For years, traditional finance and Web3 were viewed as opposing forces. 

Traditional finance relied on regulated institutions, accounts, centralized ledgers, and trusted intermediaries. Web3 promised a different model—one built on blockchain networks, wallets, smart contracts, and peer-to-peer transactions. 

Today, that distinction is becoming increasingly difficult to draw. 

Banks are adopting blockchain technology. Digital asset firms are obtaining banking licenses. Stablecoins are being integrated into payment systems. Tokenized deposits are emerging as a new form of bank money. The future is looking less like a battle between TradFi and Web3 and more like a convergence of the two. 

Most Money Is Already Digital 

One of the biggest misconceptions about digital assets is that they represent the digitization of money. 

In reality, most money is already digital. 

Approximately $16 trillion is held as deposits at U.S. banks, compared to roughly $2 trillion of physical cash in circulation. The difference is that today's digital money exists as liabilities on bank balance sheets, and customers access those balances through accounts, cards, payment networks, and banking applications. 

The real innovation behind Web3 is not that money becomes digital. It is that blockchain technology introduces a new infrastructure layer for representing, moving, and programming value. 

What Do We Mean by Web3? 

The Web3 ecosystem can be viewed through four broad categories: 

Digital Money

• Cryptocurrencies
• Stablecoins
• Tokenized deposits 

Digital Assets 

• Tokenized real-world assets
• Securities
• Money market funds 

Digital Financial Services 

• Payments
• Lending
• Trading
• Settlement 

Digital Infrastructure 

• Wallets
• Blockchains
• Smart contracts

When people discuss DeFi, they are typically referring to the Digital Financial Services category. But the convergence occurring today extends far beyond decentralized lending and trading. It includes digital money, tokenized assets, and the infrastructure required to support them.

From Accounts to Wallets

One of the clearest distinctions between traditional finance and Web3 is the difference between an account and a wallet.

In traditional banking, financial institutions maintain accounts, hold customer balances, and act as intermediaries for transactions. Access to money depends on the institution and its systems.

In Web3, users hold value through wallets secured by cryptographic keys. Assets can move directly between participants on blockchain networks without requiring a central intermediary to maintain the ledger.

This shift introduces new possibilities, but also new challenges. Self-custody provides control, but it also transfers responsibility. An estimated 20% of all Bitcoin is believed to be inaccessible because owners lost their private keys. As a result, an entire industry of custodians, exchanges, and wallet providers has emerged to make digital assets easier and safer to use.

 The Irony of Web3

The original Bitcoin white paper described a peer-to-peer electronic cash system that could operate without trusted intermediaries.

Yet the fastest-growing blockchain use cases today often depend on them.

Stablecoins rely on regulated issuers, reserve managers, custodians, and banking relationships. Tokenized assets involve issuers, custodians, transfer agents, fund managers, and compliance frameworks. Many of the largest participants in digital assets today are highly regulated financial institutions.

In other words, blockchain technology has survived, but the vision of a completely intermediary-free financial system has evolved.

Banks Are Moving On-Chain

Many of the world's largest financial institutions are actively building blockchain-based solutions.

JPMorgan, Citi, and HSBC are developing tokenized deposits, blockchain-based payments, and treasury services. BNY Mellon provides custody and servicing for digital assets. Figure uses blockchain technology to originate, finance, and settle loans. The Cari Network and The Clearing House are building tokenized deposit networks designed to support 24×7 programmable bank money.

The motivation is straightforward.

Blockchain infrastructure offers the potential for:

• Real-time settlement
• 24×7 availability
• Programmability
• Greater interoperability between different forms of digital value

Banks are not adopting blockchain because they want to become crypto companies. They are adopting blockchain because it may improve the way financial services are delivered.

Crypto Firms Are Becoming More Like Banks

At the same time, digital asset firms are moving toward traditional banking.

Anchorage operates under an OCC National Trust Bank charter. Coinbase, Circle, Ripple, Paxos, BitGo, and Crypto.com have pursued national trust bank structures. Kraken operates under a Wyoming SPDI charter and has obtained a limited-purpose Federal Reserve account that provides access to Fedwire and direct dollar settlement.

Why?

Because customers still need many of the services banks provide:

• Payments
• Settlement
• Custody
• Compliance
• Access to fiat currency

Digital asset firms increasingly recognize that regulated financial infrastructure is not a barrier to adoption—it is often a prerequisite.

Where We Are Headed

The future is unlikely to be entirely on-chain or entirely off-chain.

Consumers and businesses will continue to use bank accounts. They will also use wallets. Some assets will remain on traditional financial infrastructure. Others will move onto blockchain networks.

The most likely outcome is a world where money and assets move easily between traditional financial systems and blockchain-based systems.

Just as consumers today can choose between cash, cards, ACH, wires, PayPal, Venmo, Zelle, RTP, and FedNow, digital assets will become another option for moving and storing value. Banks do not get to decide which methods customers prefer. They do, however, have an opportunity to make movement between those worlds seamless.

The convergence of Traditional Finance and Web3 is already underway. The institutions that succeed will not be those that choose one side or the other. They will be the ones that learn how to operate comfortably in both.

For more information: Watch Episode 2 of Blockchain for Bankers: The Convergence of Traditional Finance and Web3, featuring Tony McLaughlin (Ubyx), Peter Tapling (PTap Advisory), and Sarah Hoisington (Matera).