After years of caution towards cryptocurrencies, the main players in traditional finance (commonly referred to as “TradFi” by the crypto community) are revolutionizing the market, introducing innovative digital products and attracting new groups of investors.
Traditional finance is changing the digital asset industry. Industry giants such as Fidelity, Franklin Templeton, and BlackRock are joining forces with cryptocurrency operators not only to provide access to digital assets, but also to leverage the technology that powers those assets.
This is a significant asset class that can no longer be ignored, as the sector’s market capitalization now exceeds $3 trillion, more than half of which is represented by the pillar from which it all began: bitcoin. “It’s bigger than the US high-yield bond market,” he says. It is also such a rapidly growing market that choosing not to allocate resources to it is becoming “an active choice” for investors and asset managers.
Turning points for cryptocurrencies
In the early years, the volatility of bitcoin and its dizzying peaks and troughs scared investors, who also felt unprotected by the lack of regulatory clarity. Understanding the complexities of this new market, such as managing private keys or choosing an exchange on which to trade in the absence of regulatory clarity, adds another layer of complexity. However, for some time now, major institutional players have been entering the digital asset market. JP Morgan launched a blockchain pilot program in 2016 and subsequently created its own private blockchain solution, Kinexys. Asset management giant Fidelity, meanwhile, conducted its first proof of concept on bitcoin custody in 2016. The historic approval of the first spot bitcoin exchange-traded funds (ETFs) in the United States in early 2024 led traditional finance to consider cryptocurrencies as an investable asset.
The first US national cryptocurrency legislation regulating stablecoins was introduced with the GENIUS Act 2025. A 2025 survey conducted by Binance of 200 global investors, including banks, insurance companies, and pension funds with at least $150 million in assets under management, found that 79% of investors believe that the “Wild West” era of cryptocurrencies is coming to an end; Among those already investing, the majority are taking a cautious approach, allocating 2-5% of their organization’s assets under management (AUM).
When TradFi and cryptocurrencies meet
Once asset managers and investors begin to explore digital assets with an investment approach, they discover that there is a range of products beyond the main options, including stablecoins for liquidity management and derivative and structured product offerings.
Perpetual futures, for example, are a unique product in the cryptocurrency world. These derivative contracts allow investors to speculate on the price of a digital asset without holding it and without requiring a predetermined expiration date.
Perpetual futures (or perpetual swaps) are contracts that never expire and do not involve any settlement, or, in other words, they involve multiple settlements per day, but different from expiring futures, as we will see shortly. Instead of incorporating the premium into the price, a periodic financing rate is applied that penalizes long or short position holders depending on whether the contract is trading at a premium or a discount (contango or backwardation).
Perpetual futures were invented many years ago (in 1993, to be precise). The seminal paper that first presented the proposal was written by Nobel laureate Robert Shiller, who had a completely different role in mind for perpetually traded contracts. Shiller observed that many assets are traded so infrequently that their prices are difficult to find and often opaque, as they are not published. The most relevant example is real estate. This type of asset is not suitable as the underlying asset for a derivative. However, it can generate a constant and (possibly) completely transparent stream of income (e.g., real estate rents). Shiller’s idea was: why not use the “perpetual” stream of income to track and discover the price of the (underlying) asset that generates this stream of income (in our example, real estate)? The technicality that allows a (potentially) infinite revenue stream to express the fair value of the asset that generated it is basically a perpetual annuity discount factor, but the mechanism for implementing it is quite simple: Each time (e.g., t) there is a difference between the income from the asset, d_t, and the income from an alternative asset (usually a highly liquid asset) used to deposit the margin, r_t, this difference must be paid by long traders to short traders if it is positive and vice versa if it is negative. The total settlement in the following period, s_(t+1), is given by the following formula:
The first part of which, f_(t+1)-f_t, is a normal settlement that occurs daily for any futures (including traditional ones) using the clearing house or exchange engine (certainly a black box) of cryptocurrency exchanges. As is well known, it consists of crediting the gains to the winning margin accounts and debiting those of the losing traders. The second part, d_(t+1)-r_t f_t, is the revenue difference that cryptocurrency exchanges call the funding rate. The formula for the funding rate depends on the exchanges, which usually provide details of the formula on their websites. The general structure of the funding rate formula is: funding rate = premium + interest
Some cryptocurrency exchanges completely ignore the second part (interest) on the right side of the formula, preferring to model only the premium which, as with all exchanges, is based on the concept of Mark Price, i.e., a moving average of the underlying prices that should mitigate the risk of market price manipulation. As already pointed out, each exchange calculates a different Mark Price.
