Blockchain technology, or Distributed Ledger Technology (DLT), is fundamentally a technology for the financial market. Originating as the underlying technology of Bitcoin, its principle of recording transactions conditionally is ideally suited for financial transactions of all kinds. While blockchain has numerous applications in other industries and broader segments of society, it is intrinsically a technology tailored for financial services.
The concept of smart contracts was first introduced in the 1990s by computer scientist and cryptographer Nick Szabo. Szabo, who also holds a Juris Doctor and has conducted research on digital currencies, named and defined the main function of smart contracts. These are designed to automate contractual agreements for peer-to-peer transactions between strangers, serving as a trust protocol. The integration of blockchain enhances this setup by creating an immutable and distributed record of all transactions, thereby ensuring unbeatable redundancy.
Institutional Blockchain Adoption — The Top 30 Global Banks on the Forefront Report
In our research report about the “Institutional Blockchain Adoption —The Top 30 Global Banks on the Forefront” we dived deep into the blockchain use case adoption and the developments of those leading global banks, and it is quite impressive what those banks have already developed, tested and implemented. In this article we provide an excerpt of the specific blockchain use cases for banks and provide an overview of how those top banks are utilizing blockchain technology.
Digital Identity
A blockchain-based identity system provides a secure, decentralized solution to manage customer and counterparties identities in the financial industry. This system ensures tamper-proof identity verification, enhanced security, and streamlined compliance with KYC and AML regulations, while customers can control their digital identities through cryptographic keys, reducing the risk of identity theft and data breaches. Financial institutions benefit from improved onboarding, lower operational costs, and improved regulatory compliance through transparent, immutable audit trails. HSBC and JP Morgan have been exploring blockchain-based identity systems in a joint effort. HSBC’s “Digital Vault” initiative leverages blockchain to securely manage and verify customer identities, while JP Morgan’s Quorum blockchain platform facilitates secure identity verification processes. We have also discovered several other banks in our research, who’ve already actively developed and integrated blockchain-based identity systems such as Standard Chartered, Banco Santander, BBVA and Deutsche Bank.
Crypto Trading and Custody
An obvious use case and new business line for banks in their investment and private banking division, but also as retail offering and integration in their online banking systems, such as Austrian Raiffeisen Bank through its partnership with Austrian crypto exchange Bitpanda. Custody is another strong business case for banks, as many especially regulated financial service companies and funds prefer custody with their established banking partners. We’ve found evidence of 12 banks offering crypto custody, and 11 offering crypto trading in one or more jurisdictions. US banks lacking such services in their home market due to the well-known stance of the SEC and unfavorable ruling on risk provisioning for crypto custody.
Payment
Payment is probably the most obvious use case for banks as it allows improved settlement, especially in cross-border transactions. Mostly, those projects are combined with stablecoin transactions, but also through bank-own coins such as the JPM Coin, Citi’s or Japanese MUFG, as well as tokenized deposit solutions that are technically different than stablecoin transactions. Also active CBDC projects are aimed to improve payment, driven by either the regulators with the banks or as own initiatives such as Australian and New Zealand Banks projects of NAB and ANZ shows. We found a total of 17 banks who have already worked on payment projects or even already leveraging it for several uses in different jurisdictions. MUFG’s core activities seem to be centered around their Progmat Coin platform and its consortium with impressive 228 member companies. BBVA has launched already 2019 a mobile payment system using a tokenized payment system. Fnality institutional stablecoin project is another notable example with many of the global leading banks directly invested or involved.
Trade Settlement
Trade settlement is clearly a major use case for banks due to its complexity in basically all securities transactions and a major driver of bond and fund tokenization projects. A traditional settlement processes often require several days to complete (T+2 or T+3), introducing counterparty risks and delaying the availability of funds. Blockchain enables real-time or near-instant settlement by recording transactions on a distributed ledger immediately upon execution, reducing counterparty risk and accelerates the availability of funds and securities. Each transaction is recorded in a decentralized and time-stamped manner, enhancing trust among participants and simplifies audit processes, reducing the need for intermediaries and manual reconciliation. The automation minimizes human errors, lowers transaction costs, and reduces the complexity of the settlement infrastructure. The cryptographic nature of blockchains secure transaction data, making it highly resistant to tampering and fraud. The decentralized computation also means there is no single point of failure, enhancing security of the settlement process. The distributed nature of blockchain ensures operational resilience. Even if one or more nodes in the network fail, the system continues to function without interruption. Blockchain can enhance regulatory compliance by providing a transparent and tamper-proof record of all transactions. This feature simplifies the reporting requirements for financial institutions and ensures adherence to regulatory standards.
