Wall Street’s appetite for cryptocurrencies has never been greater. BlackRock Bitcoin ETF breaks inflow record. Fidelity and VanEck followed suit with new Spot products. Even Nasdaq has signaled expansion of its digital asset trading infrastructure. But despite all this momentum, very little is actually happening on-chain.
Currently, institutions treat cryptocurrencies as a legitimate asset class, but not as a venue for operations. The majority of trading, payments, and market making still takes place on private servers and traditional rails.
The reason is simple. This is because blockchain, in its current form, does not yet meet organizational performance standards. Until they can offer predictable speeds, reliable data access, and operational resiliency comparable to Wall Street systems, large companies will continue to trade off-chain, limiting the transparency, liquidity, and very innovation that made cryptocurrencies attractive in the first place.
Why order flow remains off-chain
Institutions are avoiding on-chain transactions because most blockchains do not meet standards. Institutions need both speed and reliability, and blockchain tends to struggle with the latter.
Many blockchains become congested during peak stress periods, causing transactions to fail unexpectedly. Gas prices can change erratically in response to fluctuations in network activity, causing further disruption. Educational institutions refuse to operate in such unpredictable environments.
Financial institutions also need to ensure beyond any doubt that transactions will be settled correctly, even when many things happen at the same time. Some blockchains, such as Layer 2 and Rollup, rely on optimistic settlement techniques that work most of the time, but sometimes require transactions to be rolled back to reverse a settled transaction.
Within these constraints, financial institutions need to be able to trade as quickly as possible. In traditional markets, financial institutions have paid millions of dollars to shorten the length of fiber-optic cables to and from Nasdaq, allowing them to settle trades nanoseconds faster than their competitors. Blockchain latency is still seconds or even minutes, making it completely uncompetitive.
It is important to note that modern financial institutions have access to crypto ETFs and can purchase crypto exposure through traditional markets using familiar and optimized fiber optic cables. This means that to attract on-chain institutional trading, blockchains must exceed the speed of traditional markets (why would institutional investors switch to slower trading venues?).
Upgrade blockchain to organizational standard
Institutions do not simply create a MetaMask wallet and start trading in Ethereum. You need a custom blockchain built to meet the same standards of performance, reliability, and accountability as traditional markets.
One important optimization is instruction-level parallelism with deterministic conflict resolution. Simply put, this means that blockchain can process many transactions at once (such as multiple cashiers calling a customer in parallel) while ensuring that everyone’s receipts are issued in the correct order every time. Prevents “traffic jams” that cause blockchains to slow down when activity spikes.
Blockchains designed for institutions should also eliminate I/O bottlenecks and ensure systems don’t waste time waiting on storage or network delays. Educational institutions need to be able to perform many operations simultaneously without storage contention or network congestion.
To make integration more seamless, blockchains should support VM-agnostic plug-in connectivity, allowing financial institutions to connect to existing trading software without rewriting code or rebuilding entire systems.
Before committing to on-chain transactions, institutions need proof that blockchain systems work in real-world situations. Blockchain can allay these concerns by exposing performance data measured on real hardware with real-world workloads from payments, DeFi, and high-volume transactions for institutions to verify.
Together, these upgrades can bring blockchain reliability up to Wall Street standards and encourage on-chain transactions. Financial institutions will flock to on-chain once companies realize they can transact faster (and gain an advantage over competitors) via blockchain rails without sacrificing reliability.
The true cost of off-chain institutional transactions
Keeping most activities off-chain concentrates liquidity in private systems and limits transparency in how prices are formed. This leaves the industry reliant on a small number of trading venues, slowing down one of the biggest advantages of cryptocurrencies: the ability for applications to be built open and interconnected.
With tokenized real-world assets, the cap becomes even more obvious. Without reliable on-chain performance, these assets risk becoming static wrappers that are rarely traded, rather than living goods in active markets.
The good news is that change has already begun. Robinhood’s decision to launch its own blockchain shows that institutions are not just waiting for cryptocurrencies to catch up, but are taking the initiative themselves. Once a few companies prove that they can trade faster and more transparently on-chain than off-chain, the rest of the market will likely follow suit.
In the long term, cryptocurrencies will become more than just an asset for institutions to invest in, but a technology used to move global markets.
