Over the course of the last crypto bull market (approximately 2020-2022), many large financial services firms announced various projects and products based on blockchain technology. The 2020-2022 crypto bull market ended with the high-profile bankruptcy of Three Arrows Capital, FTX, and others. The collapse of the bull market took blockchain technology out of the spotlight. Approximately two years later, crypto prices are once again surging and it’s a good opportunity to look back at all of those corporate blockchain projects from the last bull market to see what happened.
Since so much of the coverage of crypto and blockchain shows a strong bias for or against the technology, this piece will strive to be unbiased when examining the top blockchain use cases for established financial services firms. It will highlight both positive (continued traction) and negative (lack of traction) examples.
What is blockchain technology and how is it different from cryptocurrencies?
Before diving in, here’s a brief review of the blockchain concept and how it’s distinct from cryptocurrencies like Bitcoin
BTC
and Ethereum
ETH
. At its most basic level, a blockchain is a decentralized database shared between multiple parties. It is either publicly viewable or is only viewable to certain parties. Because blockchains are decentralized – and not controlled by a single party like a traditional database structure – they operate using “smart contracts.” Smart contracts automatically execute, control, and document events and actions according to pre-set parameters.
Blockchain technology is the innovation that enabled the rise of independent cryptocurrencies like Bitcoin and Ethereum. But the technology can be used for other purposes as well, ranging from insurance to bond trading. For an example of this distinction, over the years JPMorgan Chase
JPM
CEO Jamie Dimon has derided Bitcoin and other independent cryptocurrencies as a “fraud,” a “waste of time,” and a “pet rock.” Yet despite these extremely negative statements about cryptocurrencies, JPMorgan Chase has been a leader in building blockchain-based solutions for banking and trading.
According to Mike Pavel, Head of Strategy at ZK Ladder, a SaaS platform that lets companies connect physical things with blockchain records using NFC chips, “blockchains and cryptocurrencies are often conflated in the collective mind of the public. For example, at ZK Ladder, we have been hyper-focused on articulating both our product and our messaging to ensure a clear understanding of the differences. Blockchain technology companies like ZK Ladder are not selling speculative coins.“
There are two key caveats to keep in mind before proceeding. First, I am discussing what the largest global financial firms are doing with blockchain technology. There is an entirely separate decentralized finance ecosystem (known as “DeFi”) that is building decentralized financial products without any traditional intermediaries and large financial firms. For example, Centrifuge
CFG
claims to have financed $544M working with DeFi protocols. A detailed examination of the state of DeFi is a topic for another day.
Second, it is worth noting that I am relying on publicly available information and announcements, with the general assumption that if a firm has not provided any update on a blockchain initiative years after the initial announcement, the project has either been canceled or put on hold. In some cases, that may not be a correct assumption.
Large banks continue to show interest in blockchain-based banking and payments use cases
Large banks have continued to invest in and develop blockchain-based solutions for banking and payments throughout the crypto bear market. Depending on definitions, there are five high-profile blockchain consortiums/joint initiatives in the banking and payments space.
First, the bank-led Regulated Liability Network initiative started live tests in both the U.S. and the U.K. in 2023. Second, the Universal Digital Payments Network is backed by 25 different organizations and has 12 proof of concepts running. Third, there is the R3 initiative, which received $107M of funding from a group of banks back in 2017 (note that as of 2024, however, the R3 initiative seems to be more focused on brokerage/trading use cases). Fourth, Fnality International is backed by 20 major institutions and notably launched a Sterling-based payment system in December 2023. Finally, there is Ripple, who has worked with several large banks. While the firm has been embroiled in a high-profile legal battle with the SEC for the last few years, Ripple continues to build cross-border payment services.
According to Kevin Goldstein, Managing Partner at Kee Global Advisors, “even if the benefits of the technology incentivize adoption, building a consortium is a slow and steady process. Wall Street banks can sometimes struggle with collaboration, so these consortiums will have to work out thorny issues between parties. And as these projects scale up, they will also likely need to carefully manage regulatory issues and avoid creating the perception that a consortium is reducing competition.”
When it comes to individual banks, JPMorgan Chase stands out for its pursuit of blockchain-based products and services. JPMorgan Chase has set up a dedicated blockchain group (dubbed “Onyx”) and has developed the JPMCoin stablecoin that has processed over $1B in transactions. JPMorgan Chase has also created a blockchain (dubbed “Liink”) that can facilitate cross-border payments.
In addition, JPMorgan Chase is heavily involved in the joint venture Partior. DBS
DBS
Bank, Standard Chartered and the Government of Singapore are also involved in the Partior joint venture. In May 2023, JPMorgan Chase received approval to use Partior from the United States’ Office of the Comptroller of the Currency. The firm took their JPMCoin live on Partior in December 2023.
Outside of JPMorgan Chase, however, it seems that many banks have stopped pursuing proprietary blockchain banking/payments projects. Over the years, various large established financial institutions had announced blockchain-related pilots and products. Examples range from BNP Paribas’ project launched back in 2016 to more recent examples from BBVA (announced in 2020) and HSBC
HBA
and Wells Fargo
WFC
(announced in 2021). I was unable to find recent updates on the various blockchain projects led by only one or two banks. Outside of JPMorgan Chase, it seems that most banks may be opting to participate in consortiums and joint projects.
The shift to consortiums and joint projects likely reflects the fact that most banking and payment activities require numerous counterparties. JPMorgan Chase is the world’s largest bank by market capitalization, and by a wide margin. While JPMorgan Chase has the resources and heft to try to build their own blockchain network, most banks have likely realized that they’ll be unable to build their own blockchain and attract a sufficient number of other banks to create the needed “network effects.”
