Banks must integrate these 5 crypto services in order not to be left behind

It’s five to twelve for the banking world. There is practically no question that tokenization is revolutionizing our financial system. At the same time, there are only a few presentable commercial offers. To ensure that banks are not left behind by the crypto economy, the following five measures must be implemented promptly.

1) Buy crypto

Banks have seen outflows of funds to crypto exchanges for years. Very few have done anything about it so far. While universal banks offer their customers securities or securities accounts, they do not offer any cryptocurrencies, with very few exceptions.

In order to stop further outflows of funds, buying bitcoin through the bank must become as natural as buying a DAX ETF or a home savings contract. Financial institutions that do not have sufficient technical know-how can already rely on technology service providers such as DWP Bank or Bitpanda Technology Solutions. The excuse “cannot be done” is no longer credible in 2023.

2) Digital Securities

We are already seeing more and more securities being issued in digital form. At present, it is still primarily digital bonds that are issued by Deutsche Bank, Deka or Hauck Aufhäuser Lampe, for example. Here the list of all electronic securities issued to date, i.e. crypto securities according to the eWpG. Of course, one can also add the security tokens, which in many cases also embody bonds or hybrid equity.

In short: Sooner or later, all securities will only exist in tokenized form and will replace the documentary securitization. The only issue here is whether this happens on public blockchains like Ethereum and Polygon or on closed systems like Swiat from the savings banks or the recently founded Canton Network.

However, the trend here is towards open systems (public blockchains) in order not to limit themselves and to be able to dock to DeFi protocols. Banks that are not able to offer token-based securities or integrate them into their systems in a timely manner have slept on the subject of digitization.

3) Token custody

Just as a bank offers its customers safe deposit boxes, bank accounts and securities accounts, it logically also needs a custody offer for tokens. If documents, money and securities are embodied by tokens, the infrastructure of the banks must follow suit. Otherwise there is a risk of customers leaving here too.

In the form of asset-agnostic wallets – whether for NFTs, Bitcoin, the digital euro or securities – customers must be given the opportunity to continue to access all financial matters from their house bank. To do this, banks do not have to reinvent the wheel, but can work with blockchain infrastructure service providers such as Metaco, Fireblocks or Tangany.

4) Stablecoins

In their own interest, banks should be much more committed to issuing tokenized bank money or stablecoins. Even if the ECB cannot prevent the digital euro, it would be extremely problematic if it were the central bank that sets the standards here. After all, innovation is neither a core competence of central banks nor should it be in the interests of banks if their customers prefer to park their capital with the central bank. Not to mention the possible risks for our monetary system – see the increasing degree of centralization and increased liquidity risks. In the end, authority to interpret infrastructure standards also means market power. Most banks do far too little to keep them.

Tokenized fiat money in particular offers outstanding processing properties, be it for international payment transactions or, in the future, for securities transactions. The fact that primarily crypto banks such as Sygnum or Seba Bank have such blockchain-based projects in the DACH region is clearly not enough. Instead, the German banking industry loses itself in the small-small and flirts with pseudo-blockchain solutions. Too much compromise, too little real innovation.

5) Loans on blockchain infrastructure

As the name credit institution already suggests, the main task of banks is to grant credit and thus to create money. Against the background of tokenization, it therefore only seems logical if work is also being carried out on the first blockchain-based implementations.

At present, token-based lending offerings may be under-explored compared to other services such as tokenization and custody. However, this does not change the future meaning. Credit services in connection with tokens have so far been the exception and are only offered by a few crypto banks. Instead of pointing the finger at insolvent crypto lending services like Celsius or BlockFi, a proactive and constructive approach would be the order of the day.