Author: Omid Malekan, Columbia Business School Professor and Crypto Writer
Original Title: Beware the Lofty Promises of TradFi Firms Embracing Tokenization
Compiled and Edited by: BitpushNews
Institutions have entered the arena and are slowly embracing the advantages of going on-chain. For those who have long hoped for deeper participation from traditional finance, this is undoubtedly positive feedback. My personal view has always been: one day, all assets will become tokenized assets, and at that point, we will simply call them "assets".
It seems like every day there are exciting announcements from companies like DTCC (The Depository Trust & Clearing Corporation), Visa, SWIFT, Stripe, and PayPal. If you only read the press releases, these companies finally seem to be embracing real-time payments, 24/7 settlement, programmability, and atomic swaps.
But I'm not buying it.
Or rather, I don't fully believe it. Because not one of them is discussing the existential threat that "going on-chain" poses to their existing core businesses.
Don't get me wrong, there are clearly many smart people within these companies who believe in the benefits of permissionless blockchains. I've spoken with them directly and respect them greatly. The fact that they are allowed to express their beliefs so loudly also means that senior management within the company has approved some level of substantive engagement. They wouldn't do this if they didn't see a growth opportunity.
But intriguingly, none of these leaders are talking about the risk this **new type of infrastructure, "owned or controlled by no one"**, poses to their traditional businesses.
Public chains and permissionless networks are a completely new primitive. They exist to break the monopoly or oligopolistic control that traditional financial giants have over old infrastructure. It is logically impossible for a network like Ethereum to capture market share from existing centralized clearing and settlement networks without harming the giants that own and operate those networks.
Consider these examples:
1. DTCC (The Depository Trust & Clearing Corporation)
DTCC is preparing to tokenize securities currently held within its subsidiaries. This is an important first step because, by law, most US public stocks are recorded on its ledger.
But the end state of tokenization is Direct Issuance on-chain, a world that no longer needs the clearing and settlement services provided by such companies. Technically, DTCC is the US CSD, the "Centralized Securities Depository". In a more decentralized future, a service with the word "Centralized" in its name will no longer be needed.
But I haven't heard DTCC's leadership identify this risk.
2. SWIFT
SWIFT operates a secure messaging system crucial for various payments, especially complex cross-border payments that need to go through opaque correspondent banking networks.
Stablecoins offer a completely different way to settle cross-border payments: cheaper, faster, and more secure. They pose an existential threat to the correspondent banking business model that SWIFT underpins. In the crypto world, the payment *is* the message. If all payments move on-chain, we no longer need a 50-year-old "messenger".
Yet, I haven't heard panic about "this obsolescence" inside SWIFT.
3. Visa
Visa has a broad business, but at its core is operating a card network—a trusted telecommunications layer that conveys the promise "payment is coming" to merchants so they can provide goods or services immediately.
Stablecoins replace this "promise" with "actual payment". Other Visa services might benefit from going on-chain, but card payments are its bread and butter.
I haven't seen more than a cursory mention of the competitive risk from stablecoins in its SEC filings.
4. Stripe
Stripe provides APIs for businesses to easily integrate various payment methods. Its pricing model is largely built on card payments, which are notoriously difficult to process.
Stablecoins simplify everything and allow new competitors to enter various payment fields.
Stripe's leadership talks extensively about what can be gained from going on-chain, but never mentions what might be lost.
5. PayPal
PayPal operates multiple closed-loop payment networks, making money from float (interest income) and payment processing fees charged to merchants.
Stablecoins have the potential to eliminate all closed-loop systems because they offer all the advantages of closed-loop systems (instant payments, free P2P transfers, etc.) without any of the drawbacks (like you use Zelle but your buddy uses the incompatible Venmo). Stablecoins also compress payment yield, putting pricing pressure on all business models based on float income.
They also rarely talk about these risks.
Growth Opportunities and the "Innovator's Dilemma"
Let me reiterate: these companies can do many useful things by going on-chain, beneficial for society and profitable for them. The growth opportunities are clear. For example:
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DTCC could charge small fees for token services like minting/burning, compliance management.
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SWIFT's global directory of banks and messaging system could facilitate easier large wholesale payments.
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Visa has significant non-card businesses, including Visa Direct, a real-time payment service that doesn't charge swipe fees but competes with other real-time payment services.
