a16z in-depth analysis: A "Blockchain Transformation Guide" for Banks, Asset Management, and Fintech Companies (U.S. version)

With the increasing clarity of regulations, intensifying competitive pressure, and the continuous maturation of technology, traditional financial (TradFi) institutions are accelerating the transition of blockchain technology from marginal experiments to core infrastructure to ensure future competitiveness and unlock new sources of growth. For banks, asset management companies, and fintech firms, the question is no longer "whether" or "when" to embrace blockchain, but "how" to effectively integrate it into their operations.

a16z's latest industry report suggests that this transformation has entered a substantive phase. Large banks, led by JP Morgan and Citigroup, are applying blockchain to core payment and settlement operations through projects like tokenized deposits. This marks a shift where blockchain is no longer limited to cryptocurrency trading but is beginning to reshape the flow of funds in commercial banking.

At the same time, asset management giants are leveraging blockchain to open new distribution channels. Companies like BlackRock and Franklin Templeton have issued tokenized funds, successfully bringing traditional financial products into the on-chain world, directly reaching digitally native investors, and integrating with decentralized finance (DeFi) protocols to explore unprecedented liquidity and yield strategies.

This series of developments has profound implications for the market and investors. It signals that blockchain is evolving from an independent speculative asset class into the underlying technology for financial services. For traditional financial institutions, this is both a strategic necessity to avoid disruption and a new value proposition for investors—enhancing the efficiency of traditional assets through tokenization and investing in the core infrastructure to build the next generation of financial markets.

Banks: From Back-End Revolution to Front-End Innovation

For the banking industry, blockchain technology is becoming a key tool to address its core pain points. While the customer-facing front-end applications of banks are sleek and modern, their back-end systems largely rely on COBOL from the 1960s, facing issues of inefficiency and high maintenance costs. Blockchain provides a pathway to modernize these "legacy" systems without sacrificing compliance.

a16z believes that the application of blockchain in banks mainly focuses on three major institutional and back-end business areas:

• Tokenized Deposits: JP Morgan's JPMD token and Citigroup's Token Services for Cash have been put into practical use. These tokens are not synthetic stablecoins backed by government bonds but are a 1:1 mapping of real fiat currency in commercial bank accounts. Through tokenization, the settlement delays for cross-border payments, treasury management, and trade financing can be reduced from several days to minutes, significantly lowering operational expenses and reconciliation costs while enhancing capital efficiency.
• Reshaping Settlement Infrastructure: To escape the inefficiencies of the "T+2" settlement system, several major banks are collaborating with central banks or blockchain-native companies (such as Matter Labs) to conduct pilot projects for distributed ledger settlement, aiming to achieve near real-time cross-border payments and intraday repurchase market settlements.
• Enhancing Collateral Liquidity: The Smart NAV pilot project by the Depository Trust & Clearing Corporation (DTCC) demonstrates how blockchain can transform collateral into more liquid, programmable assets This helps banks reduce capital buffers and access a broader liquidity pool, making them more competitive in the capital markets.

Key Decision: How Banks Embrace Public Chains

In implementing these applications, banks face a series of critical technical decisions, the most central of which is the choice of blockchain platform. In the past, regulatory restrictions made banks hesitant to adopt public blockchains, but recent guidance from regulatory agencies such as the Office of the Comptroller of the Currency (OCC) has opened new avenues, with the integration of R3 Corda and Solana reflecting this trend.

The report from a16z points out that while private chains or consortium chains remain options, products built on decentralized public blockchains have significant advantages, including:

• Neutrality and Ecosystem: Public chains serve as neutral developer platforms where anyone can contribute code, enhancing the trustworthiness of products and the breadth of the ecosystem.
• Composability: The ability to utilize, adapt, and combine others' "building blocks" accelerates product iteration.
• Platform Trust: Top developers are more inclined to build applications on decentralized networks where rules cannot be unilaterally changed.

In terms of performance, Ethereum's layer 2 networks (L2s) like Base, as well as high-performance layer 1 networks (L1s) such as Solana, Aptos, and Sui, have reduced transaction latency to sub-second levels, with costs below 1 cent. Additionally, through technologies like zero-knowledge proofs (zk-SNARKs), data privacy can be ensured while also meeting regulatory audit requirements through mechanisms like "view keys."

In asset custody, most banks choose to collaborate with specialized custodians that hold compliant licenses (such as New York trust licenses or OCC federal trust licenses) and possess strong security capabilities (such as hardware security modules (HSM) and multi-party computation (MPC)).

Asset Management: Tokenization Opens a New Era of Distribution and Liquidity

For asset management companies, the core value of blockchain lies in expanding product distribution, automating fund operations, and accessing new on-chain liquidity. By tokenizing fund shares or real-world assets (RWA), asset management products become more accessible to global investors, particularly meeting the demands of the digital-native population for 24/7 trading, instant settlement, and programmability.

a16z believes that the most significant current trend is the tokenization of U.S. Treasury bonds and money market funds. BlackRock's BUIDL fund and Franklin Templeton's BENJI fund have accumulated hundreds of billions in assets under management. These products not only provide investors with new yield tools but also achieve efficient on-chain distribution through partnerships with native platforms like Anchorage, Coinbase, and Securitize.

An important milestone is the integration of traditional asset management products with DeFi protocols. BlackRock's BUIDL fund has been integrated into the lending protocol Morpho Blue as yield-generating collateral. Recently, Apollo also connected its tokenized private credit fund (ACRED) to this protocol, creating leverage and yield strategies that traditional finance cannot achieve. This trend indicates that asset management companies are shifting from high-cost, slow-cycle distribution models to directly reaching users' wallets, while also creating new capital efficiencies for investors In order to achieve broader distribution, asset management companies have clearly leaned towards a public, multi-chain strategy, with Franklin Templeton's BENJI token issued on eight different blockchains.

Fintech: Achieving Leapfrog Development with Blockchain

Unlike banks and asset management companies seeking efficiency improvements, fintech companies are attempting to "leap" rather than "improve" the existing financial system using blockchain. Blockchain provides them with out-of-the-box identity, payment, credit, and custody infrastructure, especially showing great potential in cross-border payments and embedded finance.

Key trends include:

• Stablecoin Payments: Companies like Stripe and PayPal are integrating stablecoin payments to bypass traditional bank operating hours and clearing networks, achieving year-round instant global settlement and significantly reducing transaction costs.
• Reshaping Global Remittances: Companies like Revolut and Nubank have begun utilizing the Bitcoin Lightning Network or stablecoins on public chains like Solana to provide users with lower-cost, faster cross-border remittance services.
• Vertical Integration: Companies in the crypto-native space, such as Coinbase (Base) and Uniswap (Unichain), are vertically integrating by launching their own blockchain networks (often L2) to reduce reliance on third-party providers and capture value at the protocol layer.

For fintech companies looking to build their own blockchain, L2 networks built on L1s like Ethereum are seen as the "best balance." By collaborating with Rollup-as-a-Service (RaaS) providers or joining ecosystem alliances like Optimism's Superchain, companies can deploy a controllable, efficient, and L1-secure dedicated network within weeks, optimizing experiences for specific scenarios like payments and creating new revenue streams