Traditional banking vs. crypto banks: The road ahead

Finextra

09-07-2025

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This content is contributed or sourced from third parties but has been subject to Finextra editorial review.
The rise of cryptocurrency since 2008 shook the world of traditional banking. What began as skepticism and denial has evolved into cautious acceptance, as institutions and retailers have seen the potential of crypto – not only as an asset class, but as infrastructure. Traditional banks are increasingly playing catch-up in a system that is being rewritten in real time.
Legislative efforts like the GENIUS Act in the U.S. point to a growing momentum toward regulated, institutional-grade crypto infrastructure. Stablecoins are already used for real-time settlements. ETFs are opening the door to mainstream investors, and crypto native businesses are building a parallel economy that doesn't fit neatly into traditional banking boxes.
Even banks that don't offer crypto products need to be aware of second-order risks:
Counterparty exposure to crypto-native institutions.
Regulatory arbitrage as clients seek yield through decentralised finance (DeFi).
Reputational risk from associations with volatile or underregulated actors.
In reality, the crypto economy doesn't exist in isolation. Its risks and opportunities are bleeding into traditional finance, whether institutions are ready or not.
Traditional banking and neobanks: What they offer (and what they don't)
For customers, the choice between traditional banks and neobanks comes down to preferences and priorities. Traditional banks still dominate in terms of product breadth, offering everything from savings accounts and loans to wealth management and insurance. These services are dependent on the fiat currency, legacy payment rails, and deeply entrenched, compliance-heavy processes.
Neobanks, in contrast, focus on doing a few things exceptionally well: simplified savings, real-time payments, budgeting tools, and niche lending products. While many neobanks partner with licensed traditional banks to offer services like deposit insurance, they are clearly reshaping customer expectations and experiences.
Some traditional banks have dipped their toes into digital assets, offering custody services or launching crypto-linked ETFs, but the engagement remains cautious and limited. Institutional frameworks for risk, compliance, and capital requirements are not yet built to accommodate the volatility and complexity of the crypto ecosystem.
This leaves a major gap: crypto-related businesses seeking banking services are often left in the cold. Despite holding crypto reserves that, at times, rival fiat currencies in value, many blockchain startups, miners, DeFi projects, and even merchants accepting crypto payments face significant barriers:
Difficulty opening bank accounts,
Limited access to payment gateway, and
Roadblocks to raising capital or securing credit lines.
Traditional banks, even progressive ones, lack the regulatory clarity and internal frameworks to bank crypto-native firms effectively.
Crypto banks: The new frontier of finance
The concept of a 'crypto bank' gained traction in the mid-2010s as blockchain technology started expanding beyond its origins in digital currency. At its core, a crypto bank is a licensed financial institution offering traditional banking services alongside crypto-native functionalities. This may include secure custody of digital assets, crypto trading, lending, staking services, and seamless fiat-to-crypto conversions.
Operating in a hybrid model, these institutions enable individuals and businesses to manage both fiat and digital assets under one roof. In 2019, Switzerland's Financial Market Supervisory Authority (FINMA) became the world's first regulator to grant crypto banking licenses, setting a precedent for a more regulated and institutionally accepted crypto-banking ecosystem.
What do crypto banks offer as opposed to other FIs?
Crypto banks are uniquely equipped to support the growing digital asset economy for several reasons.
Native expertise: These institutions are built on a foundational understanding of blockchain protocols, crypto trading mechanics, tokenomics, DeFi risks, and network security. Unlike traditional banks, crypto banks were designed from the ground up for this ecosystem. Tailored services: Crypto banks offer products specifically for digital asset businesses and users, including multi-asset custody, stablecoin settlements, staking-as-a-service, and fiat on/off ramps. These services are designed with the operational needs of crypto-native companies in mind. Agility and innovation: Without the legacy infrastructure constraints that traditional banks face, crypto banks have greater freedom to experiment with emerging financial products, regulatory technologies (regtech), and programmable finance.
Early adoption has resulted in significant and measurable advantages. In 2024, AMINA Bank reported zero lending defaults over five years through proper risk management from the very beginning, while achieving 69% revenue growth and 136% increase in assets under management (AUM).
Institutional crypto adoption: Raising the stakes
