Citi Says Identity Is the New Gatekeeper for Financial Blockchains

Blockchain’s founding principles centered on being “trustless”: A system where cryptography and consensus replaced intermediaries, regulators and centralized control.

While that framing resonated in crypto-native circles, it rang alarm bells elsewhere.

Trust is the fundamental force that underpins money movement, global commerce, and the broader financial economy. For financial institutions and market infrastructure providers, trust is not something to eliminate but something to formalize, audit, govern and propagate.

But while early blockchain networks may have treated identity as an external concern, even privileging anonymity, findings in the December 2025 edition of the “Blockchain and Digital Assets Tracker® Series,” a PYMNTS Intelligence collaboration with Citi, suggest that blockchain solutions are now being designed with embedded identity, compliance and risk controls.

This shift is not philosophical. It is commercial. Without integrated security and identity controls, blockchain cannot move beyond experimentation in regulated markets. With them, it can, allowing on-chain financial and blockchain payment solutions to function within existing regulatory frameworks rather than outside them.

The result is an emerging new class of networks that aim to preserve the efficiency gains of distributed ledgers while meeting the standards required of systemically important financial infrastructure.

Identity Bottleneck

Security discussions around blockchain often focus on custody: how digital assets are stored, protected and insured. While custody remains critical, the report underscored how institutional blockchain security and identity are expanding into a broader concept of transactional and network security.

After all, for many institutions, the hardest part of adopting blockchain is not integrating the technology itself but the approval process to even get started. Risk committees, compliance teams, auditors and regulators all need confidence that new systems will not introduce unacceptable exposure. Networks that can demonstrate built-in compliance controls may shorten these conversations dramatically.

The reason? In traditional finance, identity is foundational. Every account, transaction, and counterparty relationship is anchored in know-your-customer (KYC), anti-money laundering (AML), and sanctions screening processes. These controls are deeply embedded in institutional workflows, enforced by regulation, and reinforced by risk management culture.

This is why, as the report found, that adoption is happening in narrow, high-confidence use cases rather than sweeping transformations. Institutions are starting with applications where regulatory clarity is highest and operational gains are easiest to measure: internal treasury movements, interbank settlement, collateral management, and fund administration.

Read the report: Building the Blockchain Blueprint: How Leading FIs Are Modernizing Money, Markets and Trust

Cross-border payments and settlement continue to be a focus, particularly in wholesale contexts. Identity-aware networks reduce counterparty risk and compliance friction, making it easier to move value across jurisdictions without relying on slow, opaque correspondent banking chains.

Still, embedding security and identity into blockchain networks is not without trade-offs. Privacy remains a central concern. Institutions must balance transparency for regulators with confidentiality for clients and counterparties. Techniques such as zero-knowledge proofs and selective disclosure are promising, but they add complexity and remain unfamiliar to many risk teams.

Interoperability is another challenge. As networks become more permissioned and specialized, the risk of fragmentation grows. The industry’s task is to ensure that identity and compliance frameworks can interoperate across networks, rather than locking participants into isolated ecosystems.

This evolution may lack the drama of earlier crypto narratives, but it is far more consequential. By aligning distributed ledger technology with the realities of regulation and risk management, the industry is laying the groundwork for durable adoption. The report found that, rather than a disruptive alternative to existing systems, institutional blockchain is increasingly serving to facilitate a reliable trust infrastructure that embeds security, identity and compliance into the mechanics of value transfer.