The onchain financial stack that will reshape Banking
What if….public ledgers became the core ledger for the next wave of banks?
Onchain banking represents a radical departure from traditional financial institutions, not merely as a novel technology layer but as a redefinition of core banking principles. Where legacy banks rely on centralized databases, proprietary control, and a fragmented global infrastructure, onchain banks leverage blockchain as a foundational ledger, offering transparency, programmability, and seamless interoperability. This transformation touches every aspect of banking, from user experience to backend architecture. Let’s break down the building blocks of the onchain bank and how they upend the status quo.
1. User experience: seamless, global, and instant
The user journey begins with simplicity and scalability in mind. Traditional banks often silo accounts based on local jurisdictions, requiring multiple logins, currency conversions, and tedious onboarding processes.
Streamlined onboarding: Users can sign up once, undergo a single KYC process, and gain instant access to local bank accounts across multiple countries. Fiat deposits are auto-converted into stablecoins, eliminating friction.
Multi-Currency flexibility: Instead of cumbersome forex and corresponding banking accounts, users can easily create multi-currency wallets, holding local stablecoins pegged to different fiat currencies.
Onchain ledger: The bank account itself, along with its transaction history, is fully onchain. This not only ensures transparency but also allows for programmable financial logic embedded directly into the account.
The result: A global, borderless financial experience that adapts to the user’s needs without the constraints of legacy banking systems.
2. Payments: frictionless transactions
Payment systems in traditional banking are plagued by high fees, lengthy settlement times, and reliance on intermediaries. Onchain banks streamline the entire process using stablecoins and smart contracts.
Stablecoin-powered cards: Users receive debit or credit cards linked directly to their stablecoin accounts, offering rewards and cashback without the need for manual currency conversion.
Instant payments: Transactions are processed in real-time, with stablecoins auto-converted to fiat as needed. The payment experience remains seamless whether the user is spending locally or internationally.
Cross-border efficiency: Cross-border payments leverage stablecoins, achieving near-instant settlement at interbank rates, available 24/7/365. This bypasses the traditional SWIFT network and reduces costs.
The impact: By integrating stablecoins into everyday spending, onchain banks deliver faster, cheaper, and more transparent transactions, redefining the user’s payment experience.
3. Invest: Integrated DeFi
Traditional banks compartmentalize saving and investment products, creating barriers for users looking to optimize their assets. Onchain banks, by contrast, offer composable financial services that integrate seamlessly.
Yield-Bearing savings accounts: User deposits are automatically allocated into tokenized money market funds (MMFs) or other high-yield DeFi products, providing superior returns and/or lower execution costs compared to traditional savings accounts.
Unified investment platform: Users can directly link their bank accounts to decentralized exchanges and access a wide range of assets—crypto, stocks, ETFs, and bonds—without leaving the banking interface.
Automated strategies: Intelligent automation features allow users to set up rules, such as converting excess salary into investments or rounding up purchases for savings contributions.
The advantage: Onchain banks eliminate the complexity of managing multiple accounts, providing a unified platform where users can effortlessly save and invest, tapping into global markets and DeFi yields. While US FinTech users may already benefit from some of these features inside certain apps, these functionalities are not widespread and often obtained by stacking different services on top of each other. Imagine if this was natively built and accessed on-chain: no complex agreements, no counterparty risks, no complex settlement and reconciliation operation.
4. Embedded KYC
Traditional KYC processes are inefficient and repetitive. Each financial institution conducts its own verification, creating redundancy and significant user friction. This persists because it serves as a defensive moat—banks benefit from controlling KYC, as verified customers are less likely to switch providers: instead of locking users behind repeated verifications, the KYC data can be embedded within a digital identity token that travels with the user’s assets. After a one-time KYC process, users can access the financial system, without the need of repeating the process.
New Incentive structure: While this model dissolves traditional KYC moats, it introduces a novel market-driven incentive. The financial institution that performs the initial KYC can receive rewards each time the verified identity token is used by other participants. This encourages thorough and high-quality KYC, benefiting the entire network and reducing friction.
Trustless verification: Onchain KYC tokens are verifiable without manual cross-checks. Any institution can independently confirm the authenticity of the token onchain, streamlining compliance, reducing latency, and shifting the KYC model from siloed verification to a single, portable identity solution that works across the entire financial ecosystem.
