Article author: Sebastien Davies

Article compilation: Block unicorn

Foreword

The financial world has an extremism problem. I have met some extremists who are convinced that blockchain will destroy all existing financial institutions. The traditional finance camp, on the other hand, considers Bitcoin to be equivalent to cryptocurrencies and vice versa. Sadly, both camps lack the patience to understand the nuances.

I don’t buy into this either/or dualism. As we can see, the two are likely to merge rather than collide. Visa and Mastercard are actively expanding their partnership in blockchain payments. Traditional financial services giant Stripe has also launched a blockchain platform specifically for processing payments. Our team writes articles almost every week exploring trends in the convergence of these two financial worlds.

In cryptocurrency reviews, I often see people mention the blockchain itself as a unique selling point (USP) because it enables fast and low-cost transactions. Yes, it is indeed cheaper to move money via blockchain. But this in itself is not a key factor in promoting the popularity of blockchain, because traditional funds transfer infrastructure is relatively expensive and has withstood the test of decades.

Businesses won’t switch banking partners overnight just because another bank offers a few basis points discount on transaction processing. Financial habits are ingrained and businesses need more than just cost savings, they need more confident reasons to change the way they move, hold and invest money.

What comes into play here are quantifiable results. For the public to change the way money flows, they need to understand how to optimize the entire flow of money. Therefore, the focus should be on how blockchain can be seamlessly integrated with the platform to enable users to hold, invest, and lend money easily.

In today’s guest column, Sebastien Davies, partner at Primal Capital, writes about why cryptocurrency’s infrastructure is failing to generate mass adoption, and what could be needed to do so.

Infrastructure Illusion

For most of the past decade, the global financial community has paid great attention to "tracks". Discussion around digital assets focuses almost entirely on the mechanical throughput of blockchains, the cryptographic security of decentralized applications, and the theoretical sophistication of smart contract logic. This is the infrastructure stage, an era centered on building "containers". From 2020 to 2024, the industry is racing against time to build pipelines, vaults, and gateways designed to modernize the flow of value.

During this period, the development of the cryptocurrency market has mainly focused on infrastructure construction, because without infrastructure, participation is simply not possible. We built an enterprise-grade custody platform, standardized exchange APIs, and on-chain compliance services to address five critical gaps: custody, trading, execution, stablecoin utility, and regulatory reporting.

However, today the financial industry is facing a fundamental truth in financial history. Infrastructure is a necessary prerequisite for activity, but the balance sheet determines who reaps the economic benefits. Simply having a faster or more transparent track will not, in itself, change the center of gravity of the market. Infrastructure solves the mechanical problem of how institutions participate, but it does nothing to address the more important question of who gets to capture the value. In an era of booming infrastructure construction, the latter's answer still sticks to tradition.

Centralized market makers capture the price difference, early holders gain value-added income, and validators earn transaction fees. This phase failed to create new balance sheet structures that would change where deposits were held, nor to fundamentally change the structure of credit creation.

A common counterargument to this argument is that “infrastructure” is the primary driver of value because they lower barriers to entry, thereby democratizing finance and naturally shifting economic power to marginalized groups. Proponents of this view believe that technology itself, due to its open source and permissionless nature, is the force for change. While this is a compelling narrative for a retail-led “crypto-native” world, it doesn’t stand up to the test of institutional reality.

In complex financial markets, cost efficiency is far less important than capital efficiency and risk-adjusted returns. An institution moves a billion dollars not because transaction fees are lower, but because the balance sheet backing that money provides higher returns or more efficient collateral utility. Infrastructure is a barrier to entry; balance sheets are the strategic assets that determine the interest rate differential winner.

Financial history has repeatedly proven that infrastructure is not the key to determining market power, but the balance sheet is. The rise of the Eurodollar market in the 1960s did not require new payment channels or financial technology; it simply required a shift of dollar deposits away from the U.S. banking system. Once these balance sheets were transferred, a parallel dollar system emerged that was vast and largely free of domestic regulation.

We are now entering a new phase of institutional balance sheet restructuring, starting in 2025, when the battleground shifts from the protocol level to the liquidity allocation level. The first phase focuses on building the platform; the next phase focuses on the movements of participants and their capital flows.

