a16z: Manual for entering blockchain for banks, asset management, Fintech, etc. TradFi, etc.

source:a16z;Compiled: bitchain vision

Blockchain is a new settlement and ownership layer that is programmable, open and globalized by default, unlocking new forms of entrepreneurship, creativity and infrastructure.The growth rate of monthly active cryptocurrency addresses is roughly the same as the growth rate of Internet users, the volume of stablecoin transactions is surpassing the volume of traditional fiat currency transactions, legislation and regulation are finally keeping pace, and cryptocurrency companies are also being acquired or listed.

The superposition of regulatory clarity and competitive pressure, coupled with the significant improvement in business results brought by blockchain and the maturity of blockchain technology, makesTraditional Finance (TradFi) urgently needs to embrace blockchain technology as its core infrastructure.Financial institutions are rediscovering the potential of blockchain as a transparent and secure value transfer tool, which can guarantee the future development of traditional financial institutions and unlock new growth points.

The executive team is asking a new question:It’s no longer “whether” or “when”, but “how” to make blockchain crucial to their business.This issue is driving a wave of exploration, resource allocation and organizational restructuring.As institutions begin to make real investments in this area, some key considerations follow, and revolve around two topics:

1. Business cases of blockchain strategy, and

2. The technical cornerstone that makes strategy a reality.

This guide is designed to answer these questions.It is not a comprehensive survey of every use case or protocol, but a zero-to-one guide that elaborates on key early choices, shares emerging models, and helps build blockchain as a core infrastructure rather than a symbolic hype – when used properly, it can safeguard the future development of traditional financial institutions and unlock new sources of growth.

As banks, asset managers and fintech companies (including increasingly known PayFi) differ in how they interact with end users, legacy infrastructure restrictions and regulatory requirements, we organized the following sections so that leaders in these industries can have a solid and practical understanding of how blockchain is applied in their world and how they can transform from a whiteboard to available products.

bank

Banks seem modern, but they run ancient software—mostly COBOL, a programming language born in the 1960s.Although this language is old, it can support a system that complies with bank supervision.When customers click on beautiful web pages or click on mobile apps, these front-ends are just instructions to convert their clicked content into COBOL programs decades ago.Blockchain can be a way to upgrade these systems without compromising regulatory integrity.

By integrating and building blockchains, banks can get rid of the Internet’s “bookstore with websites” era and turn to a more Amazon-like model: modern databases and more complete standards of interoperability.Tokenized assets—whether stablecoins, deposits or securities—are likely to play a central role in the future capital markets.Adopting the right system to avoid being replaced by this transformation is just a starting point.Banks must really control the transition.

On the retail side, banks are exploring access to cryptocurrencies through their affiliate brokers and use them as part of their overall customer experience.This approach can be done both indirectly through exchange-traded products (ETPs) or ultimately directly after the repeal of SEC accounting rule SAB 121, which actually prevents American banks from participating in digital custody.But in terms of organization/backend, the opportunity and utility are greater,There are currently three emerging use cases: tokenized deposits, settlement infrastructure, and collateral liquidity.

Three emerging use cases

Tokenized depositsIt represents a fundamental change in the flow and operation of commercial banks.Tokenized deposits are not speculative concepts, but have been implemented, such as JPMorgan’s JPMD tokens and Citi’s Token Services for Cash.These are not synthetic stablecoins, nor are digital assets backed by treasury bonds – they are backed by real fiat currencies, stored in commercial bank accounts and exchanged 1:1 for regulated tokens that can be traded between private or public chains (see below for details).

Tokenized deposits can shorten the settlement delays for cross-border payments, fund management, trade financing and other businesses from a few days to a few minutes or even seconds.Banks will benefit from lower operating costs, less reconciliation costs and higher capital efficiency.

