[Banking on Blockchain: Part 2] The Adoption Paradox

In my previous article, we explored the Pre-funding Paradox, where instant settlement provided by blockchain rails could lock up capital and drain bank liquidity. In this second piece we will explore why despite our current architectural boom where fintechs and visionary engineers are building secure and technologically brilliant infrastructure, institutional adoption remains negligible.

The Evidence

One needs to only look at the “occupancy rates” of today’s blockchain network to see this issue. The pipes are there but the flows within are actually largely circular rather than translating into the mainstream.

For example, despite promises of stablecoins seeing record adoption among B2B payments and corporate treasury, the data isn’t backing this up. In 2025, over 90% of stablecoin transaction volumes were driven by arbitrage bots and automated smart contract trades and focused within the crypto-native ecosystem, per Visa’s 2024/2025 Onchain Analytics. The use cases these platforms were allegedly built for, like B2B payments, remittances and corporate treasury movements, account for 1% - 5% of total volume, per a BCG 2025 report “The Future is Anything But Stable”.

The reality is that this infrastructure remains overwhelmingly for cryptocurrencies and particularly buoyed by a small number of large crypto-wallets and high-frequency traders, so-called “Whales”, while the corporate treasurer or financial institution has yet to even start the engine.

Tokenised Deposit platforms like JPM Kinexys, HSBC, Citi follow a similar path where the volumes first sound impressive, with billions of dollars processed annually on their proprietary blockchain platforms. However, these are mainly used to manage internal liquidity and 24/7 cross-border clearing between same-bank entities (e.g. HSBC HK to HSBC UK) and a selection of their largest corporate client. And for now, these platforms cannot transact with each other and remain for intra-group transactions only.

The Regulatory Reality

So why is this the case? Firstly, I believe there is a fundamental misunderstanding of the "cost" of finance across blockchain vendors. Many dream of becoming the new intermediary where they can rake in basis points on every transaction while promising to strip away the "expensive" fees of the legacy system. The argument goes that these costs are driven by tech and operational efficiencies as well as a lack of competition.

While these certainly play a part, the truth is that the costs come due to regulatory oversight that is absolutely necessary for any, bank or fintech, that wish to be the intermediary to billions in transactions.

A significant portion of banking fees goes toward maintaining the human and technical systems required for AML, KYC, Sanction Screening, and more. Many fintechs shy away from these requirements or simply aren't equipped to handle them. If a blockchain vendor won't own the regulatory burden, then the bank is forced to overlay its existing, expensive legacy compliance processes on top of the new technology. As a result, the efficiency gains disappear, and the business case for adoption evaporates.

The Instruction Gap

Another issue I see first hand in my day to day role of shaping a bank’s digital assets strategy is the massive human hurdle.

Institutional finance runs on decades of muscle memory. Middle and Back Office teams at a commercial bank have spent thirty years operating within a T+2 window, where errors can be caught and reversed. Asking them to move to Atomic Settlement, where transactions are instant and immutable, is a radical shift in risk management rather than just a software upgrade.

This "Instruction Gap" requires a massive investment in training. It requires rewriting operational manuals that have governed bank behaviour for a generation. For many institutions, the friction of re-tasking their entire operational workforce is currently greater than the perceived benefit of the new rails.

Too Many Choices

Finally, I am concerned at the apparent fragmentation of "Institutional-Friendly" networks. In the last few years, we’ve seen an explosion of platforms like Canton, Agora, mBridge, HQLAx, Partior and more, all vying to be the "chosen one" for Tier 1 banks.

For a commercial bank, connecting to a new network is a major CAPEX commitment. With so many competing “Grade A" options and no clear universal interoperable solution, I believe a lot of institutions have entered a state of strategic inertia. They don't want to make a multi-million dollar investment only to find they've connected to a digital island while the rest of the industry moved to a different one.

Conclusion

Much like my previous article on Pre-Funding, this failure of adoption isn’t a failure of the technology but a failure of context. The industry is perfecting the rails without sufficiently addressing the on-ramps.Bank Digital Assets Leads such as myself have already secured high level buy-in on the value proposition for a myriad of digital assets use cases but there is a real lack of support in addressing the above challenges for adoption.

From the cost of regulatory compliance to the human knowledge gap and the fragmentation of networks, this brilliant digital infrastructure still needs a lot contextualising for the institutional space.

I have a few ideas for next week’s Banking on [Blockchain: A Practitioner’s Guide to Real Adoption: Part 3] so watch this space if you’re interested in the real plumbing of institutional finance!