Author: Pyrs Carvolth & Maggie Hsu & Guy Wuollet
Compiled by: TechFlow
Blockchain is a new settlement and ownership layer that is programmable, open, and global by default, spurring new forms of entrepreneurship, creativity, and infrastructure development. The growth of monthly active crypto addresses generally aligns with the growth of internet users toward one billion, stablecoin trading volumes have surpassed traditional fiat currency trading volumes, laws and regulations are gradually catching up, and crypto companies are being acquired or going public.
The convergence of regulatory clarity and competitive pressure, coupled with blockchain's significant impact on business outcomes and the increasing maturity of the technology, is driving the urgent need for traditional finance (TradFi) to embrace blockchain technology as its core infrastructure. Traditional financial institutions are rediscovering blockchain as a transparent and secure value transfer tool that not only provides future-proofing for their institutions but also unlocks new sources of growth.
Executive teams are asking a new question: not "if" or "when," but "how now" to make blockchain truly impact their business. This question is driving a wave of exploration, resource allocation, and organizational realignment. As organizations begin to truly invest in this area, two key themes are emerging:
The business case for a blockchain-driven strategy
The technological foundation for implementing the strategy
This guide aims to help answer these questions. It's not a comprehensive survey of all blockchain use cases or protocols, but rather a zero-to-one action guide that illuminates key early decisions, shares emerging models, and helps redefine blockchain as more than just token hype, but rather as core infrastructure. Properly implemented, blockchain can not only future-proof traditional financial institutions but also unlock new growth potential.
Because banks, asset managers, and fintech companies (including the increasingly prominent PayFi ) differ in how they interact with end users, their legacy infrastructure limitations, and their regulatory requirements, we’ve organized the following content into categories to provide leaders in these industries with a solid and actionable understanding of blockchain applications and help them move from concept design to actual product implementation.
bank
Banks may appear modern, but they still run ancient software systems—primarily COBOL, a programming language invented in the 1960s. Despite its age, it still underpins systems that comply with banking regulations. When customers click on a fancy website or use a mobile app, these front-end interfaces actually translate their actions into instructions for decades-old COBOL programs. Blockchain offers a way to upgrade these systems without compromising regulatory integrity.
By integrating and leveraging blockchain technology, banks can move beyond the internet era of "bookstores with websites" and toward a model more akin to Amazon: one that employs modern databases and superior interoperability standards. Asset tokenization—whether stablecoins, deposits, or securities—is likely to occupy a central position in future capital markets. To avoid being left behind in this transformation, adopting the right systems is only the first step. Banks must truly grasp and lead this transformation.
On the retail side, banks are exploring ways to provide clients with exposure to crypto assets, such as by offering access to Bitcoin and other digital assets through their affiliated broker-dealers as part of the overall customer experience. This exposure can occur indirectly through exchange-traded products (ETPs) or, eventually, directly, following the US Securities and Exchange Commission's (SEC) repeal of accounting rule SAB 121 , which had effectively prevented US banks from engaging in digital asset custody. However, on the institutional and back-office side, blockchain's potential is greater, primarily focused on three emerging use cases: tokenized deposits, revaluation of settlement infrastructure, and collateral liquidity .
Application Scenario
Tokenized deposits represent a fundamental shift in how commercial banks operate their money. This isn't just a speculative concept; tokenized deposits are already being used in real-world applications, such as JPMorgan Chase's JPMD token and Citigroup's Token Services for Cash. These tokens aren't synthetic stablecoins or digital assets backed by government bonds. Instead, they are backed by real fiat currency, held in commercial bank accounts, represented as regulated tokens at a 1:1 ratio, and traded on private or public blockchains.
Tokenized deposits can reduce settlement latency from days to minutes or seconds, and are suitable for cross-border payments, treasury management, trade finance, and other fields. Banks can thus reduce operating costs, reduce reconciliation work, and improve capital efficiency.
Furthermore, banks are actively reassessing their settlement infrastructure . Several Tier 1 banks are participating in distributed ledger settlement trials, often collaborating with central banks or blockchain-native companies to address the inefficiencies of the T+2 system. For example , Matter Labs, the parent company of zkSync (a Layer 2 solution for Ethereum that optimizes Ethereum performance by processing transactions off-chain), is collaborating with global banks to demonstrate near-real-time settlement in the cross-border payments and intraday repurchase agreement (repo) markets. The business impact of these practices includes improved capital efficiency, optimized liquidity utilization, and reduced operating costs.