Banks are also actively reevaluatingSettlement Infrastructure.Some first-tier banks are participating in distributed ledger settlement trials—usually working with central banks or native blockchain players—to address the inefficiency of the “T+2” system.For example, Matter Labs, the parent company of zkSync (Ethereum Layer 2 or L2, optimizes Ethereum performance through off-chain transaction processing), is working with global banks to demonstrate near-real-time settlement of cross-border payments and intraday repo agreements (repo) markets.Its business impact includes improving capital efficiency, improving liquidity utilization and reducing operating expenses.

Blockchain and tokens can also enhance banks’ ability to quickly and efficiently transfer assets between business units, regions and counterparties – this is calledCollateral liquidity.Custody Trusts and Clearing Corporation (DTCC), which provides clearing, settlement and custody services in traditional U.S. markets, recently launched a pilot of smart net asset value, aiming to modernize collateral liquidity by tokenizing net asset value data.The pilot shows how collateral acts more like a liquid, programmable currency—not only an operational upgrade for the bank, but it can support its broader strategy.Improving collateral liquidity allows banks to lower capital buffers, gain access to a wider liquidity pool, and compete more actively in the capital market with a streamlined balance sheet.

For all these use cases – tokenized deposits, settlement infrastructure and collateral liquidity – banks must make key decisions, first of all, choosing to use a private/licensed blockchain or a public blockchain network.

Which blockchain to choose

Although banks have been banned from accessing public chain networks, recent guidance from bank regulators, including the U.S. Currency Supervision Agency (OCC), has opened up the possibility of banks accessing public chain networks.This is highlighted by collaborations such as R3 Corda’s integration with Solana.The partnership will enable the licensing network on Corda to settle assets directly on Solana.

Taking tokenized deposits as a use case, we will discuss early choices for bringing products to the market, including blockchain choice, decentralization, and more.Although there are many ways to choose blockchain,Building products based on decentralized public chains can indeed bring many advantages.

• It provides a neutral developer platform to which anyone can contribute, increasing trust and expanding the ecosystem that supports your products.

• Because anyone can contribute, it can accelerate product iteration through the ability to use, adjust and combine other people’s building blocks (also known as composability).

• It enhances platform trust.The best developers are most interested in building on decentralized blockchains, where rules on these blockchains will not change suddenly because this ensures that their products can continue to make profits.

By contrast, high-centralized public blockchains (whose owners can change rules or review certain applications) and non-programmable blockchains cannot benefit from composability.

Although blockchain is currently slower than centralized Internet services, its performance has improved significantly over the past few years.L2 rollup on Ethereum (various types of off-chain scaling solutions), such as Coinbase’s Base, and faster Layer 1 (L1) blockchains such as Aptos, Solana and Sui, have been able to send transactions for less than a cent, with a delay of less than a second.

Decentralization degree

Banks must also consider appropriate degree of decentralization based on their specific use cases.The Ethereum blockchain protocol and community prioritize ensuring that anyone on the planet can independently verify every transaction on the chain.Meanwhile, Solana relaxes this requirement by adding the hardware required for verification, while also significantly improving the performance of the chain.

Even in the public chain field, banks should consider the extent of centralized impact.For example, if the total number of validators in the network is relatively small and the foundation of the network controls a relatively large proportion of validators, the chain will be significantly affected by centralization, making it less decentralized than the surface.Similarly, if entities associated with public chains, such as foundations or laboratory entities, hold large quantities of tokens, they may use these tokens to influence or control decisions about the network.

Privacy Considerations

Privacy and confidentiality are key considerations for any bank-related transaction, partly because of legal provisions.The rise and use of zero-knowledge proof can help protect sensitive financial data even on public chains.These systems work by proving that they have the specific information needed by the institution without revealing the contents of the information itself – for example, it can prove that someone is over 21 years of age but cannot prove his date of birth or place of birth.

Zero-knowledge-based protocols such as zkSync can be used to implement privacy on-chain transactions.To maintain compliance, banks also need to be able to view and roll back transactions as needed.At this point, the “view key” (developed by Aleo, a confidential L1 key) protects privacy while still allowing regulators and auditors to view transactions as needed.

