banks and centralized exchanges as auxiliary service providers. For institutional clients (like hedge funds, asset management companies, or enterprises), wallets are positioned as enterprise-grade tools for custody, trading, and settlement. For retail customers (such as small businesses or individuals), wallets serve as embedded functionalities to help users access digital assets. In both cases, wallets are not just simple storage solutions but are key tools for secure and compliant access to assets (such as stablecoins or tokenized assets) through private keys.
'Custodial wallets' and 'self-custody wallets' represent two extremes in terms of control, security, and responsibility. Custodial wallets are managed by third-party services that help users safeguard their private keys; self-custody wallets are managed by users themselves. This distinction is crucial for banks to meet different needs—from institutional clients' strict compliance requirements to high-end customers' pursuit of autonomy, and mainstream retail customers' preference for convenience. Custodial service providers like Coinbase and Anchorage have integrated wallet solutions to meet institutional needs, while companies like Dynamic and Phantom are helping banks upgrade their applications with modern wallet functionalities.
Asset Management Companies
For asset management companies, blockchain technology can expand product distribution channels, automate fund operation processes, and unlock on-chain liquidity.
Tokenized funds and real-world assets (RWA) provide asset management products with new packaging forms that make them easier to access and combine, especially to meet global investors' increasing demands for 24/7 access, instant settlement, and programmable trading. At the same time, on-chain tracks can significantly simplify back-end workflows, from net asset value (NAV) calculations to equity structure management. Ultimately, these innovations lead to lower costs, faster time to market, and more differentiated product offerings—these advantages will continually accumulate in a competitive market.
Asset management companies are focusing on enhancing the distribution and liquidity of their products, particularly those aimed at attracting capital from digitally native audiences. By launching tokenized stock classes on public chains, asset management companies can reach new groups of investors without sacrificing the record-keeping functionality of traditional transfer agents. This hybrid model leverages the unique new markets, features, and characteristics of blockchain while maintaining regulatory compliance.
Blockchain Innovation Trends
Tokenized U.S. Treasuries and money market funds have grown from almost zero growth to assets under management (AUM) reaching billions of dollars, including BlackRock's BUIDL (BlackRock Dollar Institutional Digital Liquidity Fund) and Franklin Templeton's BENJI (representing shares of Franklin OnChain U.S. Government Money Fund). These financial instruments are similar to yield-stablecoins but come with institutional compliance and asset backing.
Through blockchain technology, asset management companies can meet the needs of digitally native investors, providing greater flexibility, such as achieving automatic portfolio rebalancing or yield stratification through asset segmentation and programmability.
On-chain distribution platforms are becoming increasingly mature. Asset management companies are collaborating with blockchain-native issuers and custodians like Anchorage, Coinbase, Fireblocks, and Securitize to tokenize fund shares, automate investor onboarding processes, and expand their coverage and investor categories globally.
On-chain transfer agents manage KYC/AML, investor whitelists, transfer restrictions, and caps natively through smart contracts, thus reducing the legal and operational overhead of fund structures.
Leading custodians ensure the secure custody, transferability, and compliance of tokenized fund shares, increasing distribution choices while meeting internal risk and audit standards.
Issuers hope to position their funds as foundational assets for decentralized finance (DeFi) and tap into on-chain liquidity to expand their total addressable market (TAM) and increase assets under management (AUM). By listing tokenized funds on protocols like Morpho Blue or integrating with Uniswap v4, asset management companies can acquire new liquidity. Mid-2024, BlackRock's BUIDL fund first participated in Morpho Blue as a yield-generating collateral option, marking the first instance of traditional asset management products achieving composability in DeFi. Recently, Apollo's tokenized private credit fund (ACRED) was also integrated into Morpho Blue, launching a new yield-enhancing strategy not achievable in the off-chain world.
The ultimate result of collaborating with DeFi is that asset management companies transition from costly and slow fund distribution models to direct wallet access, simultaneously creating new revenue opportunities and capital efficiency for investors.
When issuing tokenized real-world assets (RWA), asset managers are largely no longer entangled in the choice between permissioned networks and public blockchains. In fact, they clearly prefer to adopt public chains and multi-chain strategies to achieve broader distribution of their products.
For example, Franklin Templeton's tokenized money market fund (represented by the BENJI token) is distributed across blockchain platforms including Aptos, Arbitrum, Avalanche, Base, Ethereum, Polygon, Solana, and Stellar. By collaborating with well-known public chains, these products' liquidity is also enhanced by blockchain ecosystem partners (such as centralized exchanges, market makers, and DeFi protocols). Companies like LayerZero further support these multi-chain strategies by enabling seamless interchain connections and settlements.
