Original Title: Blockchains for TradFi: What banks, asset managers, and fintechs should know

Original Authors: Pyrs Carvolth, Maggie Hsu, Guy Wuollet, a16z

Original Translation: Deep Tide TechFlow

Blockchain is a new settlement and ownership layer characterized by being programmable, open, and inherently global, capable of inspiring new forms of entrepreneurship, creativity, and infrastructure development. The overall trend of monthly active crypto addresses growth aligns with the trajectory of internet users growing to a billion, stablecoin transaction volumes have surpassed traditional fiat transaction volumes, relevant laws and regulations are gradually catching up with the development, and crypto-native businesses are being acquired or going public.

The overlay of regulatory clarity and competitive pressure, coupled with the significant improvements in business outcomes and the maturation of the technology, is urgently driving the traditional finance (TradFi) sector to embrace blockchain technology as its core infrastructure. Traditional financial institutions are reimagining blockchain as a transparent, secure value transfer tool that can not only future-proof their organizations but also unlock new sources of growth.

Executive teams are posing a new question: not "whether" or "when," but "how now" blockchain can have a practical impact on the business. This question is driving a wave of exploration, resource allocation, and organizational restructuring. As institutions begin to make real investments in this space, two key themes emerge:

1. Business Cases Driving Blockchain-Driven Strategies

2. Implementing Strategic Technology Pillars

This guide aims to help answer these questions. It is not a comprehensive investigation of all blockchain use cases or protocols but rather an action-oriented guide from zero to one, outlining key early decisions, sharing emerging patterns, and helping redefine blockchain as not just symbolic hype but core infrastructure. When applied correctly, blockchain can not only future-proof traditional financial institutions but also unlock new growth potential.

Due to banks, asset management companies, and fintech companies (including the increasingly well-known PayFi) differing in their interactions with end-users, traditional infrastructure constraints, and regulatory requirements, we have categorized the following content to provide solid and actionable understanding of blockchain applications for leaders in these industries and help them move from conceptual design to actual product implementation.

Banking

While banks may appear modern, they still operate on ancient software systems—primarily COBOL, a programming language born in the 1960s. Despite its age, it still underpins systems that meet banking regulatory requirements. When customers click through flashy web pages or use mobile apps, these front-end interfaces are essentially translating operations into instructions for decades-old COBOL programs. Blockchain, on the other hand, offers a way to upgrade these systems without compromising regulatory integrity.

By integrating and leveraging blockchain technology, banks can move away from the era of "bookstores with websites" to a more Amazon-like model: adopting modern databases and higher-quality interoperability standards. Asset tokenization—whether for stablecoins, deposits, or securities—may play a central role 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 grasp and lead this change.

On the retail side, banks are exploring avenues to provide customers with exposure to crypto assets, such as offering access to Bitcoin and other digital assets through their affiliated brokerage firms as part of an overall customer experience. This exposure can be indirect through Exchange-Traded Products (ETPs) or, as the U.S. Securities and Exchange Commission (SEC) abolishes SAB 121 (a rule that effectively blocked U.S. banks from participating in digital asset custody), direct participation. However, on the institutional and backend fronts, blockchain's potential is even greater, focusing mainly on three emerging use cases: tokenized deposits, a reassessment of settlement infrastructure, and collateral liquidity.

Use Cases

Tokenized deposits represent a fundamental shift in how commercial bank money operates. This is not a speculative concept; tokenized deposits have already been put into practical use, such as JPMorgan's JPMD token and Citigroup's Token Services for Cash project. These tokens are not synthetic stablecoins or debt-backed digital assets but are supported by real fiat currency held in commercial bank accounts, presented as regulated tokens on a 1:1 basis, and tradable on private or public blockchains.

Tokenized deposits can reduce settlement latency from days to minutes or seconds, applicable to areas such as cross-border payments, cash management, and trade finance. As a result, banks can lower operating costs, reduce reconciliation efforts, and enhance capital efficiency.