Project Guardian, led by the Monetary Authority of Singapore (MAS), explores the use of blockchain and decentralized finance (DeFi) for asset tokenization and trade settlement. The initiative successfully completed pilots involving DBS Bank, JP Morgan, and SBI, demonstrating the real-time settlement of foreign exchange and government bonds using tokenized assets. These pilots showcased how tokenized assets can be traded and settled instantly, reducing costs and improving efficiency by eliminating intermediaries in over-the-counter (OTC) markets. Project Guardian aims to advance interoperability in the global financial infrastructure and expand tokenization use cases across various asset classes
The SIFMA’s Project, managed by the Securities Industry and Financial Markets Association (SIFMA), which involved major financial institutions like Citi, JP Morgan, and Wells Fargo exploring the tokenization of various financial instruments, including U.S. Treasuries. The aim was to facilitate settlements on a single shared ledger, under existing legal frameworks, to enhance the efficiency and resilience of capital markets.
Trade Finance
In 2023, trade finance was a $31 trillion industry according to UNCTAD, with nearly all listed banks holding a stake. This sector was one of the earliest to adopt blockchain through collaborative projects. According to a recent report by Standard Chartered and Synpulse titled “Real-World Asset Tokenization: A Game Changer for Global Trade,” the potential for tokenized trade finance could reach as much as $4.8 trillion by 2034.
A total of 20 banks have been actively involved in projects like Contour, with major players including HSBC, Standard Chartered, DBS, and Citi using blockchain to enhance real-time, secure collaboration among trade partners, especially in issuing Letters of Credit. Komgo, supported by banks such as Citi, ING, and Societe Generale — and involving 15 major banks like MUFG, Crédit Agricole, Lloyds, and ABN Amro focuses on commodity trade finance.
The we.trade consortium, including HSBC, Deutsche Bank, Santander, and Erste Bank, facilitates secure trade among SMEs across Europe. Citi’s Citi Token Services piloted a blockchain solution that tokenizes deposits for instant payments and improved liquidity management, aiming to replace traditional bank guarantees and Letters of Credit. Additionally, Standard Chartered’s collaboration with Linklogis and Barclays’ partnership with WaveBL has been key in digitizing trade documents.
Siemens has worked with TradeIX on the Marco Polo platform to secure efficient trade finance transactions. The Partior Platform, a collaboration among DBS Bank, JP Morgan, and Temasek, focuses on streamlining cross-border payments in trade finance.
The Marco Polo Network, which included global banks like BNP Paribas, ING, Bank of America, Standard Chartered, Citi, BNY Mellon, and Raiffeisen Bank International, has surprisingly become insolvent, highlighting the complexities and challenges within this promising sector.
Collateral-based Lending
There are already several use cases of collateral-based lending, and the tokenization of assets is poised to further accelerate this trend and its applications. Tokenization makes collaterals significantly easier to enforce and collect for lenders in the event of a default. Additionally, the valuation and pricing of these assets can be improved, and margin calls can be immediately triggered. What has already become standard in the DeFi world, with hundreds of lending markets offering over-collateralized lending as a core mechanism, can be expected to be increasingly implemented in the traditional financial industry. Companies can tokenize various assets on their balance sheets and even their own shares to provide as collateral to lenders. Similarly, private individuals can tokenize assets such as art, real estate, or even intangible assets to post as collateral for better terms.
A notable and growing use case in the financial industry is securities-based lending, with several instances we’ve identified through our research. Many of the listed banks, such as HSBC, Deutsche Bank, BNY Mellon, UBS, BNP Paribas, Goldman Sachs, and ING, have either directly invested in HQLAᵡ or are working with the Swiss startup that has developed a solution for securities lending.
Repo Market
The repo market covers daily volumes in the trillions and is heavily depending on the legacy financial market infrastructure, especially the bond market in terms of settlements. The delayed settlement of repo transactions can cause collateral to be trapped, creating counterparty credit risk and making them prone to failures and errors. The current platforms require multiple processes and parties to be involved, creating a fragmented system.
JP Morgan reported last year that its Onyx platform had helped facilitate more than $300 billion in intraday repo transactions. That came on the heels of piloting efforts in conjunction with several global financial institutions such as Goldman Sachs and Singapore’s DBS Bank. In addition, Broadridge’s global Distributed Ledger Repo platform across both sell-side and buy- side firms capture $1 trillion in monthly volumes from the global repo market.
Asset Management
By fully embracing blockchain technology across various use cases and investment products, asset management in all its diverse disciplines and ranges can be completely revolutionized. The tokenization of assets opens entirely new opportunities in terms of accessibility, transparency, efficiency, and liquidity. Assets can be accessed, traded, and settled almost instantly on a consistent, tamper-proof data system with integrated reconciliation and record-keeping for a fully automated front-to-back office process.
It is still a long way to go until the full potential of blockchain can be realized, as it takes time to replace the complex legacy systems in the financial industry with all its participants. However, we believe that with the increasing development in the space by internal innovation teams of banks, service and software providers, as well as innovative startups, we will see an accelerating pace in this transformation.