Solana’s token extension provides compliance capabilities that allow confidentiality.Avalanche’s Layer1 has a unique capability to enforce any verification logic that can be encoded by smart contracts.

Many of these features also apply to stablecoins.As one of the most popular blockchain applications today, stablecoins have become one of the cheapest ways to transfer dollars.In addition to reducing fees, they are also programmable and scalable without permission – so anyone can use the stablecoin track to integrate fast funds available globally into their products while building new fintech capabilities.After the GENIUS Act was introduced, banks need transparency in stablecoin transactions and reserves.Companies such as Bastion and Anchorage achieve transparency in transactions and reserves.

Hosting decision

When considering a custody strategy (i.e. who manages and stores crypto assets),Most banks will choose to work with partners rather than custody cryptocurrencies themselves.Some custodial banks, such as State Street, are seeking to provide their own cryptocurrency custody services.

But if working with a trustee, the bank should consider it: licenses and certifications, security postures and other operational practices.

In terms of licensing and certification, the custodian shall comply with regulatory frameworks such as banking or trust licenses (federal or state), virtual currency business licenses, state-level transaction licenses, and SOC 2 compliance certifications.For example, Coinbase operates its custody business through a New York Trust License, Fidelity operates its custody business through Fidelity Digital Asset Services; and Anchorage operates its custody business through a federal OCC license.

To ensure security, the host should also have powerful encryption technology; a hardware security module (HSM) that prevents unauthorized access, extraction, or tampering; and a multi-party computing (MPC) process that distributes private keys to multiple parties for increased security.These measures help prevent hacker attacks and operational failures.

In terms of operations, custodians should also adopt other best practices, including asset isolation, to ensure that client assets are protected in the event of bankruptcy; transparent reserve proof mechanisms that enable users and regulators to verify that reserves match liabilities; and conduct regular third-party audits to detect fraud, errors or security breaches.For example, Anchorage uses biometric multifactor authentication and geodistributed key sharding to enhance governance.Finally, the custodian should develop a clear disaster recovery plan to ensure business continuity.

What role does wallets play in custody decisions?Banks are increasingly aware that in order to remain competitive with ancillary service providers such as new banks and centralized exchanges, integrating crypto wallets is a strategic necessity.For institutional clients (such as hedge funds, asset management companies, or enterprises), wallets are positioned as enterprise-level custodial, trading and settlement tools.For retail customers (such as small businesses or individuals), wallets are largely confused as an embedded feature for accessing digital assets.In both cases, wallets are more than just simple storage solutions; they can access assets such as stablecoins or tokenized Treasury bills securely and compliantly through private keys.

“Hosted Wallet” and “self-hosted Wallet” represent two extremes in control, security and responsibility.The custodial wallet is managed by a third-party service provider that holds the key on behalf of the user, while the user manages his or her key through a self-hosted wallet.For banks, understanding the differences between the two is crucial because banks need to meet a variety of needs—from the high compliance needs of institutional clients, to the desire of mature clients to the desire of autonomy, to the preferences of mainstream retail investors to the preferences of convenience.Hosting providers like Coinbase and Anchorage have integrated wallet products to meet the needs of institutional customers, while companies like Dynamic and Phantom offer complementary products to help modernize banking applications.

Asset Manager

For asset managers, blockchain can expand distribution, automate fund operations, and utilize on-chain liquidity.

Tokenized funds and real-world assets (RWA) offer new packaging that makes asset management products more accessible and combined – especially for a global investor community that is increasingly eager for 24/7 access, instant settlement and programmable transactions.At the same time, the backend workflow from NAV calculation to equity structure table management can be significantly simplified on the chain.What is the result?Lower costs, faster speed to market, and more differentiated product suites – these advantages continue to stack in a highly competitive market.

Asset management companies have been working to enhance the distribution and liquidity of products that can attract the funds of digital native audiences the fastest.By launching the tokenized stock category on the public chain, asset management companies can reach new investor groups without sacrificing traditional transfer agent record keeping methods.This hybrid model can also mine new markets, new features and new functions unique to blockchain while maintaining regulatory compliance.