In addition, banks are actively reassessing their settlement infrastructure. Several tier-one banks are participating in distributed ledger settlement experiments, often partnering with central banks or blockchain-native firms to address the inefficiencies of the "T+2" system. For example, the parent company of zkSync (zkSync is an Ethereum Layer 2 solution that optimizes Ethereum's performance through off-chain transaction processing), Matter Labs, is collaborating with global banks to demonstrate near real-time settlement for cross-border payments and intraday repurchase agreement (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 a bank's ability to swiftly and efficiently transfer assets between business units, geographic regions, and counterparties, a concept known as "collateral liquidity." The Depository Trust & Clearing Corporation (DTCC) recently launched the Smart NAV pilot project, aiming to modernize collateral liquidity through tokenizing Net Asset Value (NAV) data. The pilot showcases how collateral can function like highly liquid programmable currency, representing not just an operational upgrade for banks but also an innovation supporting their broader strategy. Improving collateral liquidity enables banks to reduce capital buffers, access a broader liquidity pool, and compete more effectively in the capital markets with a streamlined balance sheet.

For all these use cases—tokenized deposits, reassessment of settlement infrastructure, and collateral liquidity—banks need to make key decisions, starting with choosing between using a private or public blockchain network.

Choosing a Blockchain

In the past, banks were prohibited from interacting with public blockchain networks. However, with recent guidance from banking regulatory bodies like the Office of the Comptroller of the Currency (OCC), this restriction has been relaxed, 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 networks to settle assets directly on Solana.

Considering tokenized deposits as a use case, we will discuss the early decisions from choosing a blockchain to the level of decentralization when bringing products to market. While there are various approaches to choosing a blockchain, building products on a decentralized public chain offers several 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: Since anyone can contribute, the ability to accelerate product iteration by using, adjusting, and combining others' building blocks (i.e., modular composability).

· Enhanced Platform Trust: Top developers are more inclined to choose decentralized blockchains because these platforms do not suddenly change rules or undergo censorship, ensuring that their products can remain profitable.

In contrast, centralized public chains may lose developers' trust due to rule changes or application censorship, and non-programmable blockchains cannot take advantage of composability benefits.

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, such as Coinbase's Base, and faster Layer 1 blockchains like Aptos, Solana, and Sui, have been able to achieve transaction fees below one cent and reduce latency to less than a second.

Consideration of Decentralization Level

When banks choose blockchain, they must balance the appropriate level of decentralization based on the specific use case. The Ethereum blockchain protocol and its community prioritize ensuring that anyone worldwide can independently verify every on-chain transaction. Solana, on the other hand, has relaxed this restriction by increasing the hardware requirements for validation while significantly improving chain performance.

Furthermore, even in the public blockchain space, banks need to carefully consider the degree of centralization impact. For example, if the number of validating nodes in the network is relatively small and the network's foundation controls a significant portion of the validating nodes, the chain is effectively subject to significant centralization influence, and the level of decentralization may be lower than it appears on the surface. 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 requirements. 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 the specific content. For example, it can prove that someone is over 21 years old without disclosing their date or place of birth.

Zero-knowledge-based protocols (such as zkSync) can achieve on-chain private transactions while meeting regulatory compliance requirements. Banks need to be able to view and rollback transactions when necessary, and the "viewing key" (developed by Aleo, which is a privacy-supporting L1 key) can provide transaction access to regulators and auditors while maintaining privacy.

Solana's token expansion feature provides compliance functionality, making privacy features more flexible. Avalanche's Layer1 has a unique feature of enforcing coding verification logic through smart contracts.

These privacy features also apply to stablecoins, one of the most popular blockchain applications to date, which have become one of the cheapest ways to remit a US dollar. In addition to reducing costs, they also possess permissionless programmability and scalability—allowing anyone to integrate a global rapid currency into their products while developing new fintech capabilities. Following the GENIUS Act, banks face higher requirements regarding stablecoin transaction and reserve transparency. Companies like Bastion and Anchorage are providing transaction and reserve transparency solutions to help banks meet these demands.

Custodial Strategy Choices

When devising a crypto asset custody strategy (i.e., who will manage and store crypto assets), most banks tend to collaborate with custody service providers rather than manage crypto assets themselves. Some custody banks, such as State Street, are actively exploring the possibility of offering in-house crypto custody services.

If choosing to collaborate with a custody service provider, banks need to consider the following factors: licensing and certification, security, and operational practices.

Licensing and Certification: Custodial institutions must adhere to strict regulatory frameworks, such as federal or state banking or trust charters, virtual currency business licenses, state money transmitter licenses, and certifications like SOC 2 compliance. For example, Coinbase operates its custody business under a New York trust charter, Fidelity's custody services are provided by Fidelity Digital Asset Services, and Anchorage manages its custody business through a federal OCC charter.