When a treasurer evaluates where to store cash in 2024, it is theoretically possible to use mature custody infrastructure to hold USDC, but from an economic perspective, traditional bank deposits are more advantageous because they offer FDIC insurance and competitive interest rates. The infrastructure is in place, but the balance sheet has not yet been transformed. This repositioning is only possible as the regulatory environment moves from abstract policy design to concrete implementation.

The next phase of cryptocurrency adoption will no longer be determined by infrastructure, but by the direction of balance sheets.

Implementation Gate

For much of the past decade, institutional participation in digital assets has been limited not by a lack of imagination or technology, but by structural barriers to integrating digital assets into regulated balance sheets. Institutions need more than a fully functional wallet. Legal clarity, specific accounting treatments, and a rigorous governance structure are basic requirements.

In the absence of an accepted definition of “custodial” or a clear path to compliance, the risk of “balance sheet contamination” is too high for any regulated entity to ignore. Mass adoption of digital assets has been stuck in a "wait and see" mode as banks and asset managers wait for a clear signal that they can deploy capital without taking on existential legal risks.

The era of policy debate is finally drawing to a close, replaced by a phase of practical implementation. The passage of the GENIUS Act in May 2025 played a decisive role in establishing a national regulatory framework for stablecoin payments and ultimately providing a legal basis for balance sheet allocation.

The bill transforms digital assets from speculative novelties into recognized financial instruments by providing a federal licensing process and requiring 100% of reserves to be backed by government-approved instruments. In August 2025, the U.S. Securities and Exchange Commission (SEC) concluded its long-running investigation into the Aave protocol without taking any enforcement action, further solidifying this shift and effectively removing regulatory “barriers” that had previously prevented institutions from participating in decentralized finance (DeFi).

Now, the focus has shifted to regulators’ rulebooks. In February 2026, the U.S. Office of the Comptroller of the Currency (OCC) released a comprehensive proposed rule to implement the GENIUS Act and establish a framework for Permitted Payment Stablecoin Issuers (PPSIs). The move is significant as it provides granular prudential standards (covering reserve composition, capital adequacy and operational resilience) to enable the chief risk officer or asset liability management committee (ALCO) to approve digital asset strategies. The passage of the GENIUS Act has integrated blockchain regulation into the governance structures of the world’s largest financial institutions.

However, understanding why this shift is occurring at this time also requires recognizing the "balance sheet inertia" that determines institutional behavior. Banks operate under strict regulatory capital adequacy constraints, and every dollar of risk-weighted assets must be backed by capital. If a bank loses deposits to stablecoins, it must lend proportionately less to maintain these capital adequacy ratios. This is a painful and costly contraction that will have knock-on effects throughout the economy. This also explains why the adoption of stablecoins has been so slow. Full technical integration takes six to 18 months, while governance cycles such as audits and board reviews take longer to complete.

The current environment is showing a "compound acceleration" trend. As first movers such as JPMorgan Chase, Citibank and U.S. Bancorp begin rolling out stablecoin settlement programs, they are sending a clear signal to the market: the risk of being first has been replaced by the risk of being left behind. We are in a phase of competitive pressure, and the involvement of interbank banks reduces adoption risk across the industry. As these institutional restrictions loosen, the path becomes clear for mobility to migrate from legacy systems to new programmable containers for the digital age. This shift forces us to rethink the nature of money and shift our focus to the “containers” that will host the next generation of global liquidity.

Where the liquidity is

To understand the scale of the transformation currently taking place, one must first recognize the historical stability of financial “containers.” In every monetary era, liquidity must eventually find a home. This is simply a function of the technology's method of storage, but it satisfies a long-term global need for secure short-term assets. Over the centuries, this fate has been significantly concentrated in a few well-defined structures: commercial bank balance sheets, central bank reserves, and money market funds. These traditional "containers" all play an intermediary role, capturing the economic value generated by the capital they carry.