Blockchain innovation trends

Tokenized U.S. Treasury and Money Market FundsThe asset management scale has grown from almost zero to tens of billions of dollars, covering BlackRock’s BUIDL (BlackRock USD Institutional Digital Liquidity Fund) and Franklin Templeton’s BENJI (Franklin OnChain U.S. Government Money Fund, share of U.S. government money fund on Franklin).These tools are similar to earning stablecoins, but have institutional compliance and support.

As a result, asset managers are able to provide greater flexibility through segmentation and programmability, such as automatic rebalancing of the basket or earnings portion, to serve digital native investors.

On-chain distribution platformIt is becoming more and more complicated.Asset management companies are increasingly working with blockchain native issuers and custodians such as Anchorage, Coinbase, Fireblocks and Security to enable tokenization of fund shares, automate investor onboarding processes, and expand their coverage across geographic and investor categories.

On-chain transfer agents can reduce legal and operational overheads of fund structures through smart contracts.

Leading custodians ensure secure custody, transferable and compliant tokenized fund shares – adding greater distribution selectivity while meeting internal risk and audit standards.

Issuer hopesInstantiate its funds into decentralized finance ( DeFi) primitiveand obtain on-chain liquidity to expand its total potential market (TAM) and increase its asset size (AUM).By launching tokenized funds in protocols such as Morpho Blue or integrating with Uniswap v4, asset managers can tap into new liquidity.BlackRock’s BUIDL Fund was added to Morpho Blue as an earnings collateral option in mid-2024, marking the first time that traditional asset management products can be combined in DeFi.Recently, Apollo also integrated its tokenized private credit fund (ACRED) into Morpho Blue, introducing a new profit-raising strategy that is impossible in the off-chain world.

The end result of working with DeFi is that asset managers can grow from expensive and slow allocation of funds to direct access to the wallet while creating new earnings opportunities and capital efficiency for investors.

When issuing tokenized real-world assets (RWA), asset managers are largely no longer tangled with the choice between licensed networks and public chains.In fact, they are obviously more inclined to adopt public and multi-chain strategies to achieve wider distribution of their products.

For example, Franklin Templeton’s tokenized money market funds (represented by BENJI tokens) are distributed on blockchain platforms such as Aptos, Arbitrum, Avalanche, Base, Ethereum, Polygon, Solana and Stellar.Through cooperation with well-known public chains, the liquidity status of these products has also been improved, thanks to various blockchain ecosystem partners – including centralized exchanges, market makers and DeFi protocols.By promoting seamless full-chain connections and settlements, companies like LayerZero achieve these multi-chain strategies.

Real-world Asset Tokenization (RWA)

The trend we are observing is the tokenization of financial assets—such as government bonds, private sector securities and stocks; instead of physical assets such as real estate or gold (although these can also be tokenized and have been tokenized).

In the context of tokenized traditional funds, such as money market funds backed by U.S. Treasury bonds or similar stable assets,“Packaging Tokens” and “Native Tokens”The difference between is crucial.The difference is how tokens represent ownership, where the main records of shares are kept, and how well they integrate with the blockchain.Both models advance tokenization by connecting traditional assets with blockchain, but packaging tokens prioritize compatibility with traditional systems, while native tokens strive for full on-chain conversion.To illustrate the difference between a packaged token and a native token, the following are two examples.

• BUIDLIt is a packaging token.It will tokenize traditional money market fund shares invested in cash, U.S. Treasury and repurchase agreements.The ERC-20 BUIDL token represents these shares in digital form and is used for on-chain circulation, but its underlying funds operate in a regulated off-chain entity under the U.S. Securities Act.Ownership is whitelisted for qualified institutional investors and minted/redemption through Securitize and Bank of New York Mellon as custodians.