Blockchain and tokens can also enhance banks' ability to quickly and efficiently transfer assets across business units, geographies, and counterparties—a process known as "collateral liquidity." The Depository Trust & Clearing Corporation (DTCC) recently launched a Smart NAV pilot program aimed at modernizing collateral liquidity by tokenizing net asset value (NAV) data. The pilot demonstrates how collateral can function like liquid, programmable money, representing not only an operational upgrade for banks but also an innovation supporting their broader strategies. Improving collateral liquidity enables banks to reduce capital buffers, access broader liquidity pools, and compete more effectively in the capital markets with leaner balance sheets.
For all of these use cases—tokenized deposits, reassessment of settlement infrastructure, and collateral liquidity—banks have key decisions to make, starting with whether to use a private or public blockchain network.
Select blockchain
In the past, banks were prohibited from accessing public blockchain networks. However, with the release of recent guidance from banking regulators, including the U.S. Office of the Comptroller of the Currency (OCC), this restriction has been relaxed, expanding the possibilities for blockchain applications. For example, R3 Corda's collaboration with Solana is a landmark example. This collaboration will allow Corda's permissioned network to settle assets directly on Solana.
Using tokenized deposits as an example, we’ll discuss the early stages of product launch, from choosing a blockchain to determining the level of decentralization. While there are many ways to choose a blockchain , building a product on a decentralized public blockchain offers several advantages:
Neutral Developer Platform : Provides a neutral developer platform where anyone can contribute, which not only increases trust but also expands the ecosystem that supports the product.
Accelerate product iteration : Because anyone can contribute, product iteration is accelerated by the ability to use, adapt, and combine other people's components ( i.e., modular composability ).
Enhanced platform trust: Top developers prefer decentralized blockchains because these platforms are unlikely to suddenly change rules or be censored, and this ensures their products can continue to be profitable.
In contrast, centralized public chains may lose the trust of developers due to rule changes or application reviews, while non-programmable blockchains cannot enjoy the advantages of modular composability .
While blockchains are still slower than centralized internet services, they have seen significant performance improvements over the past few years. Layer 2 rollups (various off-chain scaling solutions) 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 latency below one second.
Consideration of the degree of decentralization
When choosing a blockchain, banks must weigh the appropriate level of decentralization based on their specific use case. The Ethereum blockchain protocol and its community prioritize ensuring that anyone globally can independently verify every transaction on the chain. Solana, on the other hand, relaxes this constraint by increasing the hardware requirements for verification while significantly improving the chain's performance.
Furthermore, even within the public blockchain space, banks need to carefully consider the extent of their centralized influence . For example, if a network has a relatively small number of validating nodes, but its foundation controls a significant proportion of them, the chain could actually be significantly centralized and less decentralized than it appears. Similarly, if entities associated with a public network (such as a foundation or lab) hold a significant number of tokens, they could potentially use these tokens to influence or control network decisions.
Privacy considerations
Privacy and confidentiality are key considerations in any banking transaction, partly due to legal requirements. The rise and use of zero-knowledge proofs can help protect sensitive financial data, even on public blockchains. These systems can prove that an institution possesses certain necessary information without revealing the specifics. For example, they can prove that someone is over 21 without revealing their date or place of birth.
Zero-knowledge-based protocols, such as zkSync, enable private transactions on-chain while meeting regulatory compliance requirements. Banks need to be able to review and revert transactions when necessary. View keys (developed by Aleo, a privacy-enabling L1 key ) can provide transaction access to regulators and auditors while maintaining privacy.
Solana’s token extensions provide compliance features, making privacy more flexible, while Avalanche’s Layer 1 offers the unique ability to enforce verification logic encoded in smart contracts.
These privacy features also apply to stablecoins , one of the most popular blockchain applications today, which are already among the cheapest ways to send a dollar. In addition to lowering fees, they offer permissionless programmability and scalability—making it possible for anyone to integrate fast, global money into their products while developing new fintech features. Following the GENIUS Act , banks face increased transparency requirements for stablecoin transactions and reserves. Companies like Bastion and Anchorage are providing transaction and reserve transparency solutions to help banks meet this demand.
Hosting strategy selection
When developing a crypto asset custody strategy (i.e., who will manage and store crypto assets), most banks prefer to work with custodian providers rather than manage crypto assets themselves. Some custodian banks, such as State Street, are actively exploring the possibility of providing their own crypto custody services.