Security: Custodial institutions need to have robust encryption technology, Hardware Security Modules (HSMs) to prevent unauthorized access, data extraction, or tampering, and Multi-Party Computation (MPC) where private keys are distributed to multiple parties to enhance security. These measures can effectively prevent hacking and operational failures.

Operational Practices: Custodial institutions must adopt other best practices such as asset segregation to protect customer assets from bankruptcy risks, provide transparent reserve proof for users and regulators to verify asset and liability matching, and conduct regular third-party audits to prevent fraud, errors, or security vulnerabilities. For example, Anchorage uses biometric multi-factor authentication and geographically distributed key sharding technology to enhance governance capabilities. Additionally, custodial institutions should establish clear disaster recovery plans to ensure business continuity.

What role does a wallet play in custody decisions? Banks are increasingly recognizing that integrating cryptocurrency wallets is a strategic necessity to maintain competitiveness, especially when facing emerging challenger banks and centralized exchanges as auxiliary service providers. For institutional clients (such as hedge funds, asset management firms, 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 an embedded feature to help users access digital assets. In both cases, a wallet is not just a simple storage solution but a key tool 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 to help users safeguard their private keys, while self-custody wallets are managed by users themselves. This difference is crucial for banks to meet different demands—from institutional clients' strict compliance requirements to high-net-worth clients' pursuit of autonomy, to 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 by offering modern wallet features that complement their products.

Asset Management Company

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 a new packaging form for asset management products, making them more accessible and composable, especially to meet global investors' increasing demands for 24/7 access, instant settlement, and programmable transactions. Meanwhile, on-chain rails can significantly simplify back-office workflows, from Net Asset Value (NAV) calculations to equity cap table management. Ultimately, these innovations bring lower costs, faster time to market, and a more differentiated product portfolio—all of which will continuously compound in the competitive market.

Asset management companies are focusing on enhancing product distribution and liquidity, particularly attracting products aligned with a digital-native audience. By tokenizing stock categories on public chains, asset management companies can reach new investor demographics without sacrificing the traditional transfer agent's record-keeping function. This hybrid model, while maintaining regulatory compliance, can leverage blockchain's unique new markets, functionalities, and features.

Blockchain Innovation Trends

Tokenized U.S. Treasuries and Money Market Funds have grown from virtually zero to managing assets under management (AUM) in the tens of billions of dollars, including BlackRock's BUIDL (BlackRock USD Institutional Digital Liquid Fund) and Franklin Templeton's BENJI (representing shares of Franklin Templeton's on-chain U.S. government money fund). These financial instruments are akin to yield-stablecoins but possess institutional-grade compliance and asset backing.

Through blockchain technology, asset management companies can meet the needs of digital-native investors, providing greater flexibility, such as achieving automatic portfolio rebalancing or revenue stratification through asset fractionalization and programmability.

On-chain distribution platforms are becoming increasingly mature. Asset management companies are collaborating with blockchain-native issuers and custody providers such as Anchorage, Coinbase, Fireblocks, and Securitize to tokenize fund shares, automate investor onboarding processes, and expand their coverage and investor base globally.

On-chain transfer agents manage KYC/AML, investor whitelisting, transfer restrictions, and caps natively through smart contracts, reducing legal and operational expenses related to fund structures.

Leading custody providers ensure the secure custody, transferability, and compliance of tokenized fund shares, increasing distribution options while meeting internal risk and auditing standards.

Issuers aim to position their funds as foundational assets in decentralized finance (DeFi) and tap into on-chain liquidity to expand the total addressable market (TAM) and grow assets under management (AUM). By listing tokenized funds on protocols like Morpho Blue or integrating with Uniswap v4, asset management companies can access new liquidity. In mid-2024, BlackRock's BUIDL Fund was first introduced as an income-generating staking option on Morpho Blue, marking the first instance of traditional asset management products achieving composability in DeFi. Recently, Apollo's tokenized private credit fund (ACRED) also integrated with Morpho Blue, introducing a novel yield enhancement strategy not achievable in the off-chain world.

The ultimate result of collaborating with DeFi is that asset management companies transition from an expensive and slow fund distribution model to direct wallet access, while creating new revenue opportunities and capital efficiency for investors.

When issuing tokenized real-world assets (RWA), asset managers are no longer fixated on the choice between permissioned networks and public blockchains. In fact, they appear to favor a public blockchain, multi-chain strategy to achieve broader product distribution.

