For over a decade, financial institutions have struggled to integrate digital asset technology into their operations. Despite their enthusiasm for blockchain, the total value of blockchain-based finance remains less than 1% of the $300 trillion global financial system. Many in the industry secretly hope that cryptocurrency will prove to be a passing fad, allowing them to maintain their traditional business models.
However, at Franklin Templeton, an 80-year-old publicly traded financial institution, we understand that embracing digital asset technology is a daunting task. It requires altering fee structures, rethinking product offerings, and potentially disrupting near-term balance sheets. Our previous attempts to experiment with blockchain were unsuccessful, but recent developments have changed the landscape profoundly.
The Evolution of Public Blockchains
Public blockchains have evolved into hyper-efficient coordination machines that are poised to replace aspects of legacy financial infrastructure. Solana, one of the first institutionally focused blockchains, can process almost 65,000 transactions per second, comparable to the Visa network. Newer blockchains like Sui have shown even faster transaction rates. With upcoming upgrades, public blockchains may soon be able to handle hundreds of thousands to millions of transactions per second.
Decentralized exchanges, such as Uniswap, are gaining traction, processing trillions of dollars in transactions annually. These systems have become faster, more secure, and better at verifying identity and asset ownership. For instance, blockchain-based systems can calculate and pay out intraday yield if a tokenized security is transferred or traded throughout the day, 7 days a week, 365 days a year.
A New Era for Investors and Traders
The changes brought about by blockchain technology will benefit investors and traders. Decentralized exchanges can integrate global markets, making them more efficient and accessible. The current process of finalizing transactions can take a day or more, creating imbalanced and often unfair outcomes. Blockchain-based systems can enable more accurate and reliable cash flows.
In the future, portfolios will likely move away from traditional account-based systems and rely on digital wallets that can hold a limitless number of tokenized assets. Blockchains may also offer new financial options for homeowners, such as using portions of home equity to pay premiums on income-generating annuity products.
Adapting to Change
Adapting to these rapid technological changes will require meaningful adjustments to how legacy institutions conduct business and make money. There will be winners and losers. The advantages of blockchain are so compelling that we don’t foresee the shift to digital asset technology being slow or incremental. Indeed, we expect our industry will evolve more in the next five years than in the last 50.
The pressing question is whether financial institutions will choose to embrace the digital asset wave, actively fight it, or ignore it. As the industry continues to evolve, it’s clear that blockchain technology will play a significant role in shaping its future.