The mathematical principle of "sit back and enjoy the gains" shows that financial intermediaries exist to solve the problem of capital mismatch. Specifically, the world's operations generate more cash flow than it needs for short-term productive uses, creating a long-term excess of liquidity in which these funds seek safety. Traditionally, commercial banks would convert these excess funds into deposits, invest them in long-term assets such as mortgages or corporate loans, and earn significant interest margins. Net interest margin (NIM) is the guiding light for commercial and retail bankers. Bank shareholders are the main beneficiaries of the "spread", while depositors receive part of the proceeds in exchange for liquidity and government guarantees.

Digital asset infrastructure introduces a new type of "container" that competes directly for funds. These economic restructurings go far beyond technological upgrades. When liquidity is transferred from banks to stablecoin reserve pools or tokenized treasury bond funds, the main source of income fundamentally changes. For example, in a stablecoin reserve pool, the issuer (such as Circle or Tether) earns the spread between the underlying Treasury bond yield and the interest paid to token holders, which is typically zero. This effectively shifts the economic benefits of “carrying costs” from commercial banks to digital asset issuers.

Additionally, these new containers offer transparency and programmability unmatched by traditional structures. With a market capitalization of over $11.5 billion in March 2026, tokenized Treasury funds represent a structural evolution in which returns from the underlying asset accrue directly to the holder. This creates powerful economic incentives.

Savvy financial executives no longer have to choose between the safety of a bank and the yield of a fund; they can hold a tokenized fund that serves as both a yielding asset and a high-speed settlement medium. By redefining where liquidity belongs, digital infrastructure is not just building a new trajectory; it is creating a competitive market for the balance sheets that underpin the global economy.

Stablecoins drive migration

Blockchain dollars represent the first large-scale migration of liquidity onto these new financial balance sheets, marking the transformation of digital currencies from a novelty to a core component of the financial system. The stablecoin market is near an all-time high at $311 billion, with annual growth rates of 50% to 70%. This growth completely discredits the notion that stablecoins are a speculative phenomenon. We are witnessing a tangible “movement” of dollars from traditional banking infrastructure to programmable settlement systems.

The economic impact of this migration is most evident in deposit substitution. When a company or institutional investor moves $100 billion from traditional bank deposits into stablecoin containers such as USDC, the banking system’s profitability will suffer a huge loss. Under the traditional model, this $100 billion would support banks in issuing loans, generating a net interest margin of about $3 billion per year. When the funds are transferred to the stablecoin issuer’s reserves, these gains are stripped away. Banks lose their deposits and the ability to make loans, while interest differentials are captured by stablecoin issuers.

This shift has profound implications for credit creation and financial stability.

Research released by Federal Reserve economists in late 2025 highlights that high adoption of stablecoins could lead to a decline in bank deposits of $65 billion to $1.26 trillion. This reduction has the potential to reshape how credit is supplied to the economy. Regional banks, which rely heavily on a stable deposit base for local lending, are most vulnerable to this shift. The traditional “float” that banks have long relied on to earn interest on payments in transit is becoming less attractive as retail and corporate depositors seek the advantages of round-the-clock settlement in stablecoins.

In response, the banking industry has shifted from skepticism to engagement.

JPMorgan Chase, Citibank, and U.S. Bank announced that they will launch their respective stablecoin settlement infrastructure at the end of 2025 and early 2026. This is not intended to "disrupt" their own businesses, but to maintain their important position as a liquidity container. These institutions realize that future economic conditions will favor issuers of digital containers. By becoming issuers, banks hope to capture reserve earnings that would otherwise go to new entrants. Of course, this first large-scale transfer of funds is just the beginning. As these new liquidity containers stabilize, the focus of competition is shifting to the more complex areas of collateral and leverage that are the cornerstone of global finance.

Programmable collateral

If cash transfers via stablecoins represent the first wave of this change, then the migration of collateral represents a more fundamental reorganization of the leverage mechanism at the heart of the financial system. Modern financial markets are essentially a vast collateral network. The U.S. repo market alone (responsible for the lending and borrowing of securities) has a daily trading volume of $2 trillion to $4 trillion. However, this critical infrastructure is still constrained by traditional banks’ “discrete settlement windows.”

In the current situation, collateral can only be transferred during banking hours, and custody fragmentation means securities held by one bank cannot be immediately used to meet another bank's margin requirements. This friction results in capital being locked up, unable to be effectively utilized and unable to respond to real-time market fluctuations.