If banks choose to work with a custodian service provider, they need to consider the following factors: licensing and certification, security, and operational practices.
In terms of licensing and certification , custodians must adhere to a strict regulatory framework, including federal or state bank or trust licenses, virtual currency business licenses, state exchange licenses, and certifications such as SOC 2 compliance. For example, Coinbase operates its custody business through a New York trust license, Fidelity's custody services are provided by Fidelity Digital Asset Services, and Anchorage manages its custody business through a federal OCC license.
In terms of security , custodians must employ strong encryption technology, hardware security modules (HSMs) to prevent unauthorized access, data extraction, or tampering, and multi-party computing (MPCs) to distribute private keys across multiple parties for enhanced security. These measures can effectively prevent hacker attacks and operational failures.
In terms of operational practices , custodians should adopt other best practices, such as asset segregation to protect client assets from bankruptcy risk; providing transparent proof of reserves to facilitate verification by users and regulators of the matching of reserves with liabilities; and conducting regular third-party audits to prevent fraud, errors, or security breaches. For example, Anchorage uses biometric multi-factor authentication and geographically distributed key sharding to enhance governance. Furthermore, custodians should develop clear disaster recovery plans to ensure business continuity.
What role do wallets play in custody decisions? Banks increasingly recognize that crypto wallet integration is a strategic necessity to remain competitive, especially against emerging banks and ancillary service providers like centralized exchanges. For institutional clients (such as hedge funds, asset managers, or corporations), wallets are positioned as enterprise-grade tools for custody, trading, and settlement. For retail clients (such as small businesses or individuals), wallets serve as embedded functionality, enabling access to digital assets. In both cases, wallets are more than just storage solutions; they are critical tools for enabling secure and compliant access to assets (such as stablecoins or tokenized assets) through private keys.
"Hosted wallets" and "self-hosted wallets" represent two extremes in terms of control, security, and responsibility. Hosted wallets are managed by a third-party service that helps users keep their private keys; self-hosted wallets, on the other hand, allow users to manage their own private keys . This distinction is crucial for banks to meet diverse needs—from the stringent compliance demands of institutional clients, to the autonomy sought by advanced clients, to the convenience preferred by mainstream retail investors. Custodial 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 providing modern wallet functionality alongside complementary products.
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 (RWAs) offer new packaging for asset management products, making them more accessible and combinable, particularly addressing global investors' growing demand for 24/7 access, instant settlement, and programmable trading. Meanwhile, on-chain rails can significantly streamline back-office workflows, from net asset value (NAV) calculations to cap table management. Ultimately, these innovations lead to lower costs, faster time to market, and a more differentiated product portfolio—advantages that continue to compound in a highly competitive market.
Asset managers are focused on improving the distribution and liquidity of their products, particularly those that attract capital from digital native audiences. By listing tokenized share classes on public blockchains, asset managers can reach a whole new group of investors without sacrificing the record-keeping capabilities of traditional transfer agents. This hybrid model maintains regulatory compliance while leveraging new markets, new features, and new capabilities unique to blockchain.
Blockchain innovation trends
Tokenized U.S. Treasury and money market funds have grown from virtually nothing to tens of billions of dollars in assets under management (AUM), including BlackRock’s BUIDL (BlackRock USD Institutional Digital Liquidity Fund) and Franklin Templeton’s BENJI (representing shares of the U.S. government money market fund on FranklinChain). These financial instruments resemble yield-yielding stablecoins, but with institutional-grade regulatory compliance and asset backing.
By leveraging blockchain technology, asset managers can cater to the needs of digitally native investors, offering greater flexibility, such as automated portfolio rebalancing or return tiering through asset segmentation and programmability.
On-chain distribution platforms are becoming increasingly mature. Asset managers are partnering with blockchain-native issuers and custodians, such as Anchorage, Coinbase, Fireblocks, and Securitize, to tokenize fund shares, automate investor onboarding, and expand their reach and investor categories globally.
On-chain transfer agents natively manage KYC/AML, investor whitelists, transfer restrictions, and cap tables through smart contracts, reducing the legal and operational overhead of fund structures.
Leading custodians ensure the secure custody, transferability, and regulatory compliance of tokenized fund shares, increasing distribution options while meeting internal risk and audit standards.
