Why most blockchains still fail institutions (and what to do about it)

Banks, asset managers, and financial services companies want to use blockchain. They see what it can do. They understand the efficiency gains. 

Yet, many haven't been able to make the leap yet. Why? 

It’s not because the technology doesn't work. It’s because the technology wasn't built for how they actually operate.

Privacy, first. If a bank looks at a public ledger and realizes their competitors can see deposit volumes, payment flow patterns, and counterparty relationships, that's competitive intelligence on display. Obviously, no serious institution will put that out there. Without a way to protect their competitive data, institutions simply will not move onchain. That's a non-starter.

Then there are critical compliance controls for asset issuers: clawback functionality, the ability to freeze assets, and the ability to correct errors, among others. When someone like the Department of Justice sends a legal order, or when an asset issuer needs to correct an error, institutions need the tools to respond. Otherwise, they will not be able to meet their existing obligations, another non-starter for moving onchain. 

On Stellar, asset issuers can access and configure these controls that have been built into the protocol since its early days. These aren’t afterthoughts bolted on through smart contracts; they’re native features. Moreover, they’re features that are actually used by companies like PayPal, who conducted a large-scale onchain clawback operation in early 2026, demonstrating active use of the compliance functionality. 

But compliance isn't just about what you can do with assets—it's about how you keep them separated. Some have done the equivalent of taking all customer funds and putting them in a pile labeled "money." No bank operates that way. And regulators are right to flag it.

On Stellar, different assets on the same network can operate under different compliance regimes. A stablecoin might use light-touch controls, while a tokenized security uses full authorization and clawback. Institutions can sponsor sub-accounts and allocate each one to a specific customer. Transactions cost less than a penny, so creating that segregation is simple. The tech is there. It becomes a governance question rather than a technical one.

That's what blockchain purists will say. They'll tell you the blockchain was meant to be immutable, that nothing should change—that these features fly in the face of its original intent. But the truth is more nuanced than that.

What's immutable on the blockchain is the history. 

For example, if an asset is clawed back, that clawback is visible in the history. The record is still immutable, and we still have the critical ability to audit issuer activity. 

In this way, privacy and control don’t become binary or “all or nothing” propositions. Issuers can get the best of both worlds by producing auditable records. Even with encryption, it's possible to develop solutions that do selective disclosure on and offchain, and those we speak to in the institutional community are eager to iterate on those types of solutions.

As a recent report on the network put it, "Stellar offers regulated, auditable, settlement rails designed with compliance in mind. It is closer to a programmable settlement network than a traditional DeFi platform." 

That framing is critical: our goal isn’t to recreate DeFi for banks, it’s to build settlement infrastructure that works the way institutions need it to.

So if institutions need all these controls, why not just build their own chain?

This is where a lot of banks went first. Build your own chain, control everything, solve the compliance problem by owning the whole stack. It makes sense on paper. 

But here's why it doesn't hold up: an open public network is constantly evolving. You have developers all over the world contributing to the codebase and making it better. The clawback functionality I mentioned earlier? That was contributed to Stellar about eight years ago by a third party. They saw that financial services companies would need it and they proposed it. That's how open networks improve.

When you run a private chain, you control everything, including the fact that you're not going to evolve as fast as you need to. You also lose the connectivity and interoperability that come from an open network. I've been a proponent of openness for 25 years, going back well before blockchain. The pattern is consistent: open networks, just like the internet, get better because of who's contributing to them.

In sum, building a closed, private blockchain is less secure, less efficient, and more expensive.

There's over $1.4 billion in tokenized real-world assets on Stellar as of early 2026 —67 products from 10 issuers including Franklin Templeton, Spiko, WisdomTree, Ondo Finance, and Etherfuse. It's growing fast.

Franklin Templeton actually filed publicly in 2019 that they were exploring Stellar for a money market fund before we even knew about it. We saw the filing and reached out, and we've been partners ever since. They've since issued that fund in ten countries around the world, with their books and records onchain. From my standpoint, they're using the tech stack in the way it was originally intended.

They can make their assets permissioned, KYC on redemption, KYC on receipt. They chose Stellar because the compliance tools were native and they didn't have to build all of that from scratch. They're also running a Tier 1 validator, which means they have a direct say in governance. I think that's really important. If you're issuing assets on a network, you should participate in the future of that network.

The blockchains that will matter to financial services are the ones that give institutions the tools to comply with their regulatory obligations while still getting the benefits of open infrastructure.

The long-term winners won't be the chains that try to control everything from the top down. They'll be the open-source, open-access networks where asset issuers, custodians, regulators, and validators are setting the rules together. 

That's messy. But I've been working in open systems for 25 years, and that's how the internet got built, too.