Tokenization transforms collateral from static, geographically restricted assets into programmable, highly liquid instruments.

By converting U.S. Treasuries and other real-world assets (RWA) into on-chain tokens, institutions can move these assets around the clock and settle them atomically. The market is growing rapidly; as of April 1, 2026, the tokenized RWA market has reached approximately $28 billion, with tokenized Treasury bonds accounting for approximately half of that. Much of this growth has been driven by institutional-grade products such as BlackRock’s BUIDL and Franklin Templeton’s BENJI, which allow holders to earn 5% on underlying government bonds while the tokens themselves remain liquid and deployable.

The real innovation lies in "collateral efficiency".

In traditional repo transactions, investors may need to accept significant impairments or face delays of several days before securities can be unlocked and transferred between custodians. In contrast, tokenized collateral is “combinable.” Institutional investors can hold $100 million worth of BUIDL tokens, deposit them into a protocol like Aave at a 95% loan-to-value (LTV), and immediately borrow the stablecoin to take advantage of investment opportunities. Collateral is always present in the digital environment. Instead, it is continuously revalued through automated price feeds, and any margin calls are handled through instant automated liquidation.

This shift shifts the "economics of traders" to the "economics of agreements."

In the traditional repo market, large trading banks act as intermediaries, earning a spread of about 50 basis points by borrowing at one rate and lending at another. In a tokenized ecosystem, collateral holders can self-match in the DeFi lending market, using software as an intermediary to obtain the full spread. While still years away from mass adoption, this shift could shift billions of dollars in annual revenue away from traditional traders and into the hands of protocol governance and asset holders.

To gain a deeper understanding of the scale of the shift from cash to collateral, we must examine the institutional mechanisms that have historically dominated these shifts. For decades, the global financial system has used a “T+X” settlement logic, where the “T” stands for transaction and the “X” represents the multi-day lag due to manual reconciliation and interbank clearing cycles. In a traditional repo market, this delay amounts to an invisible tax on capital.

When a dealer bank facilitates a repo transaction, the collateral must be physically transferred between custodians, which often requires manual intervention to verify the discount and ownership of the collateral. This creates a "liquidity moat" around the largest dealer banks, whose power derives not only from their strong balance sheets but also from their control of these proprietary settlement systems.

The mechanism of tokenizing collateral dismantles this moat through atomic settlement. In the step-by-step process of an agency, this transformation occurs as follows:

• Tokenization: Transfer high-quality liquid assets (HQLA), such as U.S. Treasuries, into a digital wrapper (such as BlackRock’s BUIDL), making them a token that is moveable around the clock.

• Instant transfer: Instead of waiting for a wire transfer on Monday morning, the finance team can submit these tokenized collateral to the lending protocol or prime broker at 10pm on Sunday night.

• Real-time Valuation: Smart contracts leverage decentralized oracles to market value collateral every few seconds instead of once a day, which can significantly improve loan-to-value ratios (LTV) because continuous monitoring reduces the risk of valuation "flash gaps."

• Yield Preservation: Crucially, investors continue to receive underlying Treasury yields while the assets are used as collateral, creating the opportunity for "yield-on-yield" that is cumbersome to operate in traditional systems.

For corporate finance teams or asset managers, this shift represents a fundamental revaluation of their idle assets.

In the traditional model, treasurers would manage a thin interest-bearing cash "buffer" to ensure that unexpected margin calls or operational needs could be met. With tokenized collateral, this “cushion” can continue to be fully invested in income-generating Treasuries, knowing that these assets can be converted into liquidity in seconds rather than days. This eliminates the "liquidity discount" traditionally faced by holding assets for the long term.

For the banking industry, the impact is equally profound.

Banks have long profited from "floating rates" and intermediary spreads in the repo market. As collateral becomes programmable and self-matching, this profit model will no longer exist. That’s why the emergence of institutional “pipelines” such as Anchorage’s Atlas Network or JPMorgan Chase’s internal tokenization initiatives is critical. They represent financial institutions' attempts to build new information silos before old systems face competition. The shift from cash to collateral marks a shift in the financial system from a series of “discrete events” to a “continuous flow,” and institutions that fail to adjust their balance sheets to accommodate this new velocity will find themselves holding increasingly static (and therefore increasingly expensive) capital.