Issuers seek to leverage their funds as foundational assets in decentralized finance ( DeFi ) and access on-chain liquidity to expand their total addressable market (TAM) and increase assets under management (AUM). Asset managers can access new liquidity by listing tokenized funds on protocols like Morpho Blue or integrating with Uniswap v4 . In mid-2024, BlackRock's BUIDL fund debuted as a yield-generating collateral option on Morpho Blue, marking the first time traditional asset management products have become composable in DeFi. Recently, Apollo's tokenized private credit fund (ACRED) was integrated into Morpho Blue, introducing a new yield-enhancing strategy unavailable in the off-chain world.
The ultimate result of collaborating with DeFi is that asset managers move from a costly and slow fund distribution model to direct wallet access, while creating new yield opportunities and capital efficiencies for investors.
Asset managers have largely moved beyond the choice between permissioned networks and public chains when issuing tokenized real-world assets (RWAs) . In fact, they are clearly favoring public and multi-chain strategies to achieve wider distribution of their products.
For example, Franklin Templeton's tokenized money market fund (represented by the BENJI token) is distributed across blockchain platforms such as Aptos, Arbitrum, Avalanche, Base, Ethereum, Polygon, Solana, and Stellar. By collaborating with prominent public chains, the liquidity of these products is 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 inter-chain connectivity and settlement.
Tokenized Real World Assets (RWA)
We are observing a growing trend towards tokenizing financial assets (such as government securities, private sector securities, and equities), rather than physical assets like real estate or gold (although these assets can also be tokenized and have been used).
In the context of tokenizing traditional funds—such as money market funds backed by U.S. Treasuries or similar stablecoins— the distinction between "wrapped tokens" and "native tokens" is particularly important. This distinction primarily relates to how the token represents ownership, where the primary record of shares is stored, and the degree of blockchain integration. Both models promote tokenization by connecting traditional assets to the blockchain, but wrapped tokens prioritize compatibility with legacy systems, while native tokens strive for comprehensive on-chain transformation. To more clearly illustrate the difference between wrapped and native tokens, the following 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 BUIDL token digitizes these shares for on-chain circulation, while the underlying fund continues to operate as an off-chain entity regulated by U.S. securities laws. Ownership is limited to whitelisted, accredited institutional investors, and token minting and redemption are managed by Securitize and BNY Mellon Custodian.
BENJI is a native token representing shares of the Franklin OnChain U.S. Government Money Fund (FOBXX), a $750 million fund invested in U.S. government securities. Within the BENJI framework, blockchain serves as the official record-keeping system, processing transactions and recording ownership, making it a native token rather than a wrapped token. Investors can subscribe to BENJI by exchanging USDC for USDC through the Benji Investments app or institutional portal. The token supports direct peer-to-peer (P2P) transfers on the blockchain.
When issuing tokenized funds, asset managers often require a digital transfer agent (DTA) that adapts traditional TA functionality to a blockchain environment. Many institutions choose to partner with Securitize, which not only facilitates the issuance and transfer of tokenized funds but also ensures the accuracy and compliance of books and records. These DTs not only improve efficiency through smart contracts but also expand the possibilities of traditional assets. For example, Apollo's ACRED is a wrapped token that provides access to diversified off-chain credit funds and optimizes its lending and yield strategies through decentralized finance (DeFi) integration. In this process, Securitize assisted in the creation of sACRED, an ERC-4626-compliant version of ACRED, which investors can use to implement leveraged revolving strategies through Morpho, a decentralized lending protocol.
While wrapped tokens require a hybrid system to coordinate on-chain behavior and off-chain records, native tokens achieve further innovation through on-chain transfer agents. Franklin Templeton worked closely with regulators to develop a proprietary on-chain transfer agent that enables instant settlement and 24/7 transfers for BENJI. Similarly, Opening Bell, launched in partnership with Solana by Superstate, also uses an internal on-chain transfer agent to support 24/7 transfers.
Where should wallets be located? Asset managers shouldn't consider wallets —the tools through which clients access their products—as a secondary concern. Even if they choose to "outsource" issuance and distribution to transfer agents and custodians, asset managers must carefully select and integrate wallets. These decisions will impact everything from investor adoption to regulatory compliance.