Middle and Back-Office Processes
Middle and back-office processes, primarily concerned with clearing, settlement, reconciliation, and accounting, involve coordinating multiple counterparties and service providers along with their respective applications and data infrastructures. The blockchain, serving as a single immutable record of data with self-enforcing rule-based functions, offers significant potential for simplifying complexity and reducing efforts and costs in these processes. Our research highlights a clear trend of banks leveraging distributed ledger technologies in collaboration with service providers and regulators, exemplified by Project Guardian with the Monetary Authority of Singapore (MAS). Banks worldwide are increasingly participating in such projects, forming consortia to develop and test these systems, which include technology providers. The success of these projects has motivated participants to expand their initial pilot scopes and directly plan production-ready solutions in anticipation of growing demand from the banking, asset, and fund management industries. Additionally, traditional exchanges globally are making significant strides in developing and implementing order management and enhancing their middle and back-office infrastructure.
Compliance
Compliance ensures that banks adhere to all applicable laws, regulations, guidelines, and industry standards, encompassing both internal policies and external legal requirements. The primary goal of compliance is to prevent and detect violations, which can lead to legal penalties, financial losses, and reputational damage.
Blockchain technology supports compliance by providing an immutable ledger that records all transactions transparently. This facilitates easier audits and real-time monitoring, ensuring traceability and accountability of all actions. Smart contracts on the blockchain can automate compliance checks and enforcement, significantly reducing human intervention and the potential for errors. For example, these contracts can automatically verify transactions against regulatory requirements like Know Your Customer (KYC) and Anti-Money Laundering (AML) standards.
Blockchain also streamlines reporting processes by giving regulators direct access to a tamper-proof data source, leading to more efficient regulatory reporting and faster responses to compliance inquiries. Its decentralized nature ensures that data across multiple parties remains consistent and unaltered, greatly reducing the risk of fraud and data manipulation. Additionally, the interoperability offered by blockchain allows for a unified view of customer data across banks, crucial for effective compliance in managing cross-border transactions and multi-jurisdictional regulations.
Carbon Credits
The carbon credit market operates as a regulatory or voluntary scheme designed to reduce global carbon emissions by assigning a cost to carbon pollution. Companies, governments, or other entities can buy carbon credits to offset their own greenhouse gas emissions, with one credit typically representing the right to emit carbon dioxide or another greenhouse gas. The credit proceeds are then used to invest it into carbon offset initiatives. The carbon credit market has been under several critics regarding its complexity and lack of transparency, its effectiveness and its misuse. Several blockchain-based projects have been developed or are in development to create a more transparent, effective and measurable infrastructure, where DLT can add notable value.
Banks like NatWest, in partnership with CIBC, NAB, and Itaú Unibanco, launched Project Carbon, a voluntary carbon marketplace using the blockchain. Probably the most active bank in carbon credits so far was ANZ. The bank partnered with Grollo Carbon Ventures (GCV) to tokenize Australian Carbon Credit Units (ACCUs) using Chainlink’s Cross-Chain Interoperability Protocol (CCIP), together with Swift, leveraging their AUD stablecoin for settlement. But ANZ also partnered with Victor Smorgon Group (VSG) and ZeroCap and using the carbon trading platform BetaCarbon with the involvement of Fireblocks.
Insurance
The nature of insurance is a perfect use case for blockchain and smart contracts, which can contribute to transparent and fairer processing of claims and significant operational improvements for insurance companies. Smart contracts trigger self-enforcements when certain conditions are met and can initiate the entire processing sequence simultaneously, even for settlement and accounting. This method can also increase efficiency by reducing manual interventions in the underwriting process and help to prevent fraud and dispute resolution. Although there are currently only smaller use cases in the market, it is expected that insurance companies will gradually embrace smart contracts in their processes. The sheer volume of such processing and the extensive operational effort can significantly improve operational efficiency and costs, reduce failures, and decrease fraud and litigation expenses.
Accounting
Blockchain technology can revolutionize the accounting process in banks, especially concerning their trading activities, by embedding greater efficiency, transparency, and security into every transaction. Traditionally, accounting in banks involves multiple steps of verification, reconciliation, and audit to ensure accuracy and compliance. With blockchain, these processes are transformed since every transaction is recorded on a decentralized ledger, visible to all parties but immutable and tamper-proof. This feature reduces the time and cost associated with reconciliations, which are often complex and error-prone in conventional systems. Blockchain-based accounting systems enable the real-time recording of transactions when trades are executed, entries are instantaneously logged into the ledger, providing up-to-date financial information. This capability is crucial for dynamic trading environments where timely data is essential for decision-making. Since the ledger is updated in real time and is consistent across all nodes, the need for manual reconciliation across different records is eliminated, reducing the administrative burden and potential for discrepancies. Auditors can quickly verify the authenticity and integrity of financial records without sifting through piles of paperwork or multiple digital records, making audits more efficient and less susceptible to fraud.
Institutional Blockchain Adoption – The Top 30 Global Banks on the Forefront
To dive more into the detailed use cases of the Top 30 Global Banks Blockchain Adoption read our full research article: Institutional Blockchain Adoption – The Top 30 List of Global Banks on the Forefront
