When you’re trying to explain the value of blockchain to a layperson, it’s easy to start with finance. We’ve all dealt with the bureaucracy of banking: the paperwork, the gatekeepers, the delays and human error that can gum up the works. Even someone who is fuzzy on the technical side of blockchain can still see the appeal of an automated, secure, decentralized way to transfer value.

Disrupting financial systems was part of the founding vision for Avalanche. Ava Labs Founder and CEO, Emin Gün Sirer, puts it this way: “My vision is that everything we buy and sell has to be backed by a token and asset identifier on a blockchain… every virtual asset, every financial asset, every piece of commercial paper, every single loan, et cetera, should be on a blockchain.”

But what makes blockchain technology such a good fit for finance? What are developers building now, and what does the future look like? To see how we got here, let’s start with a quick history.

A Timeline of Blockchain and Finance

Here’s a brief look at a few key milestones that led to the current state of blockchain, cryptocurrency and finance.

2008: The Bitcoin whitepaper introduces blockchain technology and proposes decentralized, digital currency, effectively solving the ‘double spend’ problem for digital assets

2009: Bitcoin goes live and the Genesis Block is mined.

2010: The first real-world Bitcoin transaction shows how cryptocurrency can be a medium of exchange. Ten thousand Bitcoin paid for two pizzas—at current rates, that’s about $500,000 per pie.

2011-2012: Early use cases emerge for Bitcoin as a tool for decentralized payments.

2015: Ethereum launches, introducing decentralized applications (dApps), smart contracts and the building blocks of decentralized finance (DeFi)

2016: Initial Coin Offerings emerge as a way to raise funds via blockchain-based tokens.

2017: The idea of tokenization spreads even further, leading to many ICOs and highlighting the need for standards.

2018: The first major DeFi protocols launch, introducing decentralized swapping, borrowing, lending, and one of the most important features of on-chain finance, stablecoins.

2019: Automated Market Makers introduced a model that automated trading of digital assets without the need for a traditional order book or centralized intermediary like a stock exchange.

2020: “DeFi Summer” yields massive growth in DeFi services like lending, borrowing, and yield farming.

2021: Institutions like Tesla and Square add Bitcoin to their balance sheets. Central banks and governments explore Central Bank Digital Currencies. Layer 1 blockchain networks (like Avalanche) gain traction as alternatives to Ethereum, for more affordability and scalability.

2022: Multi-chain ecosystems emerge, with cross-chain bridges facilitating. Blockchain infrastructure is now powering institutional finance use cases.

2023-Today: Expansion of real-world tokenization, a proliferation of hybrid models that combine blockchain and traditional finance, and more widespread use of scalable solutions like Avalanche L1s. Avalanche9000 makes creating and launching an L1 more accessible, simple and efficient.

Why Blockchain Works for Finance

It’s not surprising that businesses from startups to storied financial institutions are exploring blockchain for finance. Blockchain offers a host of benefits on both the institution and user sides:

Trustless Infrastructure: Enables transactions between parties without requiring them to know or trust each other.

Transparency and Immutability: Public ledgers ensure accountability and make it hard to hide evidence of changes to the ledger.

Efficiency: Automated transactions (smart contracts) lead to faster settlement times and reduced costs of operation.

Inclusion: Underserved populations now have open access to financial tools.

Programmable Money: Smart contracts can serve as a foundation for new financial instruments.

Future Trends in Blockchain Finance

As blockchain finance hits the mainstream, we’re seeing technology and methodology evolve fast. Here are a few key trends to watch:

Institutional Adoption: Expect to see more institutions adopting digital currency in money markets, ETFs, foreign exchange, payments and lending. Expect to see real estate, equities, bonds and other instruments traded on the blockchain.

Cross-Border Payments: Blockchain can be used to reduce friction and streamline international payments—a huge incentive for global companies to explore the technology.

L1 and L2 Innovations: Scaling solutions like L1s on Avalanche will make blockchain more accessible for traditional enterprises, offering more capacity and customizability.

Why Avalanche for Blockchain Finance?

With guidance from our community, Avalanche continues to bea home for innovation in financial applications. Here are a few specific ways Avalanche supports finance:

Fast Time-to-Finality: Avalanche Consensus is a novel way of finalizing transactions that’s robust, scalable and decentralized, offering near-instant finality.

Native Stablecoins: Large institutions can mint stablecoin natively on Avalanche, without having to work with a bridge.

Customizable L1s: Developers can build their own L1 and customize virtually every aspect, to ensure they meet regulatory and permission requirements.

Lower Transaction Fees: Avalanche is always seeking to reduce costs and increase functionality for builders.

Application Ecosystem: Builders on Avalanche have developed a host of compatible applications for swapping, lending, borrowing, offering credit and more.

Blockchain Finance in Action

J.P. Morgan Explores Smart Contracts

Onyx by J.P. Morgan joined with Apollo Global to launch a proof-of-concept using smart contracts and tokenization to automate portfolio management. The solution also would include alternatives alongside liquid assets in discretionary portfolios.

The proof-of-concept shows how tokenization can lend efficiency and scalability to portfolio management, while also improving the user experience for interacting with blockchain.

Read the full press release here.

Citi Seeks to Transform Financial Services

Citi conducted a proof-of-concept with Avalanche’s Spruce Subnet to explore blockchain finance. They focused on addressing inefficiencies in the $10 trillion private assets market seeking to reduce manual operations, increase transparency and enforce standards.

The proof-of-concept was successful, demonstrating that tokenization can be effective in managing private asset transactions. Stakeholders found that Avalanche was a worthy environment for secure, scalable infrastructures in institutional finance.

Read the full story here

Franklin Templeton Launches a Tokenized Money Market Fund

Leading investment firm Franklin Templeton created an L1 money market on Avalanche to administer its Franklin OnChain U.S. Government Money Fund. Those who hold a BENJI token can gain access to the fund through the Benji Investments app, and Benji wallet holders can convert USDC stablecoin to fund investment in shares of the fund.

Avalanche’s compatibility, low time-to-finality and customizability made it an ideal platform for this mutual fund.

Read the full story here.

Building The Future of Blockchain Finance

It’s clear that blockchain finance isn’t just a fringe or speculative technology—it’s poised to be a leading component of the next financial era. Trustless, decentralized systems hold immense promise for increasing efficiency and facilitating smoother transactions. Beyond these benefits, the technology holds real promise for correcting systemic inequalities and increasing access to financial instruments.

The Avalanche team is committed to supporting a diverse community of developers for institutions large and small. Ready to join the community? Get started on Avalanche.