Many asset managers often use "Wallet-as-a-Service" solutions to generate wallets for investors. These wallets are typically custodial, with the service provider automatically enforcing Know Your Customer (KYC) and transfer agent restrictions. However, even if the transfer agent "owns" the wallet, asset managers still need to embed the relevant APIs into their investor portals and select a software development kit (SDK) 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 degree of automation required for net asset value (NAV) calculations, for example, whether to use smart contracts for intraday transparency or rely on off-chain audits to determine the final daily NAV. This decision depends on the token type, the underlying asset class, and the specific fund's regulatory compliance requirements. Redemption mechanisms are another key consideration. Tokenized funds offer faster exits than traditional systems, but they also require built-in restrictions to manage liquidity. In these scenarios, asset managers often rely on transfer agents for advice or integration with key service providers such as oracles, wallets, and custodians.
Furthermore, when deciding on custody, special attention should be paid to the custodian’s regulatory status. According to the U.S. Securities and Exchange Commission (SEC) custody rules, a qualified custodian must be qualified and obligated to ensure the safety of client assets.
Fintech companies
Fintech companies, particularly those focused on payments and consumer finance (PayFi), are leveraging blockchain technology to build faster, lower-cost, and more globally scalable services. In a highly competitive market where speed of innovation is crucial, blockchain provides a ready-made infrastructure for identity, payments, credit, and custody, often with fewer intermediaries.
Rather than attempting to replicate existing systems, these fintech companies aim to leapfrog development. This makes blockchain particularly attractive for cross-border applications, embedded finance, and programmable money. For example, Revolut's virtual card allows users to use cryptocurrency for everyday purchases, while Stripe's stablecoin financial account allows corporate users to hold account balances in stablecoins in 101 countries.
For these companies, blockchain is more than just an improvement in infrastructure or efficiency; it’s about building new services that weren’t possible before.
Tokenization enables fintech companies to embed real-time, 24/7 global payments directly on-chain, unlocking new fee-based services around issuance, exchange, and fund movement. Programmable tokens also enable native functionality like 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, providing real-time transaction settlement services 24/7/365, breaking through the limitations of traditional payment networks that are constrained by banking hours, batch processing, and jurisdictional restrictions. By bypassing traditional card networks and intermediaries, stablecoin channels significantly reduce transaction fees, foreign exchange fees, and commissions, especially in peer-to-peer (P2P) and business-to-business (B2B) scenarios.
Smart contracts allow businesses to embed conditions, refunds, royalties, and installment payments directly into the transaction layer, opening up new revenue models. This has the potential to transform companies like Stripe and PayPal from aggregators of banking services to platform-native programmable cash issuers and processors.
Global remittances remain plagued by high fees, long delays, and opaque foreign exchange spreads. Fintech companies are leveraging blockchain settlement technology to redefine cross-border money flows. By leveraging stablecoins like 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 banks, fintech companies gain greater control and speed, especially in regions with unreliable banking systems. For companies like Revolut and Robinhood, this transformation has enabled them to become global money movement platforms, rather than just shrouds for digital banks or trading apps. For global payroll providers like Deel and Papaya Global, offering the option to pay employees in cryptocurrencies or stablecoins is becoming increasingly popular due to the instantaneous nature of payments.
Crypto-native fintech companies are focusing on the underlying infrastructure , launching their own blockchains (L1 or L2) or acquiring companies that can reduce their reliance on third parties. Companies like Coinbase’s Base, Kraken’s Ink, and Uniswap’s Unichain —all built on the OP Stack—are similar in strategy to the shift from developing apps on Apple iOS to owning the entire mobile operating system and reaping the benefits of the platform’s power.
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 offer customized performance, whitelisting capabilities, KYC modules, and more, which are crucial for regulated applications and corporate clients.
By using the OP Stack—a modular, open-source software framework—to launch a specialized "payments" blockchain on Optimism (an Ethereum L2 blockchain), fintech companies can transform from a closed ecosystem into a diversified, open market for financial innovation. This not only attracts other developers and businesses to participate in the ecosystem's development, but also generates revenue through network effects.
Many fintech companies typically start by offering basic crypto services, such as buying, selling, sending, receiving, and holding small amounts of tokens, before gradually expanding to other services like yield farming and lending. SoFi recently announced plans to re-enable crypto trading after exiting the sector in 2023 due to regulatory restrictions. One advantage of crypto trading is that it allows SoFi's clients to participate in global remittances, but even greater potential lies in integrating its core lending business with on-chain lending (similar to Morpho's Bitcoin-collateralized lending partnership with Coinbase) to optimize terms and enhance transparency.