The important point to note is that cryptocurrencies do not need price discovery because they are traded on blockchain and therefore, according to Shiller’s approach, perpetuals on digital currencies are useless. The question then is: why were they introduced? Our suspicion is that they serve to facilitate exposure to leverage, which is enormous compared to the volatility of the underlying assets, and this certainly increases counterparty risks.
As for expiring contracts, there is no need to dwell on them at length because they behave exactly like traditional ones, except for two characteristics: they have different expiry dates depending on the different exchanges and they are not fungible. However, one point deserves attention. Clearing takes place at least once a day (on some exchanges even intraday), and we believe that margins are credited and debited exactly as in a clearing house (cryptocurrency exchanges are still opaque structures). The same compensation method is used for perpetual futures (to which we must add the financing rate settlement). Therefore, expiring futures and perpetual futures appear to have no difference except for the expiration date (which is absent in perpetuals) and, as a result, should share the same risk profile (except for rollover in expiring futures).
According to cryptocurrency data provider Kaiko, derivatives account for over 75% of all trading activity in cryptocurrency markets, with perpetuals accounting for 68% of all bitcoin trading volume. However, options, a mainstream derivative instrument in TradFi, currently account for just under 3% of the crypto derivatives market.
While innovations in terms of instruments adopted by crypto exchanges do not seem to have “infected” TradFi, blockchains are shaping traditional finance in other ways. Franklin Templeton’s early explorations in the blockchain space have enabled the company to develop BENJI, a money market fund that operates on 10 public blockchains, with assets of $794 million. Franklin Templeton and others are creating structures, with on-chain technology and significant liquidity, to address the historical challenges of traditional finance, such as weekend settlements or the generation of intraday returns.
Among those who have taken the plunge, approximately 78% say that digital assets have already generated attractive returns, according to Binance’s 2025 research, which surveyed 200 investors globally, including banks, insurance companies, and pension funds with at least $150 million in assets under management. Of these, 30% say they have already invested in digital assets. An additional 43% plan to do so within the next 12 months. About eight in ten investors already active in the market plan to increase their exposure during the same period. Despite the recent market downturn, many are attracted by the potential for strong returns. The price of bitcoin has risen 60% and ether 68% since President Trump’s election in November 2024. Most investors surveyed (78%) expect “attractive” returns over the next 12 months.
Tokenization: the trend for next year and beyond
After a period of above-market returns and favorable regulatory changes, institutional investors are investing heavily in digital assets such as Bitcoin, Ethereum, and tokenized funds. From Donald Trump’s embrace of cryptocurrencies to new EU regulations and UK regulators’ support for fund tokenization, 2025 has been a pivotal year for digital assets, which have gone from being a speculative bet to a long-term portfolio diversification tool.
While the appeal of Bitcoin and Ethereum lies in their status as decentralized digital currencies and stores of value with broad adoption and liquidity, tokenization is a fundamentally different application of blockchain technology. It transforms traditional assets into digital entities recorded on the blockchain, opening up new avenues in terms of accessibility and efficiency.
Tokenization is set to become one of the fastest-growing trends in the digital asset industry. About two-thirds of the organizations surveyed that have not yet invested in this area plan to do so within the next 12 months.
One of the main advantages of tokenization is that it allows institutional investors to instantly transfer their money market fund shares to another party. This allows them, for example, to use them as collateral for derivative transactions. A significant example is physical gold, which the LME would like to tokenize for this very purpose.
One of the most interesting applications of tokenization is the stablecoin market (which, we reiterate, are tokens). Regulatory changes over the past 12 months have increased enthusiasm for digital assets. In the United States, the GENIUS Act, signed in July 2025, has created rules for the issuance of stablecoins that help reduce legal uncertainty. The EU’s dedicated cryptocurrency regulatory framework, MiCA, largely came into force in December 2024.
Meanwhile, some regulations that would have restricted or controlled digital assets have been abandoned. In June 2025, Paul Atkins, chairman of the US Securities and Exchange Commission, withdrew plans drawn up by his predecessor to regulate cryptocurrency investments more strictly.
But the issue is not resolved. When asked what limited their organization’s adoption of digital assets or discouraged them from investing, the investors surveyed pointed to fragmentation and regulatory uncertainty.
But the research reveals that many investors are not devoting resources to understanding regulatory changes. Only 29% have taken steps to ensure that their compliance team is up to date. Among those who have not, only 47% consider it an immediate priority.