Tokenized Real-World Assets (RWA)
We observe that the trend of tokenizing financial assets (such as government securities, private sector securities, and equities) is rising, rather than physical assets like real estate or gold (though these assets can also be tokenized and have case examples).
In the context of tokenizing traditional funds—such as money market funds backed by U.S. Treasury securities or similar stable assets—the distinction between 'wrapped tokens' and 'native tokens' becomes particularly important. This distinction primarily relates to how tokens represent ownership, the primary record storage location for shares, and the degree of integration with the blockchain. Both models drive tokenization by connecting traditional assets with the blockchain, but wrapped tokens prioritize compatibility with traditional systems, while native tokens strive for comprehensive on-chain transformation. To clarify the differences between wrapped tokens and native tokens, here are two typical cases.
· BUIDL is a wrapped token that tokenizes shares of traditional money market funds that invest in cash, U.S. Treasuries, and repurchase agreements. The ERC-20 format BUIDL token digitizes these shares for on-chain circulation, but the underlying fund operates as an off-chain entity regulated under U.S. securities law. Ownership is limited to qualified institutional investors certified through whitelisting, and the minting and redemption of tokens are managed by custodians Securitize and BNY Mellon.
· BENJI is a native token representing shares of the Franklin OnChain U.S. Government Money Fund (FOBXX), which has a scale of $750 million and invests in U.S. government securities. Under the framework of BENJI, the blockchain acts as the official record system for processing transactions and recording ownership, making it a native token rather than a wrapped token. Investors can subscribe through the Benji Investments app or institutional portal via USDC redemption, with tokens supporting on-chain direct peer-to-peer (P2P) transfers.
In the process of issuing tokenized funds, asset management companies typically require a digital transfer agent to adapt the functions of traditional transfer agents to the blockchain environment. Many institutions choose to partner with Securitize, which not only assists in the issuance and transfer of tokenized funds but also ensures the accuracy and compliance of ledgers and records. These digital transfer agents improve efficiency through smart contracts and expand the possibilities for traditional assets. For example, Apollo's ACRED is a wrapped token that provides access to an off-chain diversified credit fund, optimizing its lending and yield strategies through decentralized finance (DeFi) integration. In this process, Securitize helped create sACRED (the ERC-4626 compliant version of ACRED), allowing investors to implement leveraged looping strategies through Morpho (a decentralized lending protocol).
In contrast to wrapped tokens, which require blended systems to coordinate on-chain behavior with off-chain records, native tokens achieve further innovation through on-chain transfer agents. Franklin Templeton closely collaborated with regulators to develop a proprietary on-chain transfer agent that enables instant settlement and 24/7 transfers for BENJI. Similar cases include Superstate's collaboration with Solana to launch Opening Bell, which also supports 24/7 transfers through its internal on-chain transfer agent.
Where should wallets be placed? Asset management companies should not view wallets—the tools for customer access to their products—as a secondary issue. Even if they choose to 'outsource' issuance and distribution to transfer agents and custody service providers, asset management companies still need to carefully select and integrate wallets. These decisions will affect all aspects from investor adoption to regulatory compliance.
Many asset management companies often adopt 'Wallet-as-a-Service' solutions to generate wallets for investors. These wallets are typically custodial, with service providers automatically executing KYC and transfer agent restrictions. However, even if the transfer agent 'owns' the wallet, the asset management company still needs to integrate relevant APIs into its investor portal and choose software development kits (SDKs) and compliance modules that align with its product roadmap.
Other key considerations for tokenized funds relate to fund operations. Asset managers need to determine the degree of automation for net asset value (NAV) calculations, such as whether to use smart contracts for intraday transparency or off-chain audits to determine the final daily NAV. Such decisions depend on the type of token, the underlying asset class, and the specific compliance requirements of the fund. Redemption mechanisms are another key consideration, as tokenized funds can achieve faster exits than traditional systems but simultaneously require built-in restrictions to manage liquidity. In these scenarios, asset management companies often rely on transfer agents for advice or integration with key service providers (e.g., oracle, wallet, and custodian).
In addition, special attention must be paid to the regulatory status of custodians in custody decisions. According to the U.S. Securities and Exchange Commission (SEC) custody rules, qualified custodians must be qualified and obligated to safeguard customer assets.
Fintech Companies
Fintech companies, particularly those focused on payments and consumer finance (referred to as 'PayFi'), are leveraging blockchain technology to create faster, lower-cost, and more globally scalable services. In a competitive market where innovation speed is crucial, blockchain provides ready-made infrastructure for identity authentication, payments, credit, and custody, often requiring fewer intermediaries.