Build a dedicated blockchain
A growing number of crypto-native "fintech" companies—such as Coinbase, Uniswap, and World —are building dedicated blockchains to tailor infrastructure to specific products and users, reducing costs, increasing decentralization, and capturing more value within their own ecosystems. For example, Uniswap's Unichain aggregates liquidity, reduces fragmentation, and makes decentralized finance (DeFi) faster and more efficient. Similar vertical integration strategies are also applicable to fintech companies looking to enhance user experience and internalize more value, such as Robinhood's recently announced L2 blockchain initiative. For payment companies, dedicated chains may prioritize user experience (UX) by building infrastructure that abstracts or hides crypto-native operations, while also prioritizing stablecoin adoption and regulatory compliance.
When building your own blockchain, different levels of complexity come with different trade-offs. Here are some key considerations.
L1 is the most burdensome and complex of all partnerships, and also offers the least benefit . 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 launching a chain's economic security—attracting significant staked capital to secure the network. EigenLayer democratizes access to high-quality security. By transforming the siloed and capital-intensive L1 model into a shared, efficient one, such services can accelerate blockchain innovation while reducing development failure rates.
L2 is often a good compromise, allowing fintech companies to maintain a certain degree of control through a single sequencer while accelerating the development process. The sequencer is responsible for collecting user transactions, determining the processing order, and submitting them to L1 for final verification and storage. A single sequencer design not only ensures reliability and fast performance, but also captures more revenue while streamlining operations. Furthermore, by using Rollup-as-a-Service (RaaS) services on Ethereum or joining established L2 consortiums like the Optimism Superchain, fintech companies can quickly build their own L2s, leveraging shared infrastructure, standardized resources, and community support.
For example, PayPal could build a "payment superchain" based on the OP Stack, optimizing its PYUSD stablecoin to support real-time scenarios like in-app transfers with 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 (e.g., less than $0.01 per transaction) while inheriting the security of Ethereum. Furthermore, by partnering with RaaS providers like Alchemy and its partner Syndicate , PayPal could significantly reduce deployment time from months or even years to weeks.
The simplest approach is to deploy smart contracts on an existing blockchain , a strategy already adopted by companies like PayPal. Blockchains like Solana are particularly attractive to fintech companies looking to quickly enter the L1 blockchain space due to their mature scale, broad user base, and unique assets.
Open and closed
How open should fintech applications and/or blockchains be? The core advantage of blockchain lies in composability —the ability to combine and remix protocols to create ecosystems where the value of the whole far exceeds the sum of its parts.
If an application or blockchain isn't open, composability is limited, significantly reducing the likelihood of innovative applications emerging. For example, PayPal's choice of a permissionless blockchain not only aligns with the trend of fintech's evolution toward an open ecosystem but also helps PayPal achieve profitability through its competitive advantage. Global developers can leverage PayPal's compliance layer to attract more users, and this user growth will drive increased network activity, thereby creating greater value for PayPal.
Unlike L1 blockchains (such as Ethereum), L2 offloads most of the work through sequencers, achieving higher throughput while still inheriting the security properties (and advantages) of L1. As mentioned above, rollups with a single sequencer design (such as Soneium ) provide an interesting development path, allowing operators to influence transaction latency and restrict specific transactions, thereby finding a balance between openness and control.
Building a blockchain on a modular framework like OP Stack not only drives additional revenue growth but also expands the utility of the core product. For example, PayPal and its PYUSD stablecoin, owning an independent L2 not only generates sequencer revenue but also tightly aligns the chain's economic model with PYUSD. As the 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 sequencer. By modifying OP Stack's gas payments to accept PYUSD, PayPal can offer "free" transactions (e.g., withdrawal fees) to existing PayPal users and improve the speed of use cases like Venmo transfers and cross-border remittances. Similarly, PayPal can incentivize developer activity by offering low- or no-cost developer fees and charging a modest premium for integrated services like the PayPal Wallet API or compliance oracles.
In the rapidly evolving world of cryptocurrencies, banks, asset managers, and fintech companies exploring blockchain often have questions: How do they understand this technology and its potential opportunities? Here are our key recommendations:
We tailor solutions based on customer segmentation . Customer needs vary – institutional users require compliant, custodial setups, while retail investors prioritize convenience and self-custody options for daily 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 doing everything yourself, collaborate with specialized partners to shorten time to market and create new revenue opportunities with innovative solutions.
Blockchain can not only become the core infrastructure of traditional financial institutions, but also help them open up new markets, attract new users, and tap into new sources of revenue, thereby safeguarding their future development.
