The State of Enterprise Blockchain Adoption in 2024
According to a recent report published by Coinbase titled "The State of Crypto: The Fortune 500 Moving Onchain," many enterprises are working on blockchain projects, including consumer-facing payment applications. In a survey conducted by GLG on Fortune 500 decision-makers, 56% said their companies are working on “on-chain” projects.
The beginning of 2024 saw further institutional adoption following the SEC's approval of the spot Bitcoin ETF in January. The iShares Bitcoin ETF from BlackRock has shown strong demand from investors and was the fastest ETF in history to reach $10 billion in assets under management, achieving this milestone in less than two months.
Banking and Capital Markets
Payments and Tokenization are emerging as key use cases for enterprise blockchain in the financial industry. In 2024, the SWIFT (Society for Worldwide Interbank Financial Telecommunication) network, which has been the backbone of international cross-border payments and settlements since 1977, is now exploring the potential integration of blockchain technology into the global financial infrastructure.
SWIFT has been actively exploring distributed ledger technology (DLT) since 2018, when a proof-of-concept involving 34 participating banks successfully demonstrated how blockchain could be applied to bank-to-bank payments. This early experimentation has paved the way for further adoption in 2024. Other use cases being experimented on include: Digital Trade, Foreign Exchange (FX), Delivery vs Payment (DvP).
In the capital markets, there is a growing consensus that enterprise blockchain will bring efficiencies, reduce transaction costs, and open up new markets such as private credit to investors. As institutions experiment with asset tokenization, a trend towards utilizing different blockchain networks that are not interoperable has emerged. This lack of interoperability poses a challenge to adoption due to fragmentation of liquidity, creating friction in managing and trading the assets.
To address this challenge, industry participants, including Australia and New Zealand Banking Group Limited (ANZ), BNP Paribas, BNY Mellon, Citi, Clearstream, Euroclear, Lloyds Banking Group, SIX Digital Exchange (SDX), and The Depository Trust & Clearing Corporation (DTCC), have tested how they could leverage their existing SWIFT infrastructure to transfer tokenized value across a range of public and private blockchain networks. Chainlink, using their CCIP (Cross Chain Interoperability Protocol), provided connectivity across different chains to facilitate these transactions.
Enterprise Blockchain in Asset Management
The capital markets industry is exploring the tokenization of traditional stocks, bonds, and innovative products like tokenized private markets. On the other hand the asset management industry is increasingly responding to investor demands by offering alternative investments for portfolio diversification through blockchain solutions.
Investors have been interested in accessing certain asset classes through tokenization that have been difficult to invest in through existing capital market channels and infrastructure. For example, private debt, private equity, real estate and carbon credits are operationally challenging, manual, and often illiquid. Tokenizing these assets on the blockchain can address the inherent inefficiencies.
In 2024, we've seen firms like KKR, a global private equity firm, launch a fund tokenizing an interest in KKR's Health Care Strategic Growth Fund II on Avalanche's blockchain, a first step towards democratizing investor access to private equity. Securitize, a digital asset securities firm, uses its platform to simplify investor onboarding, provide secondary market liquidity, and register ownership on the blockchain.
Partnerships between banks, asset managers, and the blockchain industry are accelerating enterprise blockchain adoption. In February 2024, Citi partnered with WisdomTree, Wellington Management, and others to experiment with tokenizing private assets on Avalanche's subnets tailored to enterprise and institutional needs. In May 2024, BlackRock's USD Institutional Digital Liquidity Fund (“BUIDL”) became the largest tokenized treasury fund on the Ethereum blockchain.
Family Offices Embrace Digital Assets
Family offices, which manage the wealth of ultra-high-net-worth individuals and their families, are increasingly turning their attention to investments related to blockchain technology. In a new report published by EY in May 2024 - "Gaining Ground: how institutional investors plan to approach digital assets in 2024", family offices have allocated higher percentages to blockchain-based digital assets compared to asset managers and asset allocators. Their appetite for digital assets is high, with 24% allocating more than 5% of their assets under management (AUM) into cryptocurrencies, digital assets or related crypto funds and products.
Despite the growing interest, many family offices still remain cautious about investments into digital assets due to lack of clear regulatory guidelines and familiar infrastructure to access. However, as the market continues to become mainstream and more accessible through tokenization or through ETFs via large asset managers such as BlackRock, the future investment into blockchain related assets will continue its high growth trajectory.
Consumer Retail and Healthcare
As the adoption of cryptocurrency payments continues to grow, companies are increasingly accepting digital currencies, enabling customers to use digital wallets for transactions. For instance, Grab, the leading ride-hailing service in Southeast Asia, introduced Bitcoin and Ethereum payment options in Singapore starting March 2024.
In the healthcare sector, blockchain technology ensures transparent systems for managing medical data and transactions. Companies like Acoer utilize blockchain to assist public health organizations in collecting, organizing, and analyzing vast amounts of healthcare data, ultimately leading to better public health outcomes. Additionally, patients can leverage blockchain-based digital wallets to manage their medical records and make payments securely.
Moreover, blockchain technology and NFTs are revolutionizing customer loyalty programs in retail and dining. Retailers are implementing blockchain-based loyalty systems, providing customers with greater transparency and control over rewards. Meanwhile, restaurants are adopting NFT-based loyalty programs, offering unique digital assets and experiences. These innovations significantly enhance customer engagement and brand loyalty.
Summary
In conclusion, 2024 marks a pivotal year for enterprise blockchain adoption across various sectors. The financial industry is leading the charge, with significant developments in payments, tokenization, and asset management. SWIFT's exploration of blockchain integration for cross-border transactions signifies a major shift in the global financial infrastructure. Meanwhile, the asset management sector is leveraging blockchain to democratize access to alternative investments, with firms like KKR tokenizing private equity funds.
The approval of spot Bitcoin ETFs has further accelerated institutional adoption, with BlackRock's iShares Bitcoin ETF setting records for asset accumulation in digital assets. This mainstream acceptance is encouraging more enterprises to explore blockchain solutions, as evidenced by the GLG survey showing 56% of Fortune 500 companies working on "on-chain" projects.
Beyond finance, blockchain is making inroads in consumer retail and healthcare. Companies like Grab are integrating cryptocurrency payment options, while healthcare organizations are utilizing blockchain for improved data management and patient care.The technology is also revolutionizing customer loyalty programs, enhancing engagement through innovative NFT-based systems.
However, challenges remain, particularly in the realm of interoperability. The trend towards using different, non-interoperable blockchain networks in asset tokenization poses a risk of liquidity fragmentation. Industry leaders are actively working to address this issue, as demonstrated by the collaborative efforts to leverage existing SWIFT infrastructure for cross-chain transactions.
As we move forward, the continued growth of enterprise blockchain adoption will likely hinge on overcoming these interoperability challenges, navigating evolving regulatory landscapes, and further demonstrating the technology's ability to drive efficiency, transparency, and innovation across industries. With major players from various sectors increasingly embracing blockchain solutions, 2024 appears to be a transformative year, setting the stage for widespread enterprise adoption in the years to come.