Authored by Omid Malekan,

News that a bank or payment provider is doing something in crypto used to be a big deal. When I first entered crypto a decade ago, it was often the biggest deal. One of the first major spikes in the price of ETH was triggered by the launch of the Enterprise Ethereum Alliance. Never mind that the corporations who joined it only wanted a permissioned version that’d never touch Ethereum itself. Crypto was still nascent back then and we coveted any blessing from an established authority.

So we cheered on J.P. Morgan’s supposed coin (which wasn’t) and the launch of Libra. We took note when the CEO of DTCC talked about replacing his proprietary database with a private blockchain (an objectively inferior proprietary database) and cheered on IBM’s supply chain solutions. We admired central bankers who uttered the magical word tokenization, even though it was clear they had no idea what it meant. Crypto was unproven back then and we took what we could get from the scions of finance.

But crypto is unproven no more. Bitcoin is a trillion-dollar asset, stablecoins are a force in payments and DeFi’s balance sheet is larger than that of most banks. The burden of proof is now on them.

It’s time to treat all TradFi embraces with a grain of salt, if not outright suspicion. Somewhere after the phase where they laugh at you, and in between the ones where they fight you and you win is the one where they try to co-opt you.

Consider the case of PayPal expanding its stablecoin to Solana. PayPal has actually been one of the better-faith TradFi firms in crypto. It introduced trading years ago and fought an uphill battle to issue its stablecoin. I’ve met some of their crypto folks, and they are extremely sharp. But lost in the shuffle of their stablecoin news this week was how they were raising merchant fees on Venmo by 33% (I only found out about it from my editor on Re-Architecting Trust, who runs an amazing donut business in Montana).

Why are they raising those fees? Because they can. Raising fees is what proprietary network operators do. Visa and Mastercard did something similar earlier this year, right around the time when Visa was making news in crypto with its own Solana expansion.

To be clear: the Visa crypto team is very smart and well-intentioned. They’ve identified productive things to do in crypto and are approaching them methodically. I’ve also written extensively about PayPal’s opportunities with stablecoins. But the soul of both companies is to own the network. And companies almost never change their soul, even in the face of existential disruption.

So brace yourself for a new wave of TradFi X Crypto announcements that a) Sound smart b) Incrementally move the needle for us c) Don’t threaten their core businesses.

I’m talking about crypto-meets-cards products that preserve interchange, stablecoins that don’t pay interest to end-users (and have the audacity to claim this is doing them a favor) and tokenization projects for assets that have no existing market.

Wall Street people on Tokenization and RWA panels love to talk about examples like real estate or private equity LPs. What they don’t talk about is tokenizing Apple stock on a public chain, even though demand for that product would be 100x greater, particularly in places where people don’t have access to US equity markets — which is almost everywhere.

But therein lies the rub, because tokenized AAPL would threaten the dominance of NASDAQ, DTCC, and the limited-set of brokers that have controlled the U.S. equity market for half a century. The people who run these companies are very smart, and only a fool would willingly lower the bridge over its most protective moat.

There are exceptions to this rule, such as the asset management firms who have embraced Bitcoin ETFs and tokenized money market funds. But those products don’t compete with anything the BlackRocks and Franklin Templetons of finance do today. If anything, they are tools the Buy Side can use to break free from the shackles of the Sell Side. A company like Blackrock pays hundreds of millions of dollars in fees every year to firms like J.P. Morgan, for the simple reason that the asset managers own the assets but the money center banks own the plumbing they move through.

But now, there’s a public blockchain for that. Crypto threatens the Sell Side by empowering the Buy Side. A tokenized Blackrock MMF on Ethereum is a better payment instrument than correspondent banking will ever be — which is why Larry loves crypto, but Jamie doesn’t.

Most people on Wall Street have really stepped up their game in recent years, and the daylight coming out of the Biden admin will accelerate that process. But it’s time for the crypto industry to do the same, and to be a lot more discerning about which aspects of the TradFi embrace we celebrate. Good executives protect their moats to the bitter end.