Can Crypto’s Open Network Dreams Survive Going Corporate?

The reality of financial blockchain adoption is turning out to be a very different story than the permissionless approach the digital asset space was built atop philosophically.

Institutions including JPMorgan Chase, Goldman Sachs, Citi, HSBC and BNY Mellon have all launched blockchain-based platforms aimed at institutional finance, but these solutions rarely resemble the open, decentralized systems envisioned by early crypto advocates.

The most consistent pattern across bank blockchain products, in fact, has been that they do not use open permissionless networks as their primary infrastructure at all.

At least, that was until last week, when Kraken Financial, the Wyoming-chartered bank of the Kraken cryptocurrency exchange, was granted a Federal Reserve master account by the Federal Reserve Bank of Kansas City.

“We’re the bankers now,” Jesse Powell, co-founder and chairman of Kraken, posted on social platform X.

Days later, Kraken parent Payward launched a tokenization-focused partnership with Nasdaq to allow tokenized equities to smoothly flow between permissioned institutional markets and permissionless DeFi spaces.

As the blockchain sector starts to institutionalize, understanding the technical structure of various offerings and products is becoming increasingly useful for teams across payments, finance and treasury.

See also: Why Banks Want to Issue Stablecoins

The Permissionless Ideals of Web3 Meet Wall Street’s Economic Reality

In its earliest phase, cryptocurrency was often framed as an alternative to the traditional financial system. Advocates argued that blockchain networks could bypass banks, reduce reliance on government-issued currencies and create a decentralized monetary architecture.

Today, however, the trajectory of blockchain adoption looks markedly different. Banks see blockchain less as a new currency system and more as a new settlement layer for traditional assets. As a result, the systems gaining traction are often far more controlled than the open networks that originally defined the industry.

Many institutional launches today fall into three categories:

Permissioned blockchains: a distributed ledger where only approved participants can join, validate transactions and view data.

Tokenized versions of traditional assets: underlying assets still exist in the traditional financial system, but ownership is digitally mirrored on-chain to enable real-time transfer and settlement capabilities.

Closed institutional settlement networks: designed to improve how institutions move money between themselves, not to create open financial markets.

These systems typically run on private distributed ledgers or controlled networks.

In practice, critics allege they can resemble distributed databases with blockchain branding, but even companies that once championed open blockchain networks are exploring more closed models.

Kraken’s parent company, for example, will need to provide a tradfi layer on top of its new DeFi gateway. The pact with Nasdaq specifies that the company will serve as the “primary settlement layer for these transactions in eligible jurisdictions … providing KYC and AML onboarding compliance.”

Read more: Stablecoins Face Tax-Time Reckoning as GENIUS Act Sets Compliance Bar

Where Real Transformation is Happening Above the Surface

As the digital payments ecosystem evolves, stablecoins and other tokenized payment systems increasingly require compliance frameworks, identity verification and integration with existing financial networks. Many of these systems involve some degree of permissioning, whether through issuer controls, compliance layers or restricted participation.

Public blockchains, with their anonymous wallets and global accessibility, can create challenges for institutions operating within strict compliance frameworks.

Most tokenization experiments, for example, still rely on traditional legal infrastructure where custodians hold the real asset, tokens represent a claim, and regulators control distribution. This means that the token is often a digital wrapper around an existing financial instrument, not a fundamentally new asset class.

“The real opportunity isn’t about chasing the buzzwords, but it’s more about being disciplined, identifying where stablecoins truly outperform a so-called legacy payment system,” Bryce Jurss, vice president, head of Americas, digital assets at Nuvei, told PYMNTS in an earlier discussion.

At the same time, if the structure of the emerging blockchain financial system appears to be one that is increasingly influenced by the traditional financial sector, the same can be said of the digital asset space’s influence on the traditional financial system.

The U.S. Office of the Comptroller of the Currency (OCC) has received upwards of a dozen new digital asset licensing applications from entities planning to offer digital asset products or services.

Even Morgan Stanley has applied for one.