According to Corbin Norman, startup advisor and former marketing leader at a neobank, “blockchain innovation thrives on collaboration. Consortiums and joint ventures are the go-to strategy, enabling relatively smaller players to unlock the power of blockchain in banking and payments. While the long-term winners have yet to be decided, widespread adoption will eventually happen.”
Many of the incumbents in the brokerage and trading space are launching or expanding blockchain-based projects
Like banking and payments, the brokerage and trading industry has continued to see strong adoption and interest in blockchain technology despite the crypto bear market. Brokerage firms look to blockchain technology and tokenized versions of investment products to improve efficiency, reduce costs, and/or to remove intermediaries. In the last twelve months alone, there have been many examples of large financial services firms announcing the launch or expansion of brokerage-related blockchain projects. Examples include BNP Paribas, Citi, Franklin Templeton, HSBC, J.P. Morgan, Societe Generale, WisdomTree, and UBS. In a sign of the disruptive potential blockchain poses to brokerage and trading, in December 2023 DTCC (the largest clearing and settlement firm in the world) bought blockchain company Securrency.
The CEO of the world’s largest asset manager, BlackRock
BLK
, has notably made multiple public statements about the impact blockchain technology will have on the asset management industry. BlackRock launched a tokenized money market fund in March 2024, raising $160M in the first week.
Although there are some examples of consortiums and joint blockchain projects/initiatives in the brokerage space (example), compared to the banking and payments use cases outlined above, more firms are pursuing their own initiatives. This difference stems from the fact that blockchain-based brokerage and trading services can be offered to clients with fewer counterparties than banking and payments services require.
Interest in blockchain projects among the large insurance players seems to have declined
Now we’ll switch gears and talk about two financial services use cases where the outlook for blockchain technology is at best unclear or at worst failing to live up to the hype. In the insurance space, the B3i insurance blockchain initiative (backed by several large insurance firms) ceased operations in July 2022. The project was shut down only a few months after starting active pilots.
A survey from BCG in November 2023 found that 60% of insurance companies are already investing in blockchain technology, but there isn’t much public evidence of the investment noted in the BCG survey. I haven’t been able to find updates on individual blockchain initiatives launched in the last crypto bull market, such as the USAA/State Farm blockchain project (launched in 2021) or the Allianz blockchain project for auto insurance (launched in 2021). The Riskstream alliance – founded in 2019 and backed by several large insurance firms – is still active, but compared to the banking and brokerage use cases, there seems to be much less traction in the insurance industry.
The nature of insurance claims means that the value of a shared blockchain and automated smart contracts is less compelling compared to the more straightforward and often near-instantaneous task of processing a payment or a trade. Insurance claims sometimes involve lengthy in-person investigations and disputes that end up in court.
Moreover, the insurance industry is known to be relatively slow to adapt to new technology. The industry does not appear to be willing to undertake a complex transformation from old IT systems to a shared blockchain-based approach.
Despite earlier hype, there does not seem to be much traction in blockchain for the real estate sector
During the 2020-2022 crypto bull market, much ink was spilled on the potential for blockchain to improve elements of the real estate industry, such as the mortgage ecosystem, real estate transactions, the land registry process, etc. Like the insurance industry, however, it is difficult to find up-to-date information on the various blockchain projects undertaken by the largest real estate firms. For example, I could not find any recent updates on Coldwell Banker’s project to tokenize real estate (announced in January 2022) or RE/MAX’s
RMAX
partnership with XYO network to build a land registry in Mexico (first announced in 2018).
Over the years, several real estate blockchain startups have touted partnerships or case studies with the largest players in the industry (RE/MAX example), but once again it is hard to find up-to-date information here and/or evidence that the largest real estate firms have started working with these tech companies on a meaningful scale.
When discussing real estate blockchain projects, it is worth noting that national and sub-national governments have made various announcements over the years about facilitating real estate transactions on a blockchain. Examples of these government initiatives include the Swedish government (first announced in 2016), the UAE
UAE
government (first announced in 2019), and the U.K. government (first announced in 2019). It is difficult to find up-to-date information on the current status of various government-level real estate blockchain initiatives, but the UAE initiative appears to be active as of at least 2023.
The key players in the established real estate industry – real estate agents, lenders, local governments and data vendors – do not seem to have the right incentives necessary to incentivize blockchain adoption.
Financial services is not a monolith, and blockchain technology is only a priority in some industry verticals
This piece has hopefully given you a better perspective on which use cases still have meaningful traction among the largest global financial firms in 2024. The outlook for blockchain in the insurance and the real estate sector is uncertain. Even in the brokerage and banking/payments space – where the established financial players continue to show strong interest in blockchain technology – the transition will likely take 2-5 years.
Financial infrastructure is a very complex and highly regulated space. Key components of financial markets and global payments will not be moving to shared blockchains quickly. But there is real interest and traction when it comes to blockchain in certain areas of financial services – the technology is not just hype and froth.
According to Diederick van Thiel, Co-Founder/CEO of AdviceRobo, a fintech company that helps banks improve credit management by providing unique data points on customers and AI-based financial wellness solutions, “through my work as both CEO of AdviceRobo and non-executive director in neo-banking and private equity, I have been exposed to many large financial services firm’s complex infrastructure and often siloed databases. It will take time, but the right use cases, like the movement of money and assets within and across countries, benefit from a shared blockchain approach.”
