Banking Giants Trade Stability For High Speed Liquidity

Driven by a need to modernise ageing infrastructure and reclaim margins lost to fintech disruptors, the world’s largest financial institutions are aggressively integrating blockchain rails into their core operations. However, the shift from a T+2 settlement cycle to 24/7 onchain liquidity is creating a structural tension that regulators and the institutions themselves are only beginning to acknowledge. While the benefits of instant finance are being marketed as a new golden era, the removal of traditional friction suggests a prioritisation of speed that could challenge the established safety protocols that have defined banking for a century.

Embracing the new speed of money

The momentum behind this transition is global in scale. In late 2025, a trio of banking heavyweights, Goldman Sachs, UBS and Citi, announced they were actively exploring the issuance of their own stablecoins pegged to G7 currencies. This represented a fundamental shift from speculative pilots to the creation of institutional grade payment instruments. Even long-time sceptics have been forced to re-evaluate their positions. Jamie Dimon, the chairman of JP Morgan Chase, has famously spent years dismissing the sector. Yet in October 2025, Dimon admitted that blockchain is "real" as his bank expanded its own tokenisation efforts through JPM Coin.

In the UK, the retail sector is moving with similar speed. Lloyds Banking Group executed its first blockchain transaction this month. It used the technology to purchase government bonds with tokenized deposits. For executives like Jeff Sinnott, CEO of Vantage Bank, the business case is purely mathematical. Speaking at the Federal Reserve’s Community Banking conference in October, Sinnott highlighted that flipping between a tokenized deposit and a stablecoin for an international transfer can reduce costs from $6.78 to a mere 28 cents. He described the integration of blockchain as an opportunity for a golden era for banking. This is particularly true for smaller institutions that hope to compete on a level playing field with global giants.

A systemic warning from the IMF

Despite the enthusiasm from the trading desks, the International Monetary Fund (IMF) has issued a sobering counterpoint. In a report published in December, the IMF warned that blockchain tools like stablecoins could introduce systemic risks into the global banking system. The core of the argument is that friction acts as a vital shock absorber for the system. By removing the time required to settle a trade, banks are removing the time they have to react to a crisis.

The memory of the 2023 collapse of Silvergate Bank serves as a primary piece of evidence for these concerns. Hit by a bank run in the wake of the FTX bankruptcy, Silvergate saw billions of dollars in deposits exit the system in a matter of hours through its instant settlement service. Traditional banking is built on the practice of investing deposits into longer-term assets. In a 24/7 world, those deposits can vanish before the bank can liquidate its holdings. Silvergate was forced to sell off assets at a significant loss. This led to a voluntary liquidation that shook the US banking system. The episode underscored how quickly liquidity stress can propagate when deposits are mobile within a frictionless system.

The burden of legacy technology debt

One of the most significant risks to this new era of banking is the legacy debt that institutions are carrying. Most traditional banks operate on core systems designed in the 1970s and 1980s. These systems update their ledgers once a day. They were never intended to interact with a public, permissionless blockchain. Caitlin Long, CEO of Custodia Bank, has been a vocal critic of the industry’s attempt to bolt new technology onto old infrastructure.

In an exclusive call with Sandmark, Long warned that the disparity is reaching a breaking point. "The legacy technology debt that especially the small banks have is a big issue," she said. Long has spent years navigating the regulatory hurdles of the Federal Reserve. She explained that integrating modern banking cores to existing infrastructure requires a significant amount of middleware. This often creates new vulnerabilities. "If the banking industry does not start offering those modern experiences and sticks with these 20 year old interfaces, I think they will have some challenges," she told Sandmark. At the end of the day, users vote with their feet.

Privacy as the new institutional weapon

To combat the inherent transparency of blockchain, banks are looking toward programmable privacy. This allows them to maintain the speed of the new technology while retaining the opacity that has long been the status quo in traditional finance. Melvis Langyintuo, Executive Director of the Canton Foundation, told Sandmark that the composability of these networks is the key to their long-term roadmap. Unlike traditional infrastructure, where data is trapped in silos and isolated technologies, networks like Canton allow banks to interact on a shared ledger.

Banks are not sacrificing transparency for interoperability. They are engineering privacy into open systems to ensure they do not have to change their secretive ways. By using programmable privacy, they can operate what are effectively digital dark pools. Massive blocks of securities can be traded with zero visibility to the public market. This protects the bank from front-running by other traders. It also creates a shadow ledger that is invisible to independent auditors. As Lloyds and other  Swiss banks trial deposit tokens on blockchain, the industry is moving toward a system that remains as opaque as it is efficient

The $6.6tn battle for survival

The competition for deposits has evolved into a battle for survival. Large crypto exchanges and fintech firms like PayPal are currently advertising yields on stablecoins that dwarf the interest rates of average bank deposits. This has triggered a rewards war that is threatening the stability of community banks across the US. The American Bankers Association's Community Bankers Council recently flagged a $6.6tn risk to banking deposits if this trend continues.

This $6.6tn figure represents the looming threat of deposit flight. If users continue to move their cash from traditional bank accounts to higher-yielding onchain alternatives, the foundation of community lending could crumble. The GENIUS Act was intended to address some of these issues by limiting how stablecoin issuers hold their reserves. Long noted that while the act targeted the Circle problem exposed during the Silicon Valley Bank collapse, it has not stopped firms from offering shadow interest rates. They use loyalty points and incentives to bypass the law. For the banking industry, the choice is clear. They must modernise the infrastructure or watch the capital migrate to more aggressive onchain alternatives.

Conclusion: the cost of friction

The challenge facing the global banking system is whether it can develop the technical and governance capacity required to use blockchain safely. "In the banking world everything gets done slowly and deliberately," Long told Sandmark. She contrasted this with the move fast and break things ethos of the crypto sector. The removal of friction may prove to be the most destabilising event in modern banking history.

Traditional banking has always used friction to absorb potential stressors. By eliminating that friction in a rush for efficiency, institutions may find they have built a system where contagion moves as fast as the transactions. In this possible new era, the lasting advantage will belong to the institutions that recognise that speed is often the greatest risk of all.