For example, Franklin Templeton's tokenized money market fund (represented by the BENJI token) is spread across blockchain platforms such as Aptos, Arbitrum, Avalanche, Base, Ethereum, Polygon, Solana, and Stellar. By partnering with well-known public chains, the liquidity of these products is also enhanced through blockchain ecosystem partners such as centralized exchanges, market makers, and DeFi protocols. LayerZero and other companies support these multi-chain strategies by enabling seamless cross-chain connectivity and settlement.

Real World Asset (RWA) Tokenization

We observe that the tokenization trend of financial assets (such as government securities, private sector securities, and stocks) is on the rise, rather than physical assets like real estate or gold (although these assets can also be tokenized and there are existing cases).

In the context of tokenizing traditional funds — for example, money market funds backed by U.S. Treasuries or similar stable assets — the distinction between “Wrapped Tokens” and “Native Tokens” is particularly important. This distinction mainly involves how tokens represent ownership, the primary record-keeping location of shares, and the level of integration with the blockchain. Both models drive tokenization by connecting traditional assets to the blockchain, but Wrapped Tokens prioritize compatibility with traditional systems, while Native Tokens aim to achieve a comprehensive on-chain transformation. To better illustrate the difference between Wrapped Tokens and Native Tokens, here are two typical examples.

· BUIDL is a Wrapped Token that tokenizes shares of a traditional money market fund that invests in cash, U.S. Treasuries, and repurchase agreements. The ERC-20 form of the BUIDL token digitizes these shares for on-chain circulation, but its underlying fund operates as an off-chain entity regulated by U.S. securities laws. Ownership is restricted to whitelisted accredited institutional investors, and token minting and redemption are managed by the Securitize and BNY Mellon custodians.

· BENJI, on the other hand, is a Native Token representing shares of the Franklin OnChain U.S. Government Money Fund (FOBXX), a $750 million fund that invests in U.S. government securities. Under the BENJI framework, the blockchain serves 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 by exchanging USDC, and the token supports 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 a traditional transfer agent to a blockchain environment. Many institutions choose to partner with Securitize, which not only aids in the issuance and transfer of tokenized funds but also ensures the accuracy and compliance of ledgers and records. These digital transfer agents not only enhance efficiency through smart contracts but also 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 and optimizes its lending and yield strategies through integration with decentralized finance (DeFi). In this process, Securitize helped create sACRED (ACRED's ERC-4626 compliant version), allowing investors to implement leverage-loop strategies through Morpho (a decentralized lending protocol).

Compared to wrapped tokens that require a hybrid system to coordinate on-chain behavior with off-chain records, native tokens have achieved further innovation through on-chain transfer agents. Franklin Templeton, in close collaboration with regulators, has developed a proprietary on-chain transfer agent to enable instant settlement and 24/7 transferability for BENJI. A similar case is Opening Bell, a collaboration between Superstate and Solana, where the internal on-chain transfer agent also supports 24/7 transferability.

Where does the wallet fit in? Asset management firms should not consider the wallet—the tool through which clients access their products—as a secondary concern. Even if they choose to "outsource" issuance and distribution to transfer agents and custody service providers, asset management firms still need to carefully select and integrate wallets. These decisions will impact various aspects from investor adoption to regulatory compliance.

Many asset management firms commonly adopt "Wallet-as-a-Service" solutions to generate wallets for investors. These wallets are usually custodial, with the service provider automatically performing KYC and transfer agent restrictions. However, even though the transfer agent "owns" the wallet, asset management firms still need to embed relevant APIs into their investor portal and select software development kits (SDKs) and compliance modules that align with their product roadmap.

Other key considerations for tokenized funds relate to fund operations. Asset managers need to determine the level of automation for net asset value (NAV) calculations, such as using smart contracts for intraday transparency or conducting final daily NAV determinations through off-chain audits. Such decisions depend on the token type, underlying asset class, and specific fund compliance requirements. Redemption mechanisms are another key consideration, as tokenized funds can offer quicker exits compared to traditional systems but require built-in restrictions to manage liquidity. In these scenarios, asset management firms often rely on transfer agents to provide guidance or integrate with key service providers (such as oracles, wallets, and custodians).

Furthermore, custody decisions require particular attention to the regulatory status of custodians. Under the U.S. Securities and Exchange Commission's (SEC) custody rules, qualified custodians must be accredited and have a duty to safeguard client assets.

FinTech Companies

FinTech companies, especially those focusing on the payment and consumer finance sector (referred to as "PayFi" enterprises), are leveraging blockchain technology to create faster, lower-cost, and more globally scalable services. In a highly competitive market where innovation speed is critical, blockchain provides a ready-made infrastructure for identity verification, payments, credit, and custody, often requiring fewer intermediaries.