• BENJIIt is a native token representing the share of the U.S. Government Money Fund (FOBXX) on the Franklin Chain, which is a US$750 million investment in U.S. government bonds.Blockchain acts as an official record system for processing transactions and recording ownership, making BENJI a native token rather than a wrapper.Investors can subscribe through the Benji Investments app or the institutional portal through USDC redemption, and the tokens support direct transfer of on-chain P2P.

Asset managers may need a digital transfer agent as part of issuing tokenized funds, adapt the traditional transfer proxy function to the blockchain environment.Many asset managers work with Securities, which assists in issuing and transferring tokenized funds while maintaining accurate and compliant books and records.These digital transfer agents not only improve efficiency through smart contracts, but also open up more possibilities for traditional assets.For example, Apollo’s ACRED, a packaged token that can be used to access Apollo’s off-chain diversified credit fund, has been enabled through DeFi integration, optimizing its lending and yield profile.Securitize facilitated the creation of sACRED (the version of ACRED that complies with ERC-4626 standards) and investors can participate in a leverage cycle strategy using Morpho, a decentralized lending protocol.

While packaging tokens requires a hybrid system to coordinate on-chain operations and off-chain records, some other companies can go a step further and process native tokens through on-chain transfer agents.Franklin Templeton worked closely with regulators to develop its proprietary in-house on-chain transfer agents that enable instant settlement and 24/7 transfers for BENJI.Other examples include Opening Bell, a collaboration between Superstate and Solana, which also has an internal on-chain transfer agent that supports 24/7 transfers.

Where should I put my wallet?Asset managers should not regard wallets (i.e. how customers access their products) as hindsight.Even if you choose to “outsource” the issuance and distribution to transfer agents and custodian providers, asset managers need to carefully select and integrate wallets.These options will affect everything from investor adoption to regulatory compliance.

Asset managers often use Wallet-as-a-Service to create investor wallets for them.These wallets are usually hosted, so the service automatically enforces KYC and transfer proxy restrictions.But even if the transfer agent “owns” the wallet, asset managers still need to embed these APIs into their investor portal—choose the partners that match the software development kit and scale blocks to their product roadmap.

Other key considerations for tokenized funds are fund operations.Asset managers need to determine the degree to which the net asset value (NAV) calculation is automated, for example, whether to use smart contracts for intraday transparency or to determine the final daily asset value through off-chain audits.Such decisions depend on the token type, the type of asset in question, and the compliance requirements of the specific fund type.Redemption is another key consideration, as tokenized funds allow faster exits than traditional systems, but inherent limitations in liquidity management.In both cases, asset managers tend to rely on their transfer agents to provide advice or integrate with key providers such as oracles, wallets, and custodians.

As stated in the previous section “Hosting Decision” section, consider the regulatory status of the selected custodian.Under the Securities and Exchange Commission’s Custody Rules, custodians must be qualified and obliged to ensure the safety of client assets.

Fintech

Fintech companies, especially those engaged in payment and consumer finance (also known as “PayFi”), are leveraging blockchain to build faster, cheaper, and more globally scalable services.In a highly competitive market where innovation is critical, blockchain provides an out-of-the-box infrastructure for identity, payments, credit and custody, and often requires fewer intermediaries.

Fintech companies are not trying to replicate existing systems, but trying to transcend existing systems.This makes blockchain particularly eye-catching in cross-border use cases, embedded finance and programmable currency applications.For example, Revolut’s virtual card allows users to shop in daily life with cryptocurrencies; Stripe’s stablecoin financial account allows corporate users to hold stablecoin account balances in 101 countries.

For these companies, blockchain is not about improving infrastructure or improving efficiency, but about building something that was impossible before.

Tokenization allows fintech companies to embed real-time, all-weather global payments directly on the chain, while also unlocking new paid services around issuance, redemption and capital flows.Programmable tokens implement native functions such as staking, lending and liquidity configuration in their applications, thereby deepening user engagement and creating a diversified source of income.All of this helps retain existing customers and win new customers in an increasingly digital world.

