Yes, we’ve heard institutions are coming to crypto and web3 for a good half a decade now. But things are definitely changing on the ground. The paradigm of institutions trying to set up private or consortium chains to leverage blockchains is quickly changing as large players realize that public chains are the way to go.
Till now the focus had been on private chains or consortiums similar to J.P. Morgan’s Onyx or IBM’s we.trade. But last year saw the collapse of many of these private and consortium chains. For example, we.trade, owned by 12 European banks and IBM, was a blockchain-based trade finance platform that enabled businesses to connect with their banks over a network powered by IBM blockchain technology.
we.trade shut down its operations in June 2022 after failing to secure further investments, citing scalability and lack of long-term commitment were the main reasons behind we.trade’s failure. Similarly, the insurance initiative B3i started in 2016 by five leading insurers (Aegon, Allianz, Swiss Re, Munich Re, and Zurich) with an aim to achieve end-to-end efficiency in the insurance industry, shut down in July 2022, due to lack of volumes and long term commitment. Once known as Libra, Meta’s consortium, Diem also wound down in January 2022 and was eventually sold to Silvergate. The fate of other consortium chains has been similar.
Slowly large institutions are learning that siloed chains do not bring the efficiency and ecosystem advantages that public chains do. Though still a minority, institutions have started taking serious steps towards adopting public chains, albeit in a permissioned way.
Franklin Templeton recently launched their money market fund on Polygon and Stellar. Last year, Hamilton Lane sold shares of their private equity fund in conjunction with on-chain and TradFi giant J.P. Morgan executed its first DeFi transaction on Polygon last year.
Additional Read: Tokenization of RWAs, How Polytrade Does it?
In our private conversations with large institutions and banks here at Polytrade, we are seeing early signs of this. Having built vital tech infrastructure to execute faster, more reliable, and safer asset flow through tokenizing, bundling, and fractionalizing assets, Polytrade is in a great spot to talk to players across the financial and investment space. Over the past year, we have spoken to more than 15 institutions, including biggies such as J.P. Morgan, Citi, large payment processors, institutional investors, regional banks, and FIs.
Our internal reading is that the brass at these large institutions understand the value that public chains bring but are hesitant given the regulatory uncertainty (exacerbated by FTX and the SEC’s onslaught in the US). At the actual operational level, executives are less inclined to change their set ways of doing things and there remains an education gap.
Though there is no doubt that institutions are gradually recognizing public chains as the real answer, there is still a way to go (2-3 years) before real adoption can be expected. Of course, clear regulation will be a precursor to this happening. Also, it is highly possible that B2B or backend use cases are adopted first before more mainstream, B2C implementation can happen.
Key Takeaways
- Most Institutions are aware they need to adopt blockchain
- There is growing maturity that private or consortium chains cannot deliver the efficiency and ecosystem advantages that public chains can. The collapse of multiple large consortiums in 2021 and 2022 was a signal to the industry to move on
- Though there is growing acceptance of public chains, institutional adoption needs regulatory clarity as well as education. Over the next 2-5 years, we will definitely see more POCs, and then possibly implementation of B2B and backend use cases before we see B2C use cases
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