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Stripe charges a fixed 1.5% fee for accepting stablecoin payments, meaning merchants pay less, and Stripe's take rate is actually higher—a win-win.
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PayPal's stablecoin is occasionally used in DeFi, which was impossible with previous closed-loop solutions.
Judging the gains and losses for these companies from going on-chain is very complex. For example, although Visa has emphasized cross-border and real-time payment solutions in recent years, Visa Direct often moves money onto cards, and widespread use would still increase swipe fee revenue. Unless Visa develops new solutions that directly compete with the banks that are its largest customers, a stablecoin-based "push-to-wallet" service won't increase its swipe fee income.
This complexity means these companies are unlikely to enjoy the benefits of cryptocurrency without making significant mistakes. If the world fully moves on-chain, then their traditional businesses must be cannibalized, at least partially. The censorship resistance of networks like Ethereum invites endless competition, something some of these giants have never faced.
Do we really think these giants can handle the classic "innovator's dilemma"? That they can transition from monopolistic/oligopolistic positions generating hundreds of billions in annual revenue to being just another player in a crowded field? That they can defeat crypto natives who have no legacy baggage to protect?
I don't think so.
But why should I care about this?
My skepticism stems partly from having worked at or consulted for these companies. They are risk-averse, and for good reason. Their core businesses are run by veterans deeply entrenched in the field, and that experience makes them skeptical of alternatives. I sympathize with their position: if I had spent decades building a successful career in the old model, I would also be skeptical of the new one.
Regardless, these executives have definitionally more internal influence than their crypto-supporting junior colleagues, and they will oppose substantive progress, perhaps even sabotage it. This is their incentive. And believing in crypto is believing that incentives trump intentions.
I've discussed this logic with some friends in the industry, and while they tend to agree, they also wonder why I care. As one smart friend said:
"The world's largest financial institutions are going on-chain. This is a huge achievement, something we could only dream of a few years ago. Who cares if they mess it up or only embrace it half-heartedly? Why not just enjoy the moment? If they mess it up, it will be their problem, not ours."
Unfortunately, it will become our problem.
First, let me be clear, my hesitation is not out of malice, nor is it an unrealistic revolutionary demand for "purity".
I hesitate because I worry about what demands these large institutions will place on the crypto industry. I worry that they will dangle the carrot of "mass adoption" and wield the stick of "regulatory capture" to pressure our industry into abandoning the very features that made public, permissionless networks unique in the first place.
This concern is not hypothetical; it is happening:
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JPMorgan Chase (JPM) is experimenting with permissioned tokenized deposits and money market funds, available only to "accredited investors" (i.e., millionaires). JPM is also using its massive lobbying power to prevent permissionless stablecoins from paying interest to ordinary people.
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DTCC's embrace of tokenization focuses on permissioned "enterprise chains", which actually have nothing to do with cryptocurrency. They are poorly designed traditional financial databases with a lot of useless cryptographic bloat. They are not censorship-resistant and offer no survivability or security guarantees beyond off-chain legal agreements. They are "DTCC with hashes".
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Stripe is fully backing Tempo, a chain that is permissioned at launch. Turning such a network into a permissionless one will be very difficult, especially with a $500 million war chest and a host of traditional financial partners who must protect their moats.
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I keep seeing more and more L1 and L2 business development teams wrestling with whether they should walk back some of their original decentralization plans to please Wall Street.
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Crypto leaders who once scoffed at enterprise blockchain are suddenly changing their tune or falling strangely silent as the new wave rises.
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Citadel Securities is lobbying to kill real DeFi while supporting permissioned networks controlled by corporate consortia. This is no coincidence; Citadel is one of the smartest companies in the world, and they know exactly what they are doing.
This risk of traditional financial giants trying to undermine crypto's core values is further amplified by the "Suit Simp" phenomenon I mentioned a few weeks ago. Too many people in crypto either feel an inferiority complex towards traditional finance, can't be bothered to learn what makes blockchain unique, or have become numb and cynical because their assets are "bagged". These people are likely to betray and sell out the industry's foundation.
Conclusion
It is crucial for the crypto industry to engage with these institutions and help them connect on-chain. We should do this with respect and understanding. The innovator's dilemma is real and difficult to overcome.
But when the real challenges come—and I guarantee they will—we should hold our ground. Traditional finance needs to evolve to embrace crypto. Crypto should not regress to accommodate them.
Long story short: Don't be a "simp".
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