These fintech companies are not trying to replicate existing systems; they aim for leapfrog development. This makes blockchain particularly attractive in cross-border applications, embedded finance, and programmable currencies. For example, Revolut's virtual card allows users to make everyday purchases using cryptocurrency; Stripe's stablecoin financial accounts enable corporate users to hold account balances in stablecoins across 101 countries.
For these companies, blockchain is not just an improvement in infrastructure or efficiency; it is about building new types of services that were not previously possible.
Tokenization allows fintech companies to embed real-time, always-on global payments directly on-chain while unlocking entirely new fee-based services around issuance, redemption, and capital flow. Programmable tokens also support native functionalities such as staking, lending, and liquidity provision, integrating these features directly into applications, enhancing user engagement, and creating diversified revenue streams. All of this helps companies retain existing customers and attract new ones in an increasingly digital world.
Stablecoins, tokenization, and verticalization are becoming important trends in industry development.
Three Key Trends
Stablecoin payment integration is revolutionizing payment channels, offering real-time transaction settlement services 24/7/365, breaking through the limitations of traditional payment networks constrained by banking hours, batch processing, and jurisdictional restrictions. By bypassing traditional card networks and intermediaries, stablecoin channels significantly reduce transaction fees, foreign exchange costs, and service fees, especially in peer-to-peer (P2P) and business-to-business (B2B) scenarios.
With smart contracts, companies can embed functionalities such as conditions, refunds, royalties, and installments directly into the transaction layer, thus opening new revenue models. This could potentially transform companies like Stripe and PayPal from aggregators of banking services into platform-native programmable cash issuers and processors.
Global remittances continue to be plagued by high fees, long delays, and opaque foreign exchange spreads. Fintech companies are leveraging blockchain settlement technology to redefine how cross-border capital flows. Through stablecoins (such as USDC on Solana or Ethereum, or USDT on Bitcoin), businesses can significantly reduce remittance fees and settlement times. For example, Revolut and Nubank have partnered with Lightspark to enable real-time cross-border payments on Bitcoin's Lightning Network.
By storing value in wallets and tokenized assets rather than through banking channels, fintech companies gain greater control and speed, especially in regions where the banking system is unreliable. For businesses like Revolut and Robinhood, this transformation has made them global platforms for capital flow, not just shells of digital banks or trading applications. For global payroll service providers like Deel and Papaya Global, offering options to pay employees in cryptocurrency or stablecoins is becoming increasingly popular as it enables instant payments.
Crypto-native fintech companies are focusing on underlying architecture, launching their own blockchains (L1 or L2), or acquiring companies that can reduce reliance on third parties. Strategies like Coinbase's Base, Kraken's Ink, and Uniswap's Unichain—built on OP Stack—are similar to transitioning from developing apps on Apple iOS to owning the entire mobile operating system, enjoying the significant advantages of platform empowerment.
By launching their own L2, fintech companies like Stripe, SoFi, or PayPal can capture value at the protocol level to complement their front-end products. Autonomous chains can provide customized performance, whitelisting features, KYC modules, and more, which are crucial for regulated application scenarios and enterprise clients.
By launching dedicated 'payment' blockchains using OP Stack—modular, open-source software frameworks—on Optimism (an Ethereum L2 blockchain), fintech companies can transform from closed ecosystems to diversified, open financial innovation markets. This not only attracts other developers and businesses to participate in the development of their ecosystem but also creates revenue through network effects.
Many fintech companies typically start by providing basic crypto services, such as buying, selling, sending, receiving, and holding a small number of tokens, gradually expanding to other services like yield and lending. SoFi recently announced plans to re-enable crypto trading after exiting the field in 2023 due to regulatory restrictions. One advantage of crypto trading is that it allows SoFi's customers to participate in global remittances, while greater potential lies in combining its core lending business with on-chain lending (similar to the collaboration between Morpho and Coinbase on Bitcoin collateralized lending) to optimize terms and enhance transparency.
Building Proprietary Blockchains
An increasing number of crypto-native 'fintech companies'—such as Coinbase, Uniswap, and World—are building proprietary blockchains to customize infrastructure for specific products and users, reducing costs, enhancing decentralization, and capturing more value within their ecosystems. For instance, Uniswap's Unichain can integrate liquidity and reduce fragmentation, making decentralized finance (DeFi) faster and more efficient. Similar vertical integration strategies are applicable to fintech companies looking to enhance user experiences and internalize more value, such as Robinhood's recently announced L2 blockchain plan. For payment companies, a proprietary chain may be centered around user experience (UX), creating infrastructure that can abstract or conceal crypto-native operations while focusing on optimizing stablecoin applications and compliance functionalities.