Institutional investors have been entering the space with significant momentum. BlackRock's iShares ETF emerged as a dominant force, recording nearly USD 1.7 billion in inflows within just five days. Meanwhile, Fidelity posted an impressive USD 3.06 billion in trading volume during the same period. Grayscale continues to leverage its early-mover advantage and established trust in the crypto community, maintaining a critical role in institutional adoption. Corporate treasuries are increasingly allocating capital to digital assets as a hedge against currency devaluation, inflation, and systemic risk.
As more institutions engage with crypto markets, they demand a new class of banking services—ones that traditional financial institutions are not yet equipped to deliver:
Risk management infrastructure: Tools for managing the unique volatility, custody risks, and liquidity constraints of digital assets.
Crypto-backed lending: Borrowing mechanisms that use digital assets as collateral, enabling capital efficiency while retaining upside exposure.
On-chain auditing and real-time compliance: Automated tools that can trace transactions on blockchain networks, ensuring AML/CFT compliance and aligning with evolving Travel Rule requirements.
Tokenisation and asset structuring: Services to help convert real-world assets into blockchain-based tokens for enhanced liquidity and fractional ownership.
Smart contract insurance and safeguards: Guardrails that protect institutional capital deployed into DeFi platforms or yield-bearing smart contracts.
Why traditional banks are falling behind
Despite increasing interest, traditional banks remain ill-equipped to meet institutional crypto needs, such as:
Legacy infrastructure: Most banks are built on outdated core systems that were not designed to interface with blockchain networks or digital wallets.
Regulatory uncertainty: The rapidly evolving and often fragmented global regulatory environment makes many banks risk-averse when it comes to crypto services.
Custody limitations: Secure digital asset custody requires an entirely different technological stack, including multi-signature wallets, cold storage protocols, and hardware security modules, areas where most traditional banks lack in-house capabilities.
Lack of domain expertise: Traditional financial institutions often do not have the in-house knowledge of decentralised finance, smart contract architecture, or tokenomics, making it difficult to assess and offer crypto-native products.
Reputation risk: Many banks fear the reputational consequences of associating with volatile or less-regulated digital asset markets, especially as public and political scrutiny remains high.
Slow innovation cycles: Heavily regulated and often bureaucratic, legacy banks are unable to match the pace of innovation seen in the crypto-native sector.
The road ahead: What will banking look like in 5–10 Years?
Rather than a total replacement of traditional finance, we are seeing the early signs of parallel banking ecosystems:
Traditional banks will continue to serve fiat-based needs and legacy clients, but increasingly face pressure to modernise their infrastructure.
Crypto banks, designed from the ground up with blockchain-native frameworks, are becoming indispensable for servicing Web3 economies and digital asset businesses.
Hybrid models will emerge as neobanks and fintech platforms evolve to offer both fiat and crypto services, enabling users to hold stablecoins, earn staking yields, and access crypto-backed loans alongside traditional savings accounts.
Even banks that don't directly offer crypto to consumers may begin using blockchain technology behind the scenes—for example, to settle cross-border payments more efficiently, manage treasury liquidity, or optimise internal settlements.
Specialisation will define the next era of finance
As financial products become more complex, the traditional 'one-size-fits-all' universal bank model no longer fits. We're entering an era of financial services specialisation, where banks are tailored not by geography or scale, but by the specific needs of the sectors they serve.
Crypto banks are perhaps the most prominent example of this specialisation. Equipped with blockchain-native infrastructure, digital asset custody capabilities, and deep understanding of smart contracts; crypto banks address market gaps that traditional banks have overlooked while driving innovation and competitive pressure across the financial system.
Crypto banks are a necessity—Not just a niche
As the blockchain economy continues to grow, crypto banks are not a luxury or experimental alternative—they are a financial necessity. From stablecoin settlements and staking-as-a-service to secure digital custody and smart contract insurance, traditional financial frameworks simply aren't equipped to support crypto-native businesses' operational realities.
Banks that ignore this shift risk falling behind in both relevance and capability. The opportunity is immense—but only for those institutions bold enough to specialise, build native infrastructure, and reimagine what a modern bank can be.
The next decade of banking won't be defined by incumbents or disruptors alone, but by those who can embrace modular finance, build for programmability, and adapt to a fragmented yet interoperable financial ecosystem. The time for banks to evolve is now - the rise of specialised banks, particularly crypto banks, marks the beginning of that transformation.