While onchain finance’s outdated reputation still lingers among the vast majority of institutions, tech has been busy catching up, leaving a tremendous advantage on the table for a handful of early movers in the know. Ghazi Ben Amor, SVP of Business Development and Partnerships at Zama, discusses
For a long time, the very idea of a true “onchain bank” – a financial system where money never has to sit still, confidentiality is built in, and compliance is programmable – seemed nigh on impossible to most in the finance sector.
How can highly sensitive data be stored on a public blockchain while remaining confidential, yet still require regulation for compliance purposes? And even then, how would it not be a “clunky” experience that many end-users still have in the DeFi space?
It’s easy to see why so many institutions, despite being intrigued by the speed and efficiency blockchain offers, have either steered clear of blockchain infrastructure altogether or have experimented with private and permissioned blockchain models.
Both of these options, however, have downsides. The first sees institutions continue operating under traditional banking systems, where confidentiality is a given, but slow, manual paperwork, silos, restricted operating hours and multi-day waiting periods hold efficiency up. And the latter offers greater control and privacy, but sees institutional capital trapped in fragmented “walled gardens” that lack exit liquidity.
Putting these drawbacks aside for a moment, the real problem here is that many institutions believe these are the only two options available and are still making decisions based on trade-offs that no longer need to exist.
Technology has opened up a new option
Technology, specifically an advanced class of cryptography called Fully Homomorphic Encryption (FHE), has been busy behind the scenes, taking the onchain bank from theory to reality.
FHE lets you compute on data without ever decrypting it, which means the blockchain stays blind to the underlying information while still being able to verify the outcome. In simple terms, transactions and data can remain encrypted end-to-end without sacrificing functionality.
The concept itself is not new, but it was historically too slow, millions of times slower than normal computation in fact. But recent breakthroughs in performance and engineering, both over the last few years and this year in particular, have pushed FHE into real-world deployment.
Advancements in bootstrapping, ciphertext packing, and optimised arithmetic have been paired with a decentralised operator network designed specifically for encrypted computation. That combination is what makes FHE performant enough to run directly on public blockchains.
As of now, the underlying infrastructure is production-ready. The confidential token standard, the ERC-7984, has been submitted to the Ethereum Foundation and is currently under review for finalisation. The Confidential Token Association has been created to promote and oversee the adoption of the confidential token standard, with many key players like DFNS or Taurus, integrating the standard into their tools and systems to enable a seamless experience: wallets and custody solutions to hold confidential tokens, bridges to move confidential tokens cross chain, analytical tools to enable service providers to stay compliant, and custodians to bring liquidity.
What the early adopters stand to gain
With the above in place, and most technical hurdles solved or about to be solved, a handful of innovation leaders are committing early doors – already integrating this encryption technology into their systems to fully enable onchain banking.
Take T-REX Network, backed by Apex Group (a global single-source financial solutions provider that services $3.5 trillion in assets), for example.
Just recently, a partnership to embed confidentiality infrastructure into the T-REX Ledger for tokenised real-world assets (RWA) was announced. While regulatory alignment may be an assumed hurdle here, in this case, the ERC-3643 standard itself is already widely accepted by regulators, as it provides compliance directly in the smart contract and can replicate any existing off-chain regulation.
Once T-REX goes into production, the only hurdle left to overcome will be liquidity and access to secondary markets. It marks a crucial step in bringing regulated financial markets onchain, and has also seen Apex Group commit to using the T-REX Ledger as its default infrastructure for distributing tokenised funds across multiple blockchain networks, as well as to tokenizing $100 billion in assets by June 2027. Because of this, the project has a huge advantage compared to other projects that need to bootstrap their first hundred million.
In comparison, institutions choosing to remain on the sidelines risk facing a very different challenge. Once projects like T-REX begin bringing regulated assets onchain at scale, the advantages will not stay theoretical for long, and for clients and investors, the choice will eventually become difficult to ignore. If two financial assets carry the same profile, but one can be traded more easily, used seamlessly as collateral, or moved across markets with far less friction, why would they continue choosing the more restrictive alternative?
However, historically, when major technological changes like this one emerge, the wider market tends to stay sceptical, waiting for innovation leaders to prove demand before following behind. But by the time competitors realise these early movers are offering clients faster, cheaper and more flexible financial services, they’re already lagging in the race.
That’s why the industry’s outdated perception of onchain finance may ultimately become a bigger risk than the technology itself.
Before long, all future financial systems will connect to onchain finance. Capital will be able to move across the globe and between different assets instantly. New asset classes will likely emerge. And in ten years, when the world’s $100 trillion in tokenised real-world assets have migrated to public rails, we won’t be able to distinguish between “digital” and “traditional” finance any more. It will all just be one efficient system; a unified liquidity layer where regulated institutions can trade with total discretion and atomic settlement.