When building proprietary blockchains, different levels of complexity come with different trade-offs, and here are some key considerations.
L1 is the most burdened, most complex to build, and least beneficial from any partnership among all partnerships. However, L1 also gives fintech companies the most control over scalability, privacy, and user experience. For example, companies like Stripe can embed native privacy features to meet global regulatory requirements or customize ultra-low latency consensus mechanisms for high-frequency merchant payments.
One of the core challenges of building a new L1 is the economic security of launching the chain—attracting a large amount of staked capital to ensure network security. EigenLayer provides democratized access to high-quality security by transforming isolated and capital-intensive L1 models into shared, efficient models, which can accelerate blockchain innovation while reducing the failure rate of development.
L2 is often a very good compromise, allowing fintech companies to achieve a certain level of control through a single sequencer while accelerating development processes. The sequencer is responsible for collecting user transactions, deciding processing order, and submitting them to L1 for final validation and storage. The single sequencer design not only ensures reliability and fast performance but also captures more revenue while simplifying operations. Additionally, by utilizing Rollup-as-a-Service (RaaS) services on Ethereum or joining established L2 alliances like Optimism Superchain, fintech companies can quickly create their L2 using shared infrastructure, standardized resources, and community support.
For instance, PayPal can build a 'payment superchain' based on OP Stack, optimizing its PYUSD stablecoin to support real-time scenarios, such as in-app transfers in Venmo. They could also enable seamless cross-chain bridging of PYUSD within the Optimism Superchain ecosystem, initially using a centralized sequencer to provide predictable low fees (like less than $0.01 per transaction) while inheriting Ethereum's security. Additionally, by collaborating with RaaS providers (like Alchemy and its partner Syndicate), PayPal can significantly shorten deployment times from months or even years to weeks.
The simplest method is to deploy smart contracts on existing blockchains, which is also the strategy that companies like PayPal have already adopted. Blockchains like Solana are particularly appealing to fintech companies looking to quickly enter the L1 blockchain space due to their mature scale, broad user base, and unique assets.
Open and Non-open
To what degree should the application of fintech and/or blockchain achieve openness? The core advantage of blockchain lies in its composability—the ability to combine and remix protocols to create an ecosystem where the whole is much greater than the sum of its parts.
If an application or blockchain is non-open, its composability may be limited, significantly reducing the likelihood of emerging innovative applications. For example, PayPal's choice to build a permissionless chain aligns with the trend of fintech moving towards open ecosystems and helps PayPal achieve profitability through its competitive barriers. Global developers can leverage PayPal's compliance layer to attract more users, leading to increased network activity and ultimately more value for PayPal.
Unlike L1 blockchains (like Ethereum), L2 shares most of the workload through sequencers, achieving higher throughput while still inheriting the security properties (and advantages) of L1. As mentioned, single sequencer design rollups (like Soneium) provide an interesting development path where operators can influence transaction delays and restrict specific transactions, thus finding a balance between openness and control.
Building blockchains based on modular frameworks (such as OP Stack) can not only drive additional revenue growth but also expand the utility of core products. Taking PayPal and its PYUSD stablecoin as an example, having a proprietary L2 can provide sequencing revenue while tightly integrating the chain's economic model with PYUSD. As the initial sequencer operator, PayPal can charge a portion of transaction fees (also known as 'gas fees'), similar to how Coinbase's OP Stack L2 Base earns revenue from its sequencer. By modifying OP Stack's gas payments to accept PYUSD, PayPal can offer 'free' transactions (such as withdrawal fees) to existing PayPal users and increase the speed of use cases like Venmo transfers and cross-border remittances. Similarly, PayPal can also incentivize developer activity by providing low-cost or even zero-cost developer fees, while charging a moderate premium on integrated services such as PayPal Wallet API or compliance oracles.
In the rapidly evolving crypto world, banks, asset management companies, and fintech firms often have questions when exploring blockchain technology: how to understand this technology and its potential opportunities? Here are our core recommendations:
Starting with customer segmentation, customize solutions. Customer needs are diverse—institutional users require strong compliance and custodial setups, while retail users prioritize convenience and self-custody options for everyday use.
Consider security and compliance as non-negotiable bottom lines. Almost all counterparties, whether regulatory agencies or customers, have clear expectations regarding security and compliance.
Accelerating layout and innovation through collaboration. There is no need to do everything personally; partnering with experts in the field can shorten time to market and leverage innovative solutions to create new revenue opportunities.
Blockchain can not only become the core infrastructure for traditional financial institutions but also help them explore new markets, attract new users, and uncover new revenue sources, safeguarding future development.
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