The time when cryptocurrencies came into the world, traditional finance (TradFi) viewed them as a thorn in its side. Now, the narrative has changed! Leading traditional banks, financial institutions, and asset managers are leading their way in investing in blockchain startups and firms, indicating that blockchain is revolutionizing several other sectors.
Institutional investments in blockchain Infrastructure
The crypto industry is now rich with several banking or investment firms investing in Exchange Traded Funds (ETFs) and cryptocurrencies like Bitcoin and Ethereum. Major institutions and whales like BlackRock, Maetaplanet, and Saylor have been frequently buying Bitcoin, Ethereum, and other crypto assets in huge numbers. Moreover, Citadel Securities and Fidelity have added capital to crypto exchanges, Decentralized Finance (DeFi) platforms, and custody solutions.
TradFi backs blockchain, reports Ripple
Worth noting, Ripple Labs, the crypto firm behind XRP, in collaboration with CB Insights and the UK Centre for Blockchain Technologies, has unveiled a report on how TradFi has backed the digital asset landscape. The report substantially analyzes investment and partnership activities from over 8,000 blockchain companies and 1,800 banks during 2020-2024. The report cites major institutions such as Goldman Sachs, JPMorgan Chase, and Japan’s SBI Group for actively supporting blockchain infrastructure.
2020-2024: A surge in traditional banks supporting blockchain
Banks have participated in 33 blockchain-related mega-round funding deals in over the five-year term, according to CB Insights. As mentioned, these major institutions supported different stages of blockchain companies: digital asset custody, institutional infrastructure (trading, staking, and tokenization), and blockchain in global payments.
Banks embracing stablecoins and CBDCs
Although several financial institutions refrain from getting exposed to Bitcoin or Ethereum. They are dipping their toes into stablecoins and central bank digital currencies (CBDCs). And, why? These digital assets are more regulated, safer, and easier to merge into financial systems. Bancolombia, a leading commercial bank in Colombia, has launched a stablecoin, COPW, via its Wenia platform. State Street and BNY Mellon have entered the stablecoin custody and payment field.
Why is TradFi powering the blockchain sector?
Significant reasons for traditional finance supporting blockchain are due to instant, low-cost, and transparent payment, which is a major upgrade from expensive and slow traditional systems. Ripple’s report revealed that cross-border payments using blockchain for TradFi have become easy, as it reduces the intermediaries between banks. Thanks to the blockchain technology that pulls out the centralized system! For this reason, blockchain can “dramatically lower the time and costs associated with moving money across borders.” Automated compliance system, built-in programmability, and smart contracts also lay the stone for TradFi’s entry to blockchain.