We see key trends surrounding stablecoins, tokenization and verticalization.

Three key trends

Stablecoin payment integrationPayment channels are being reformed to provide 24/7/365 transaction settlement services, which is very different from the traditional payment networks that are restricted by bank hours, batch processing and jurisdictions.By bypassing traditional card networks and intermediaries,Stablecoin channels significantly reduce transaction fees, foreign exchange fees and handling fees, especially in point-to-point and B2B use cases.

With the help of smart contracts, companies can embed functions such as conditions, refunds, royalties and installments directly into the transaction layer, thus opening up a new profit model.This has the potential to transform companies like Stripe and PayPal from banking aggregators to platform-native programmable cash issuers and processors.

Global remittanceStill plagued by high fees, long-term delays and opaque foreign exchange spreads.Fintech companies are turning to blockchain settlement to reshape the way cross-border value flows.Using 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 areas where the banking system is unreliable.For participants like Revolut and Robinhood, this makes them a global platform for capital flows, not just packaging or trading applications for new banks.Paying employees’ wages in cryptocurrencies or stablecoins is becoming increasingly popular for global payroll service providers such as Deel and Papaya Global because it enables instant payments.

Crypto native fintech companies are building the underlying stack,Launching your own blockchain (L1 or L2) or acquiring companies that reduce reliance on third-party providers.Using Coinbase’s Base, Kraken’s Ink, and Uniswap’s Unichain (both built on OP Stack) is like changing from an app on Apple iOS to having a mobile operating system and all the platform leverage it needs.

By launching its own L2, fintech companies like Stripe, SoFi or PayPal can acquire value at the protocol level to complement their front-end products.Their own chain also allows custom performance, whitelists, KYC modules, and more – which is critical for regulated use cases and enterprise customers.

Through its modular open source software framework OP Stack (an open source software framework), a chain dedicated to “payment” on the Ethereum L2 blockchain, Optimism, can help fintech companies move from a closed “walled garden” to a more diversified and open financial innovation market.This way, other developers and companies can not only contribute to their growth, but also generate online revenue.

As a first step, many fintech companies will first provide a basic set of services, including buying, selling, sending, receiving, holding cryptocurrency in a small number of tokens, and then gradually add other services such as income and lending.SoFi recently announced plans to reopen cryptocurrency trading after the company exited the sector in 2023 due to regulatory restrictions.One of the advantages of offering cryptocurrency transactions is that, as mentioned above, SoFi allows its customers to participate in global remittances, but other possibilities are waiting — for example, pegged to its main lending business, but using on-chain lending (similar to Morpho’s Bitcoin-backed lending business that supports lending business with Coinbase) to improve terms and transparency.

Building a proprietary blockchain

Many cryptocurrencies native “fintech companies”—Coinbase, Uniswap, World—have built their own blockchains, to customize infrastructure for specific products and users, reduce costs, enhance decentralization, and gain more value in its ecosystem.For example, with Unichain, Uniswap can integrate liquidity, reduce fragmentation, and make DeFi faster and more efficient.The same verticalization strategy may make sense for fintech companies looking to enhance user experience and internalize more value (as we saw in Robinhood’s recent L2 announcement).For payment companies, proprietary owned blockchains are likely to be the user experience-first infrastructure (for example, infrastructure that abstracts or hides cryptocurrencies’ native user experience), and focus more on products such as stablecoins and features such as compliance.

Here are some key considerations for building a proprietary blockchain, with different trade-offs at different levels of complexity.

L1 is the heaviest burden, most complex construction, and least benefit from network effects of all partnerships.However, L1 also gives fintech companies the greatest control over scalability, privacy and user experience.For example, companies like Stripe might embed native privacy features to comply with global regulations or customize consensus mechanisms to achieve ultra-low latency for high merchant payments.

One of the core challenges of building a new Layer 1 is the economic security of the guide chain—attracting a lot of staking capital to secure the network.EigenLayer democratizes access to high-quality security.By transforming the model from an isolated, capital-intensive Layer-1 to a shared and efficient model, such services help accelerate innovation in blockchain development and reduce failure rates.