On the surface it looks like just an increase in settlement speed, but in fact it is a reconfiguration of capital deployment, valuation and intermediary methods.

S-curve of adoption

The migration of institutional balance sheets does not happen overnight, but is a process of gradual absorption and ultimately acceleration. This is the reality of the “Web 2.5” era, where blockchain technology is integrated into existing financial architecture rather than replacing it. Currently, institutional adoption of blockchain technology is being constrained by “balance sheet inertia,” with regulatory capital requirements, risk committee approvals, and legacy technology systems all posing significant impediments. For example, banks cannot simply flip a switch to move assets. They must maintain strict Tier 1 capital adequacy ratios and ensure that any transfer of deposits to digital platforms does not lead to a costly contraction of their lending operations.

Despite these obstacles, the adoption of digital asset infrastructure is following a well-documented historical S-curve, similar to the decades-long rollout of credit cards and the internet.

Between 2015 and 2024, the market is in a "period of experimentation" and "regulatory chaos," with growth constrained by uncertainty. Today, we have entered a “competitive pressure period” (2025-2026), characterized by greater regulatory clarity and more standardized infrastructure. At this stage, “you’re not the first, but you’re not the last” becomes the primary motivator for institutional treasurers. As more banks see their peers participating in stablecoin settlements or tokenized Treasury funds, the risk perception of adoption will drop dramatically.

The current market size lays the foundation for accelerated compound interest growth. Fireblocks secures over $5 trillion in digital asset transfers annually, the market for institutional tokenized assets is growing rapidly, and the new system’s “underlying architecture” is production-ready. This infrastructure standardization allows banks to build on proven systems without having to reinvent proprietary systems.

Looking ahead to 2027 and beyond, there are several “policy levers” that can further accelerate this migration. The movement of deposits from traditional bank books to digital containers could be significantly accelerated if stablecoin issuers were given direct access to the Fed’s master account, or if the GENIUS Act’s interest restrictions on payment-based stablecoins were relaxed through a coalition “reward” mechanism.

The system is primed for a feedback loop: more stablecoin liquidity will attract more decentralized finance (DeFi) applications (most likely permissioned applications), which in turn will attract more institutional capital, ultimately resulting in a reorganized financial landscape where the “race for orbit” will settle and all attention will be focused solely on strategic balance sheet management.

NIM Winner

The transition from the infrastructure stage to the balance sheet stage marks the move of the discussion of "digital assets" from the edge of technology to the core of the global macroeconomics. For years, the industry has believed that building better infrastructure inevitably leads to better systems. And now we understand that infrastructure is just an invitation.

Transformation can only truly occur when capital itself is transferred. The “infrastructure war” has actually been won by standardized, institutional-grade currency payment hub custody, tokenized Treasury funds, and federally regulated stablecoin frameworks. The new battle - one that will define the financial landscape for the next decade - is the battle to control the balance sheets of global liquidity and collateral.

Looking ahead to 2027-2030, structural advantage will accrue to those companies that can manage these new “digital containers” most effectively. As depositors increasingly value round-the-clock settlement and the greater utility of stablecoin yields, we expect commercial banks’ net interest margins (NIM) to continue to narrow. Large corporates and institutional investors are likely to shift their primary savings and money management functions to DeFi and RWA markets, where the transparency of protocols minimizes middlemen’s spreads. This is not the end of traditional banks, but the end of banks as static, unchallenged storehouses of cheap capital.

In this new era, the winners will be “Web 2.5” hybrids, or institutions that realize they are no longer just lenders, but managers of programmable liquidity. It’s expected that by 2030, when the stablecoin market approaches $2 trillion, the line between “cryptocurrency” and “finance” will essentially disappear.

The entire system will fully integrate the efficiency of orbit into the stability of the balance sheet. In this reorganized landscape, financial power will no longer belong to the companies with the most innovative technologies, but to those companies that control the final storage container of global liquidity and collateral. The battlefield has been set up, and the economic landscape is up for grabs for the first time.

Cryptocurrency development over the past decade has focused on building infrastructure to enable institutions to participate. The next decade will determine where institutions' balance sheets end up.