US Banking Sector Unlocks Crypto Custody as Regulatory Barriers Fall
- The Federal Deposit Insurance Corporation's decision to rescind its prior approval requirement for crypto activities marks a watershed moment for institutional tokenization adoption. Under the new guidance effective March 28, 2025, FDIC-supervised institutions can now engage in permissible crypto-related activities without seeking prior regulatory approval, fundamentally changing the landscape for digital asset custody and tokenized securities services. This regulatory shift coincides with the SEC's rescission of Staff Accounting Bulletin 121, which previously required banks to record custodied crypto assets as both assets and liabilities on their balance sheets—a requirement that made crypto custody prohibitively expensive for most traditional financial institutions.
- The combined impact of these regulatory changes cannot be overstated for the tokenization ecosystem. Banks and credit unions can now offer custody services for tokenized real estate, private credit funds, and other real-world assets without facing punitive capital requirements or lengthy approval processes. This development directly addresses one of the primary barriers that has prevented wealth managers from offering clients tokenized investment products: the lack of traditional custody solutions. Major custodians like Coinbase Custody and BitGo have been serving institutional clients, but the entry of traditional banks into custody services will provide the institutional comfort level that many conservative investors require.
- For wealth managers, this represents a game-changing moment in client service capabilities. The regulatory clarity enables advisors to offer tokenized products through familiar custody relationships while maintaining fiduciary standards and compliance frameworks their clients expect. Investment managers structuring tokenized funds can now access the same institutional custody infrastructure used for traditional securities, eliminating a significant operational and regulatory risk factor. This development particularly benefits managers of real estate and private credit funds looking to offer fractional ownership through tokenization, as they can now leverage established banking relationships rather than relying solely on crypto-native custodians.
- The next logical step involves major custodial banks like State Street and BNY Mellon expanding their digital asset custody offerings beyond pilot programs to full commercial deployment. Watch for announcements from regional and community banks announcing crypto custody services, as they seek to differentiate themselves in an increasingly competitive market. The regulatory framework established by the FDIC's guidance will likely serve as a template for other jurisdictions, potentially accelerating similar developments in Canada and the UK throughout the remainder of 2025.
Federal Stablecoin Framework Transforms Cross-Border Investment Access
- The signing of the GENIUS Act into law on July 18, 2025, establishes the first comprehensive federal framework for payment stablecoins in the United States, fundamentally reshaping how international investors access tokenized assets and cross-border settlement systems. The legislation restricts stablecoin issuance to insured depository institutions, credit union subsidiaries, and Federal Reserve-approved non-bank institutions, while requiring full backing with high-quality liquid assets and regular auditing. Major stablecoin issuers like Circle and established players in the ecosystem now operate within a clear regulatory framework that provides institutional investors the certainty they require for large-scale adoption.
- This regulatory clarity directly impacts the tokenization ecosystem by establishing reliable, regulated settlement rails for cross-border tokenized asset trading. Previously, institutional investors faced uncertainty about the regulatory status of stablecoins used to purchase tokenized real estate, private credit, or infrastructure assets. The GENIUS Act eliminates this ambiguity, enabling pension funds, sovereign wealth funds, and family offices to engage in tokenized asset transactions with confidence that their settlement currency operates under federal oversight. The legislation also includes provisions preventing non-financial companies from issuing stablecoins, ensuring that payment infrastructure remains within traditional financial regulatory boundaries.
- International wealth managers and their clients gain access to US tokenized markets through regulated stablecoin rails, significantly reducing compliance and operational risk. The framework enables seamless 24/7 settlement of tokenized securities transactions, a capability that traditional banking hours and correspondent banking relationships cannot match. Investment managers tokenizing funds can now offer international distribution with settlement finality that rivals traditional securities markets, while maintaining regulatory compliance across jurisdictions. This development particularly benefits managers of alternative assets looking to access international capital, as regulated stablecoins provide a bridge between traditional finance and blockchain-based investment products.
- Expect additional jurisdictions to implement similar frameworks as competitive pressure mounts to provide regulated stablecoin infrastructure. The European Union's MiCA framework and Hong Kong's recent stablecoin ordinance suggest coordinated international efforts to establish interoperable regulatory standards. By early 2026, the combination of multiple regulated stablecoin frameworks could enable seamless international tokenized asset trading across major financial centers, creating unprecedented opportunities for global alternative investment distribution.