L2 is usually a very good compromise,Because it allows fintech companies to operate using a single sorter and provide a certain level of control.The sorter collects the transferred user transactions and determines their processing order, which is then submitted to L1 for final verification and storage.The design of a single sorter can speed up development and enable better control of operations, ensuring reliability, fast performance and profitability.In addition, it is also easier to create L2 on Ethereum by working with rollup-as-a-service (RaaS) providers or mature L2 alliances like Optimism’s Superchain, which provide shared infrastructure, standards and community resources.

Companies like PayPal can build a “payment hyperchain” on the OP Stack to optimize their PYUSD stablecoins to enable them to support real-time use cases such as Venmo in-app transfers.They can also achieve seamless bridging of PYUSD with the Optimism hyperchain ecosystem, using a centralized sorter initially to achieve predictable fees (e.g., less than $0.01 per transaction), while still retaining Ethereum’s security.In addition, they have the option to work with RaaS providers like Alchemy (and its partner Syndicate) to enable rapid deployment – deployment time can be completed in weeks, while L1 will take months or years.

The easiest way is to deploy smart contracts on existing blockchains,Companies like PayPal are already trying.Blockchains like Solana with mature scale, user base and unique assets are especially attractive for fintech companies that want to go live on existing Layer-1.

License and no license required

How high should the application of fintech and/or blockchain reach a level of permissionlessness?The superpower of blockchain lies in its composability, that is, the ability to combine and remix various protocols so that the value of the whole is greater than the sum of the various parts.

If an application or blockchain requires permission, composability becomes more difficult and it is harder to see novel and interesting applications emerge.Taking PayPal as an example, choosing to build a permissionless blockchain not only fits the broad trend of fintech moving towards an open ecosystem, but also allows PayPal to turn its competitive moat into reality.By inheriting PayPal’s compliance layer, global developers will have better opportunities to attract users to use their applications; more users will drive more network activity, thus bringing more value to PayPal.

Unlike L1 blockchains (such as Ethereum), L2 transfers most of the work to the sorter for higher throughput while still inheriting L1’s security properties (and advantages).As mentioned above, the sorter represents an important “control” point, and a single sorter like Soneium Rollup provides an interesting way forward where operators can influence transaction latency and block specific transactions.

Building on modular frameworks such as OP Stack can not only increase revenue, but also expand the practicality of other core products.Taking PayPal and its PYUSD stablecoins as an example, the own L2 will not only generate sorter revenue, but will also link the chain’s economy to PYUSD.As an initial sorter operator, PayPal can charge a portion of the transaction fee (also known as the “gas fee”), similar to the income earned from Coinbase’s OP Stack L2 Base from its sorter.By modifying OP Stack’s gas payments to accept PYUSD, PayPal can offer “free” transactions (e.g., withdrawal fees) to existing PayPal users and speed up use cases such as Venmo transfers and cross-border remittances.Likewise, PayPal can stimulate developer activity by offering low or zero costs, but then charge a modest premium for integrations like PayPal wallet APIs or compliant oracles.

Conclusion

Banks, asset managers and fintech companies have many questions about the use of blockchain: Given the rapid development of the cryptocurrency world, how should they understand the technology and the opportunities it brings?Here are the main experiences we summarize:

• Start with customer segmentation and customize solutions.Not all customers are the same – institutional users need highly compliant hosting settings, while retail investors usually prefer user-friendly, self-hosted daily access options.

• Security and compliance are considered undebated matters.Almost all counterparties, whether regulators or clients, want you to do so.

• Utilize partnerships to improve expertise and speed.You don’t have to build everything yourself.Collaborate with subject matter experts and partners to reduce time to market and create new revenue-generating opportunities with innovative solutions.

Blockchain can — and should — become the core infrastructure that guarantees the future of TradFi institutions while leading them to new markets, new users and new revenues.