These fintech companies are not trying to replicate existing systems but are aiming for breakthroughs. This makes blockchain particularly appealing in cross-border applications, embedded finance, and programmable money. For example, Revolut's virtual card allows users to make everyday purchases with cryptocurrency; Stripe's stablecoin financial account enables business users to hold account balances in stablecoin in 101 countries.

For these companies, blockchain is not just an infrastructure improvement or efficiency gain; it is about building new services that were previously impossible to achieve.

Tokenization enables fintech companies to embed real-time, 24/7 global payments directly on-chain, while unlocking new fee services around issuance, redemption, and fund flows. Programmable tokens also support native functions such as staking, borrowing, and liquidity provision, integrating these functions directly into applications to enhance user engagement and create 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 key trends in the industry.

Three Key Trends

Stablecoin payment integration is transforming payment channels, providing 24/7/365 real-time transaction settlement services, breaking through the limitations of traditional payment networks such as bank business hours, batch processing, and jurisdictional restrictions. By bypassing traditional card networks and intermediaries, stablecoin channels significantly reduce transaction fees, foreign exchange fees, and transaction costs, especially in peer-to-peer (P2P) and business-to-business (B2B) scenarios.

With smart contracts, enterprises can embed features such as conditions, refunds, royalties, and installment payments directly into the transaction layer, creating new revenue models. This could potentially transition companies like Stripe and PayPal from aggregators of banking services to platform-native programmable cash issuers and processors.

Global remittances still suffer from high fees, long delays, and opaque forex spreads. Fintech companies are leveraging blockchain settlement technology to redefine cross-border fund flows. Through stablecoins (such as USDC on Solana or Ethereum, or USDT on Bitcoin), businesses can significantly reduce remittance costs and settlement times. For example, Revolut and Nubank have partnered with Lightspark to achieve real-time cross-border payments on the Bitcoin Lightning Network.

By storing value in wallets and tokenized assets rather than relying on traditional banking channels, fintech companies have gained greater control and speed, especially in areas where the banking system is unreliable. For companies like Revolut and Robinhood, this transformation has turned them into global funds flow platforms rather than just a digital bank or trading app shell. For global payroll providers like Deel and Papaya Global, offering the option to pay employees in cryptocurrency or stablecoins is becoming increasingly popular as it enables instant payments.

Crypto-native fintech companies are focusing on the underlying infrastructure, launching their own blockchains (L1 or L2) or acquiring companies that can reduce reliance on third parties. Strategies such as Coinbase's Base, Kraken's Ink, and Uniswap's Unichain—all built on the OP Stack—are akin to transitioning from developing apps on Apple iOS to owning an entire mobile operating system, benefiting from the platform's capabilities.

By launching their own L2 solutions, fintech companies like Stripe, SoFi, or PayPal can capture value at the protocol level to complement their front-end products. A proprietary chain can offer customized performance, whitelist functionality, KYC modules, and more, which are crucial for regulated use cases and enterprise clients.

By utilizing the OP Stack—a modular, open-source software framework—on Optimism (an Ethereum L2 blockchain) to introduce a dedicated "payments" blockchain, fintech companies can transform from closed ecosystems to diverse, open financial innovation markets. This shift not only attracts other developers and businesses to participate in ecosystem development but also generates revenue through network effects.

Many fintech companies typically start by offering core crypto services such as buying, selling, sending, receiving, and holding small amounts of tokens, gradually expanding to earning and lending services. SoFi recently announced plans to re-enter the crypto trading space after exiting in 2023 due to regulatory constraints. One advantage of crypto trading is that it allows SoFi's customers to participate in global remittances, with even greater potential in integrating its core lending business with on-chain lending (similar to the Bitcoin collateral lending partnership between Morpho and Coinbase) to optimize terms and enhance transparency.

Building a Custom Blockchain

More and more crypto-native "fintech" companies—such as Coinbase, Uniswap, and World—are building custom blockchains to tailor infrastructure for specific products and users, reduce costs, enhance decentralization, and capture more value within their ecosystems. For example, Uniswap's Unichain can integrate liquidity, reduce fragmentation, and make decentralized finance (DeFi) more efficient and scalable. Similar vertical integration strategies also apply to fintech companies looking to improve user experience and internalize more value, such as Robinhood's recent announcement of an L2 blockchain plan. For payment companies, a custom chain may focus on user experience (UX), creating infrastructure that can abstract or hide crypto-native operations while optimizing stablecoin applications and compliance features.