Hong Kong's Comprehensive Stablecoin Regime Catalyzes Asian Institutional Capital
- Hong Kong's implementation of its comprehensive stablecoin regulatory framework on August 1, 2025, creates the world's first fully operational stablecoin ordinance, requiring licensing for fiat-referenced stablecoin issuers and establishing 100% reserve backing under Hong Kong Monetary Authority oversight. The framework provides regulatory certainty that enables mainland Chinese institutions and Asian family offices to engage with tokenized assets through compliant infrastructure, while existing issuers have until October 31, 2025, to obtain proper licensing. This regulatory milestone coincides with record institutional investment flows into digital assets, with Asian exchanges reporting significant account growth and trading volume increases throughout the region.
- The timing of Hong Kong's framework proves strategic for positioning Asia as a competitive alternative to US and European tokenization markets. While the US processes the majority of global digital asset investment flows, Hong Kong's clear regulatory structure enables Asian institutions to access tokenized real estate, private credit, and infrastructure investments through locally regulated stablecoin infrastructure. The framework particularly benefits institutional investors subject to Chinese capital controls, as Hong Kong's status enables access to international tokenized assets while maintaining compliance with regional financial regulations. Major stablecoin issuers like Tether can now operate within clear legal boundaries, providing institutional-grade infrastructure for tokenized asset settlement.
- For international fund managers, Hong Kong's framework creates new structuring opportunities for Asia-focused tokenized products while maintaining access to Chinese institutional capital—a combination previously unavailable in digital asset markets. Wealth managers serving high-net-worth Asian clients can now offer Hong Kong-structured tokenized funds that meet fiduciary standards while providing exposure to global real-world assets. The regulatory clarity enables fund domiciliation strategies that leverage Hong Kong's financial infrastructure while accessing tokenized assets across multiple jurisdictions. Investment managers specializing in Asian real estate and infrastructure can particularly benefit from this framework when structuring tokenized products for international distribution.
- Asian financial centers including Singapore and South Korea are developing comparable regulatory approaches, suggesting coordinated regional strategy to compete with established Western digital asset markets. By early 2026, the combination of Hong Kong's operational framework and similar initiatives across Asia could shift significant digital asset investment flows from US to Asian markets, particularly for products targeting Asian institutional investors. This regulatory competition will likely accelerate innovation in tokenized product structures and cross-border settlement systems throughout the region.
Goldman Sachs and BNY Mellon Pioneer Blockchain-Based Money Market Innovation — But Frictionless Markets Already Offers This to Asset Managers
- The collaboration between Goldman Sachs and BNY Mellon to launch tokenized money market fund shares represents the first time major US asset managers have enabled fund subscriptions via blockchain technology, with participation from BlackRock, Fidelity, and other leading institutional fund managers. While this landmark development demonstrates that blockchain-based settlement infrastructure has achieved the reliability and institutional acceptance required for mainstream adoption, Frictionless Markets has already been providing asset managers with the capability to create tokenized money market funds and any form of tokenized investment products on a white-label basis.
- The significance of this development extends far beyond money market funds to the broader tokenization ecosystem, validating what Frictionless Markets has proven in practice: that established financial institutions can seamlessly integrate blockchain technology without compromising operational excellence or regulatory compliance. Where Goldman Sachs and BNY Mellon are building proprietary infrastructure for their own use, Frictionless Markets offers the same capabilities to any asset manager through our MiFID II compliant Luxembourg securitization vehicle, enabling them to tokenize unlimited financial assets across all classes.
- For wealth managers and their institutional clients, this development provides validation of what Frictionless Markets has been delivering: a clear pathway to blockchain-based settlement for core portfolio holdings while maintaining relationships with established fund managers and custodians. However, Frictionless Markets can offer these capabilities in more non-conflicted ways since we have no distribution capabilities of our own, and likely at significantly lower costs than what large financial institutions would charge for similar services.
- The competitive advantage for asset managers working with Frictionless Markets lies in our ability to tokenize any asset class — equities, fixed income, alternatives, multi-asset strategies — through our established regulatory framework. Investment managers can now structure tokenized products knowing that they have access to the same institutional-grade blockchain settlement infrastructure that major custodial banks and asset managers are validating, but with the flexibility to maintain their independence and competitive positioning.
- The next phase will likely involve expansion to additional asset classes and international markets, creating significant opportunities for asset managers partnering with specialized tokenization platforms like Frictionless Markets. As competitive pressure mounts among asset managers to offer blockchain-based settlement capabilities, those working with independent infrastructure providers will be able to move faster and more cost-effectively than waiting for proprietary solutions from conflicted financial institutions. This development establishes blockchain settlement as mainstream capability, accelerating the adoption opportunity for forward-thinking asset managers throughout 2025 and beyond.