Selective disclosure: The digital identity token allows for context-specific information sharing. Users can reveal only what is necessary—such as confirming age without disclosing their full date of birth—granting greater control.
The Result: A streamlined, privacy-first approach to KYC that reduces compliance costs, enhances user experience, and creates a more fluid, interconnected financial environment. All while rewarding who ‘does the job’.
5. Banking Core
Unlike traditional core banking systems, which rely on siloed databases and sometimes outdated technology stacks, onchain banks are built on a decentralized ledger, providing a unified, programmable backend.
Blockchain as Core Ledger: The transaction history is stored directly onchain, ensuring immutability, transparency, and real-time access.
Multi-approval wallets: Bank accounts are implemented as multi-approval wallets, offering both custodial and non-custodial options for users, balancing security and flexibility.
Abstracted chains & fiat rails: Cross-chain functionality and fiat on/off ramps are integrated seamlessly, abstracting away the complexity for users. Partnerships with global banking networks enable smooth fiat interoperability.
The edge: A resilient, transparent infrastructure that reduces operational overhead and enhances the scalability of financial products, allowing for rapid innovation. Use fiat or tokens, seamlessly, based on what is best for that use case.
Bridging vision and reality
The potential for onchain banking and decentralized identity is immense, but several critical barriers remain, largely driven by misaligned incentives, regulatory constraints, and integration challenges:
Incentive Misalignment: The current financial system’s reliance on centralized control gives incumbents strong incentives to preserve the status quo, as banks benefit from exclusive user data access, high transaction fees, and the loyalty driven by proprietary services. In contrast, onchain banking leverages decentralized infrastructure, breaking down barriers between financial services and threatening established revenue streams like cross-border fees and asset custody—leading to resistance from traditional players. Smaller fintechs face additional challenges due to their limited scale, struggling against the bundled offerings and network effects of large incumbents. With no immediate financial rewards or a clear business case for onchain integration, widespread adoption remains elusive, requiring a fundamental shift in value creation towards shared, network-wide efficiencies.
Regulatory Barriers: The regulatory landscape is misaligned with the architecture of onchain financial systems. For instance, Bank Secrecy Act (BSA) regulations require centralized monitoring and reporting of transactions, clashing with the decentralized, peer-to-peer nature of onchain transfers. GDPR and other data protection regulations emphasize user consent and data minimization, complicating the implementation of a model where identity and transaction data flow across multiple platforms. These legal frameworks were designed for a centralized system and don’t yet account for the dynamic, borderless nature of onchain banking. Adapting regulations to support decentralized identity and financial services would require a paradigm shift in how compliance is enforced—something that is unlikely to happen in the near term, given the slow pace of legislative change.
Integration Gaps: Despite progress in blockchain interoperability and fiat on/off ramp solutions, the integration between onchain and traditional finance remains inadequate. User experience suffers from the fragmentation of services, with inconsistent interfaces and complicated processes for converting assets between fiat and crypto. The difference in risk management practices is a significant barrier. Traditional financial systems rely on centralized oversight, batch processing, and delayed settlement, which are fundamentally at odds with the real-time, transparent nature of onchain transactions. To achieve seamless integration, the industry must develop standardized compliance protocols, improve UX design, and establish reliable interoperability frameworks that can bridge the gap between legacy banking and decentralized finance.
Conclusion: The path forward for onchain banks
The promise of onchain banking is clear: a unified, decentralized financial ecosystem that offers superior transparency, efficiency, and user control. However, realizing this vision requires overcoming significant regulatory and integration challenges. The current financial system’s incentives, entrenched compliance frameworks, and fragmented infrastructure stand in the way of mainstream adoption. For now, hybrid models that integrate select onchain components may provide the most credible path to market, demonstrating the advantages while navigating regulatory uncertainties.
Despite these hurdles, the momentum is building. As user demand for transparency and control grows, and as fintech innovators continue to push the boundaries, onchain banking is set to redefine the financial industry. It’s no longer a question of if, but when the paradigm will shift, unlocking a new era of banking that truly reflects the decentralized, interconnected world we live in.