When building a custom blockchain, different levels of complexity come with different trade-offs. Here are some key considerations.

L1 represents the heaviest burden in all partnerships, the most complex to build, and also the least benefiting from any partnership. However, L1 also gives fintech companies the greatest 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 bootstrapping the chain's economic security—attraction of substantial staking capital to secure the network. EigenLayer offers democratized, high-quality security access by transforming the isolated and capital-intensive L1 model into a shared, efficient model. Such services can accelerate blockchain innovation while reducing development failure rates.

L2 is often a very good compromise, allowing fintech companies to achieve a certain degree of control through a single Sequencer while speeding up the development process. The Sequencer is responsible for collecting user transactions, determining processing order, and submitting them to L1 for final validation and storage. The design of a single Sequencer can ensure reliability and fast performance, capture more revenue, and simplify operations. Additionally, by utilizing Rollup-as-a-Service (RaaS) on Ethereum or joining mature L2 alliances like Optimism Superchain, fintech companies can leverage shared infrastructure, standardized resources, and community support to quickly establish their L2.

For example, PayPal could build a "Payment Superchain" based on the OP Stack to optimize its PYUSD stablecoin to support real-time scenarios, such as Venmo in-app transfers. They could also achieve seamless cross-chain bridging of PYUSD within the Optimism Superchain ecosystem, initially using a centralized sequencer to provide predictably low fees (e.g., less than 0.01 USD per transaction) while inheriting Ethereum's security. Additionally, by partnering with RaaS providers (such as Alchemy and its partner Syndicate), PayPal could significantly reduce deployment time from months or even years to weeks.

The simplest way is to deploy smart contracts on an existing blockchain, which is also a strategy that companies like PayPal have adopted. Blockchains like Solana are particularly attractive to fintech companies looking to enter the L1 blockchain space quickly due to their mature scale, large user base, and unique assets.

Openness and Closedness

How open should the application and/or blockchain of fintech be? The core advantage of blockchain lies in its composability—the ability to combine and remix protocols to create an ecosystem whose total value is far greater than the sum of its parts.

If an application or blockchain is closed, composability is limited, and the emergence of innovative applications is significantly reduced. Taking PayPal as an example, choosing to build on a permissionless chain not only aligns with the trend of fintech moving towards an open ecosystem but also helps PayPal profit through its competitive moat. Global developers can leverage PayPal's compliance layer to attract more users, leading to increased network activity that brings more value to PayPal.

Unlike L1 blockchains (such as Ethereum), L2 offloads much of the work to sequencers, achieving higher throughput while still inheriting L1's security properties (and advantages). As mentioned above, rollups with a single sequencer design (such as Soneium) offer an interesting development path where operators can impact transaction latency and impose restrictions on specific transactions, striking a balance between openness and control.

Building a blockchain based on a modular framework (such as OP Stack) can not only drive additional revenue growth but also enhance the usability of the core product. Taking PayPal and its PYUSD stablecoin as an example, having an in-house L2 can bring in sequencer revenue and tightly integrate the chain's economic model with PYUSD. As an initial sequencer operator, PayPal can collect a portion of transaction fees (also known as "gas fees"), similar to the revenue Coinbase's OP Stack L2 Base earns from its sequencers. By modifying OP Stack's gas payments to accept PYUSD, PayPal can offer "free" transactions to existing PayPal users (e.g., withdrawal fees) and improve use cases such as Venmo transfers and cross-border remittances. Similarly, PayPal can incentivize developer activity by offering low to zero-cost developer fees and charge a modest premium on integrated services such as the PayPal Wallet API or compliance oracles.

Facing the rapidly evolving crypto world, banks, asset managers, and fintech companies often have questions when exploring blockchain technology: How can they understand this technology and its potential opportunities? Here are our key recommendations:

Start with customer segmentation and tailor solutions. Customer needs are diverse—institutional users require strong compliance and custody-focused 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 regulators or customers, have clear expectations for security and compliance.

Accelerate deployment and innovation through collaboration. Instead of trying to do everything on their own, partnering with professional domain partners can shorten time to market and leverage innovative solutions to create new revenue opportunities.

Blockchain can not only serve as the core infrastructure for traditional financial institutions but also help them explore new markets, attract new users, and unearth new revenue streams, steering them toward future growth.

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