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A D A P T E D F R O M
/ L I O R L A M E S H / C O - F O U N D E R & C E O
/ G K 8 / T E L - A V I V
/ B L O G : 0 8 M A R C H 2 0 2 2
The 21 million dollar question banks
must answer when formulating their
blockchain strategy is deceptively
simple—how far do we want to go?
Next, how much risk the bank has
an appetite for? Banks stand more
to lose from any unfortunate
incident than a young crypto-native
company, and they must act with a
full realization of how much
damage they can sustain.
Another question for banks, what
custodial model will your institution
adopt? Custody, or the ability to
hold and move crypto assets on
clients’ behalf, is the foundation
enabling banks to offer crypto
services.
Ultimately, the choice is between
outsourcing to a third-party
provider, or self-custody, where the
bank takes on the task itself.
Third-party introduces outside risks
into the picture, while self-custody
takes more effort of the
operational theater and can
require more time to implement.
Should they just give customers
access to the top five most popular
coins to buy and sell? Or is it an
all-out advance, with access to
native staking, DeFi, and everything
else that blockchain has to offer?
Banks must first and foremost look
at risk profile of each crypto coin.
Bitcoin may offer a completely
different risk level from altcoins.
Banks should stick to certain
principles:
Whitepapers can be a good
indicator of how serious the
project is and if its development
is open source or corporate
control.
Higher market capitalization,
suggests that many believe the
coin to be somewhat a safe bet
and also that it has been
extensively tested.
Security by seniority with high
valuation makes them a lucrative
target for hackers, and the more
time malicious actors have had
to try (and, ideally, fail) to
compromise it, the stronger was
the initial design. This goes for
both layer-1 and layer-2
protocols.
Strategy. Banks must seek out
the coins with the functions that
fit into their overall crypto and
corporate strategy.
Banks need to invest time into
the community behind projects
they fancy, using testnets and
developer community platforms.
for Financial Institutions
Once the fundamentals are out of
the way, banks will have to delve
into concrete services, parameters
and red flags to avoid.
Traditionally, financial institutions
tend to venture into new spheres on
their own terms and at their own
pace - slow. But if they wish to
remain relevant and catch up with
this new digital cryptocurrency
marketplace, they need to operate
on the premise that time-is-ofessence.
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