The headwinds that once held back financial institutions from adopting crypto—whether due to regulatory concerns or a lack of understanding of digital assets—are finally easing. In the coming years, a fifth of all U.S. money center banks and public companies are expected to allocate at least 2% of their treasury holdings to crypto. Digital assets such as Bitcoin, Ethereum, XRP, along with dollar-backed stablecoins, are poised to play a bigger role in the global financial system.
Stablecoin usage for cross-border payments is growing rapidly, and crypto ETFs are seeing significant adoption. Combined with positive regulatory developments and mounting pressure from institutional investors, the digital assets industry is entering a new era of adoption. In a PaymentsJournal Podcast, Joanie Xie, Managing Director for North America at Ripple and James Wester, Director of Cryptocurrency at Javelin Strategy & Research, discussed this incredibly exciting time for the sector.
Tokenizing Assets
More institutional players are recognizing the advantages of digital assets, such as enhanced transparency, efficiency, and lower costs. Major firms like JPMorgan Chase or Goldman Sachs have been exploring the integration of tokenized platforms into their service offerings.
Tokenization involves converting traditional assets into blockchain-based tokens, making it easier to create, transfer, and settle assets in a decentralized manner. This has the potential to revolutionize the markets for foreign exchange, commodities, bonds, ETFs, mutual funds, and real estate by creating greater efficiency and transparency, while offering increased liquidity.
Over the past two to three years, financial institutions have increasingly embraced the benefits of public blockchains, such as instant settlements, automated compliance, and 24/7 financial operations—all driving greater efficiency and transparency. By working with public blockchains in a compliant manner, financial institutions can deliver better products at a lower cost.
“We’ve seen companies across different industries increasingly adopting digital assets and blockchain technology,” said Xie. “It’s been mainly to enhance operations, engage with new customers and streamline their financial processes along a wide range of financial assets, including stocks, bonds and money market funds.”
One example is BlackRock, which last year launched Biddle, a tokenized money market fund, on public blockchains. Similarly, Fidelity and PayPal have embraced digital assets by offering crypto trading and investment services to their customers. In global cross-border payments, institutions like Travelex Bank are leveraging blockchain technology to expand into new corridors, improve their FX services, and acquire new customers.
The Custody Platform
To enable tokenization, an institution must have very robust digital asset custody capabilities. Without that, it’s difficult to offer tokenized assets to customers.
“Banks need to have a secure custody platform to safeguard digital assets,” said Xie. “When they choose the custody service provider, they have to be very careful to choose the right one.
“We work with DZ Bank, which has leveraged blockchain to tokenize financial assets and unlock new revenue streams for the bank. At the same time, they provide institutional-grade digital asset custody services to their customers. It’s a very critical piece of that entire world.”
Use Cases for Stablecoins
Another rapidly growing payment use case is stablecoins, which serve as a bridge between traditional finance and digital assets. Particularly valuable for cross-border payments, stablecoins can enhance speed, transparency, and efficiency.
“Stablecoins are the number one topic that we have discussions with our clients right now,” said Wester. “That’s not surprising, since we’ve looked at all of these use cases over the last five or six years and we always knew they were possible. We’ll probably see more large players getting to the space and coming out with new products and services very soon.”
The Importance of Regulatory Guidance
One of the biggest drivers behind institutional adoption is increasing regulatory clarity. The overturning of SAB 121 earlier this year cleared the way for banks to directly invest in and custody crypto assets. Shortly after, OCC issued updated guidance allowing banks to engage in crypto activities, and FDIC followed suit by clarifying that FDIC-supervised institutions can engage in crypto-related activities without requiring prior approval.
Regulatory developments are evolving rapidly, especially regarding the Know Your Customer and Anti-Money-Laundering rules. Compliance teams must stay up to date with the latest requirements for handling digital assets, including considerations around capital gains and cross-border tax implications. Banks will need to regularly train their compliance teams on new regulatory updates and revise their internal policies to ensure teams can manage digital asset transactions efficiently and compliantly.
Banks also need to make sure that they have a secure and efficient infrastructure that integrates seamlessly with their existing systems. Key areas to focus on include building a high-performance network and adopting blockchain networks specifically designed for financial use cases, such as the XRP Ledger.
Partnering with specialized firms can enable banks to access cutting-edge technology much faster, without overextending internal resources. Banks should carefully evaluate partnerships that can support the design and development of flexible, scalable systems—allowing them to expand and diversify their offerings as they grow.
Getting In on the Future
Traditional finance systems are being disrupted by emerging technologies. Adopting blockchain and digital assets now can help banks gain a competitive edge. Those that resist this shift may struggle to remain relevant as the industry and the underlying technology continue to evolve.
“Step number one is for banks to assess their Treasury strategy and digital asset diversification,” said Xie. “Identify opportunities to diversify into digital assets and explore different use cases in payments in treasury operations or in their investment strategies. For the banks who have already experimented in the past, maybe this is a good time to move forward from proof of concept to conducting pilots.”
Wester also notes that financial institutions and technology vendors need to understand this is a generational shift. “It’s going to take some time, but every financial institution and vendor needs to be paying attention to it. It’s going to cross pretty much every team, too,” Wester said. “It’s not just a technology shift, it’s a product shift, it’s risk and compliance shift.”
Xie added: “The final takeaway is that this technology is real. Banks that embrace these technologies strategically today will unlock more opportunities, improve their efficiencies and deliver better services to their customers in the future.”
