The "Open Scheme" of Traditional Finance Going On-Chain: Why is the Crypto Embraced by Giants Doomed to Fail?
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The "Open Scheme" of Traditional Finance Going On-Chain: Why is the Crypto Embraced by Giants Doomed to Fail?
The so-called "on-chain" initiatives by traditional financial institutions often betray the spirit of decentralization; a true crypto revolution must transcend existing power structures.
Navigating Web3 tides with focused insightsWritten by: Omid Malekan
Compiled by: AididiaoJP, Foresight News
This is a warning: as traditional finance gradually embraces blockchain, the actions of the largest financial intermediaries are likely to precisely signal future failure. The more enthusiastically they embrace a particular form of the crypto world, the less likely that form is to truly succeed.
Those giant exchanges, clearinghouses, banks, brokers, and payment providers. These household names will frequently make headlines in the coming year for their "cautious" embrace of blockchain.
How these institutions "go on-chain" primarily reflects their desire to maintain their own power and profits, rather than revealing some truth about the crypto future.
This is not a criticism of these institutions, nor is it some ideological conspiracy theory. Firstly, it is an extension of a core principle underpinning the entire crypto world: incentives determine behavior. Secondly, it acknowledges a fundamental contradiction that all leaders of these institutions must face and resolve.
Their power and profits stem from their central position in the financial infrastructure "pipeline." A combination of system design and regulatory moats allows them to earn enormous profits in an environment with almost no competition. The architecture of traditional finance created specific "pipeline systems," and they control the critical pipelines. For decades, they have been consolidating this control.
The Depository Trust & Clearing Corporation (DTCC) is 53 years old, Visa is 67 years old, SWIFT is over 50 years old, and even the largest banks are centuries old.
Throughout the careers of the current managers of these institutions, they have never faced a genuine existential threat. True, Visa and Mastercard compete in the premium credit card space, and major banks vie for rankings in foreign exchange trading volume, but their leaders have never worried about being completely eliminated, never.
These companies' trillions in market capitalization, hundreds of billions in revenue, and executives' multi-million dollar compensation all stem from a single fact: there is only one financial system, and their position within it is almost unshakable.
Then, the crypto world emerged. It is a second, and currently completely independent, system. Moreover, its core goal is precisely to change the architecture of finance, creating a "pipeline system" where the most important "pipelines" are not privately owned by anyone but are open to all.
The censorship resistance of decentralized systems protects not only users but also builders and competitors. This characteristic ensures a competitive fluidity long absent from traditional finance.
Any entrepreneur can connect to Ethereum to process payments or, going further, build their own payment service. But almost no entrepreneur can connect to the Federal Reserve's Fedwire system. Therefore, to start a company to compete with a correspondent bank like JPMorgan Chase, you must first become a client of JPMorgan Chase.
Similarly, any tokenization startup globally can connect to permissionless blockchains like Ethereum. But no startup can connect to the National Securities Clearing Corporation (NSCC), which is at the heart of U.S. stock clearing and part of the DTCC. Startups can only access this infrastructure through clearing brokers like The Bank of New York Mellon (BNY).
Now guess who owns and manages the DTCC? The answer is precisely clearing brokers like The Bank of New York Mellon.
Most people don't realize how anti-competitive the core "pipelines" of traditional finance are. Using an internet analogy, it would be as if a few companies like Google and Amazon owned all the web servers, and the only way to compete with them in advertising or e-commerce would be to pay them.
So, when the crypto world has become too important to ignore, what will these entrenched industry giants, sitting on massive profits and long unaccustomed to competition, do?
Will they voluntarily give up power and profits? Voluntarily leap from the comfort of owning all infrastructure with no competitive pressure into a fiercely competitive "hell"? Lower the drawbridge on their efficient moats and invite invaders in? Decide to earn less money, watch their stock price fall, and take smaller bonuses?
I don't think so.
But don't just take my word for it. Put yourself in their shoes and imagine what the smart people running these institutions would think.
You run a subsidiary of the DTCC, arguably one of the most centralized companies on Earth, its monopoly protected by half a century of securities laws. Would you embrace a tokenization solution built on Ethereum, a platform where anyone can compete with you? Or would you throw your weight behind a corporate chain whose leadership has been whispering sweet nothings in your ear for years?
"My chain is permissioned. I decide who can validate transactions, who can use it, what the fees are, who can see the data, even the supply of my native token. I hold all the power. I could invite anyone to join my network, but I chose you..."
Now, put yourself in the shoes of the leaders of the largest traditional financial exchanges and payment processors. Would you choose to embrace the version of crypto that someone like me expects? The decentralized, censorship-resistant version that allows everyone from crypto-native startups to non-financial industry giants (Google? Meta? Walmart?) to compete with you head-on?
Or would you embrace the version based on the premise that "your company is significant today and must remain so in the future"?
"I've worked in your industry for decades. I wear the same suits, the same Patagonia vests. I know what you need. I designed a centralized blockchain that lets you keep your power and dominance. My goal isn't to disrupt or replace you, but to help you become more efficient."
Traditional financial institutions are large and bureaucratic. They employ many smart people, some of whom genuinely "understand" the social benefits that permissionless infrastructure, smart contracts, and tokenization can bring. But their leaders reached their positions precisely because they deeply understood and embraced centralization.
So, what if you are the CEO of one of the world's largest banks, sitting atop a brand-new skyscraper? For years, you've publicly opposed cryptocurrency, calling it fraud and a tool for crime. Some of your younger executives disagree; they are bullish on Bitcoin, Ethereum, Solana, and want the company to move in that direction. But then, a more senior, higher-ranking executive presents you with another proposal:
"Blockchain technology is good, but decentralization is bad. Let's build or control a centralized blockchain for our own customers. We can offer tokens and smart contracts, but we control everything. We are the world's greatest bank. True social good comes from us being in control."
As the CEO, which one would you choose?
As 2025 draws to a close, my final piece of advice for everyone is: be wary of the "signals" these institutions try to send during their "on-chain" journey. The "version of crypto" they embrace, champion, fund, and lobby for is unlikely to be the one that ultimately prevails.
I am convinced that the vision they favor is destined to fail.
If you want to be a "suit-chaser," go ahead, but history will not look kindly upon it. A blockchain without decentralization is meaningless.
This is not to say centralization itself is bad or must be abolished in all areas. Rather, it doesn't belong on-chain. That the leaders of the largest traditional financial institutions don't think so is irrelevant. To give them some credit: they are merely acting in their own self-interest.
So, what's your excuse?
As traditional finance gradually goes on-chain, the actions of the largest intermediaries are precisely a counter-indicator of the future's true form. The more enthusiastically they embrace a particular form of the crypto world, the less likely that form is to succeed.
The future will inevitably be fundamentally different from the past.
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