Limited resource allocation may expose investors to increased compliance risks, potential legal uncertainties, and delays in participation. This could slow the adoption of cryptocurrencies or the integration of digital assets until regulatory clarity and internal preparedness improve.
Despite growing investor interest in digital assets, not many are taking adequate precautions to protect themselves from risks such as inadequate custody solutions and market failures. For example, only 26% have strengthened governance, risk controls, disaster recovery, and scenario stress testing to withstand severe market failures.
And although many traditional custody providers now offer solutions for digital assets, only 32% say they have adopted more secure and compliant custody solutions.
Whether it’s compliance, technology, or custody, investors now need to invest in internal capabilities that enable them to capitalize on digital opportunities and mitigate risks.
What about stablecoins?
We have discussed stablecoins in more than a few Insights. At the end of this challenging year (we are talking about financial markets, of course), we would like to take this opportunity to provide a quick summary and offer some thoughts.
In a fine article that appeared in the FT on December 11, 2025, Martin Wolf tells this story:
“A few months ago, the father-in-law of one of my children, who lives in New York State, sent his family in England a sum of money that was quite substantial for him. The money never arrived. Worse still, it was impossible to find out what had happened to it. Her bank contacted the intermediary she had used, but was told that the recipient bank in the UK, one of the largest in the country, would not respond to requests for information.
I asked colleagues what could have happened and was told it might have something to do with money laundering. Meanwhile, my father-in-law was distraught. Then, after two months, the money suddenly reappeared in his account. He still doesn’t know what happened in the meantime. Such an event is completely foreign to my experience of transferring money between the UK and the EU.”
We have reported this story because we feel it explains very well the US administration’s preference for stablecoins as an alternative to their banking system, combined with the relatively high cost of credit card payments (about five times higher than in Europe!) and the exorbitant cost of cross-border remittances. Both reflect the inability to regulate powerful US oligopolies.
We find the reasons related to US public debt, which must be held both domestically and, above all, abroad (due to its size) and possibly at modest rates, somewhat less convincing: the widespread use of dollar-denominated stablecoins held globally would be positive for the US treasury. This reasoning is not very convincing because we do not see how a European investor would be incentivized to hold US public debt through a dollar-pegged stablecoin: if anything, they would be incentivized to do so if part of the US debt were issued in a euro-pegged stablecoin, but this is not the case. Ultimately, the Genius Act privatized “seigniorage” in favor of global private actors (and only a few at that – Tether and Circle). .
The IMF, the OECD, and the Bank for International Settlements (BIS) have all expressed serious concerns. In particular, there are fears that stablecoins fail to meet three fundamental criteria for being considered full-fledged currency:
1) uniqueness: the need for all forms of a given currency to be interchangeable at par at all times;
2) elasticity: the ability to make payments of any size without disruption;
3) integrity: the ability to curb financial crime and other illegal activities.
This is where the fundamental role of central banks and other regulatory authorities comes back into play. Stablecoins, as they are currently managed, are far from meeting these requirements: they are opaque, easily used by criminals, and of uncertain value. Last month, S&P Global Ratings downgraded Tether’s USDT, the most important dollar-pegged stablecoin, to “weak.” It is not a reliable currency. Private currencies have often failed in crises. It is very likely that the same will be true for stablecoins.
Let us assume, then, that the United States intends to promote the use of loosely regulated stablecoins, partly to strengthen the dominant role of the US dollar and thus help finance its enormous fiscal deficits. What should other countries do? The answer is to defend themselves as best they can. This is particularly true for European countries. How? One possibility is to introduce stablecoins in their own currencies that are more transparent, better regulated, and safer than those likely to be produced by the US. The Bank of England’s approach seems like a model of common sense: just last month, it introduced a “proposed regulatory regime for systemic pound-denominated stablecoins,” arguing that “the use of regulated stablecoins could lead to faster and cheaper retail and wholesale payments, with greater functionality, both domestically and cross-border.” There are reasons to exploit the possibilities offered by new technologies to create a faster, more reliable, and more secure monetary and payment system. But a system that makes fraudulent promises of stability, facilitates irresponsible fiscal policy, and opens the door to crime and corruption is not what the world needs.
Disclaimer
This post expresses the personal opinions of the Custodia Wealth Management staff who wrote it. It does not constitute investment advice or recommendations, personalized advice, and should not be considered an invitation to carry out transactions on financial instruments.
