Banks and TradFi onchain: what operators said on The Protocol Roundtable

“It's still a thin layer of TradFi, right? It's not huge adoption ... We see things happening mainly on stablecoin rails for cross-border, and also tokenization of funds and assets distribution onchain, mainly.”

“Common use case for today would be the settlement first, because the settlement is, at least, it's the most understandable use case. ... The settlement in the same day, without some kind of only in business days and all that stuff, the settlement with both legs at the same time in atomic transaction.”

“So payments are definitely the beachhead. I do think it's going to get very interesting when tokenized deposits grow. ... So there is a lot of signal that the interest from TradFi companies is growing, the number of experiments are growing.”

“If you look at the last 12 months, it's a totally different cohort. It's everything after GENIUS Act. It's people who now say, okay, we've heard a lot about this. It seems that there's some value. Let's say you're a bank. We're not 100% sure, but now we can touch it. Let's do a POC.”

“I'm talking to banks all the time and they have like a year to evaluate at least one little product, right, to go live with. ... You're basically asking these people who have built old ledgers since the thirties, forties and fifties to upgrade their systems, which is definitely scary, and it requires a lot of coordination.”

“This alignment between different entities, it is the hardest part, not the technology. Technology, well, we solved technology quite some time ago.”

“The uplift between manual processes and a one-off transaction to actually bringing a full product to market is significant. Sometimes it can take in these institutions over a year just because of the amount of training and cyber uplift and automation uplift that actually has to happen to get there.”

“That forcing function for crypto or for onchain technologies, what is that? It is actually disruptive to the business models that exist right now. So of course the procurement cycles are going to be long unless those business opportunities become extremely obvious.”

“They need to see usually a reconciled month, a compliance evidence in regulators' format that they will accept and they will understand. They need to see usually at least one uncoached party that can accept [it] as a counterparty. And the CFO usually needs to see some number that he can put in a presentation for the board.”

“Where they're always getting stuck is definitely the compliance side of it. So it's like, how are we going to make sure we're not doing any terrorist type of transactions? Where's the sanction screening? Where's the OFAC screening, all those types of things?”

“You have to have the risk appetite to actually bring these products to market and be comfortable at scale, be comfortable that things will break, and know that you have the right teams from an operations perspective and from an exception handling perspective to actually remediate these issues.”

“I think the super important question, also the reason why a lot of the pilots actually failed, is the business use case. ... What are the clients we would like to approach with what product? And is that something which has product market fit, or will most likely have product market fit?”

“We see originally, firstly, stablecoins and not tokenized deposits, despite the tokenized deposits [being] a bit more natural thing for banks, for example. But still I would use stablecoins firstly as well, because stablecoins, okay, I've seen the story, it works, nice, it's safe.”

“For some parties who are traditionally off-chain, right, don't have exposure on-chain, their corporate treasurers were looking at how they would hold different stablecoins and essentially saying, well, if we are going to look at holding these at scale, right, on our balance sheet, then we need to be able to risk manage them.”

“For our client base, which tend to be some of the largest institutional clients, large balance sheets, and behind those balance sheets, treasurers, right, who are very risk-averse and who need to very carefully operationally manage their positions, commercial bank money was appealing.”

“I think the reality is there's not a lot of appetite today for corporate treasurers to be holding balances onchain, unless you're a Web3 native business. I think that's changing, though. I think folks are asking the right questions now.”

“I would say these companies don't necessarily care about which specific chain they're going to be using. Some of them have preferences. ... It's all fairly commoditized. We're all fast and cheap at this point.”

“If you're holding a volatile gas token as network fees, then accounting for it is complex. ... Who are the validators, and how do I know? ... And then the third question was, okay, when is a transaction final? Not just technically deemed final, but also legally the definition of completely settled.”

“As issuers, can we manage our risk, right? If I'm issuing a deposit, that's the bank's core balance sheet, right, that we're issuing there. So can I get comfortable on your network that we can manage the risk ultimately?”

“We're seeing the start in private, but the holy grail is ultimately going into a public environment that has the right level of whitelisting and permission, which is ultimately creatable, right, by the different counterparties that are participating.”

“The excuse that we'll see sometimes with regulated counterparties is that overall regulation is not there to do what they want on-chain. ... So regulation's not the end-all, right, for a mid-sized bank. There's a lot to do on-chain to be innovative.”

“Usually there is that myth that I need everything approved before anything goes live. And that approval never comes. We know that. And each of you guys know that you have started with one flow, one counterparty, one approval, one product.”

“We'll probably get to pricing once we start seeing domestic payments as well being in stablecoins. What I really mean by that is people being willing to hold stablecoins, which is why we need things like the CLARITY Act to pass, because we're still not at this stage where people are receiving the stablecoins and then just holding it.”

“There will be clarity that's needed, some on the regulatory side, but I think more around just general practice and precedent that needs to be set.”

“It just boils down to, the token is basically useful only when the third party can accept it without calling the issuer.”

“Everyone who is using a token wrapper, for example, as a collateral in a Morpho vault or in other, et cetera, is actually able to liquidate that and unbind it entirely on-chain on smart contracts, and doesn't need to rely on anyone or anything off-chain. That is essential.”

“Now we need to look into the liquidation engine for this, just because it's held off-chain as collateral: who's going to be the one performing the actual liquidation of this and redemption of this when needed, when things might go south?”

“One thing that as an industry we would love to see from Centrifuge and from other asset issuers is maybe an analog to TradFi, where you have multiple classes of a mutual fund ... So it could be possible to have a version that is wrapped in such a way that it's usable in DeFi and liquidatable.”