The biggest risk facing digital assets is infrastructure concentration
- Forward look: As the regulatory landscape for digital assets becomes clearer, it is vital that stablecoin reserves, custody and settlement services, and the provision of liquidity not be concentrated within a small number of companies.
- What’s at stake: If an increasing share of the digital dollars end up relying on the same banks, the same custodians, the same liquidity providers and the same settlement channels then failures at those institutions can ripple well beyond any individual firm.
- Forward look: More chartered, supervised providers spread concentration risk rather than amplify it.
The crypto industry has been demanding regulatory clarity for years.
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That’s a good thing. Institutional adoption requires clear rules. Banks, asset managers, payment companies and public corporations are unable to deploy billions of dollars into a market subject to shifting regulatory interpretations. Regulations alone do not create resilience. In fact, if policymakers aren’t careful, the next big risk in digital money won’t be a lack of oversight. It will be concentration.
The prevailing view is that digital assets and stablecoins are building
The truth is more complicated. The purpose of MiCA, proposed U.S. laws and similar frameworks around the world is not to replace digital money from banks. It is to bring it closer to them. Increasingly, stablecoin reserves are being parked in bank deposits and government debt. More custody is falling into the hands of regulated providers. Redemption is a function of access to banking liquidity. Digital money can flow in different directions, but it is still closely tied to traditional financial institutions.
That is not a flaw. It’s a feature of a regulated financial system.
The danger is that much of that system depends on so few institutions. The most obvious example was in 2023. When Silicon Valley Bank failed, more than $3 billion of reserves backing USDC were temporarily frozen. USDC lost its peg to the dollar and market confidence evaporated almost immediately. The blockchain didn’t fail. Stablecoin technology did not fail. A banking dependency failed.
The collapse of Signature Bank exposed a similar vulnerability. Signature operated one of the biggest settlement networks that connected digital asset companies to dollars. And with the bank’s disappearance, the vital channel for moving liquidity disappeared as well.
These events uncovered an uncomfortable truth: Digital money is only as strong as the institutions that back it.
This is important because regulation can unintentionally increase concentration. The next systemic risk may not come from the stablecoins themselves, but from the fact that an increasing share of digital money could eventually depend on the same handful of banks, custodians and settlement channels. Over time reserves, custody, settlement and the provision of liquidity migrate to fewer providers who can absorb those costs.
We’ve seen this dynamic before. Regulators ramped up oversight of the financial system after the 2008 financial crisis. It was, in many ways, a safer system, but also one where critical functions became increasingly concentrated in a relatively small group of institutions. Digital money may end up the same way.
The focus on regulatory compliance has sometimes diverted the industry’s attention from a more important question: Where does risk build up once regulation is in place?
If an increasing share of the digital dollars end up relying on the same banks, the same custodians, the same liquidity providers and the same settlement channels then failures at those institutions can ripple well beyond any individual firm. Concentration is a vulnerability, whether the underlying asset is a bank deposit, a money market fund or a stablecoin.
The lesson is not that regulation creates concentration. The design of regulation determines the opening or closing of the field of providers. That’s good as far as the direction of the Office of the Comptroller of the Currency and Securities and Exchange Commission.
More than a decade after the OCC allowed federal chartering to go dormant, Comptroller Jonathan Gould has resuscitated the practice. In 2025, the agency got the same number of charter applications as it did the previous four years and conditionally approved five national trust bank charters for digital asset firms in December. In Washington, some fear there are too many banks being formed. The bigger risk is the opposite: A system that is served by too few institutions is more fragile, not less. More chartered, supervised providers spread concentration risk rather than amplify it.
This is where the decision will be made on the next phase of the market.
Usually, most banks don’t want to build their own digital asset custody systems, wallet infrastructure, trading connectivity, tokenization platforms, compliance frameworks and governance controls. They shouldn’t have to. Just as banks rely on specialized providers across payments, securities processing, and financial technologies, digital assets will increasingly depend on infrastructure providers that support institutions to participate safely.
The strongest infrastructure providers won’t be the ones that lock institutions into a closed model. Instead, they’ll be the ones that give institutions the flexibility to work across custodians, counterparties, liquidity providers, and settlement networks, while maintaining secure access and operational controls.
The goal is not to diminish the role of banks. Banks are essential to liquidity, reserves, credit creation and regulated market access. The aim should be to create a digital asset ecosystem where critical functions such as custody, liquidity and settlement are resilient, interoperable and not overly reliant on a single institution or a small number of providers.
The biggest misconception in finance today is that digital money is leaving the banking system. In fact, it’s actually going back to it. The question is whether that future is built on open, regulated infrastructure that allows many institutions to participate safely, or whether critical functions are concentrated in ways that make the whole ecosystem more fragile.
Regulation will determine who can participate. The level of concentration will determine the resilient nature of the system. The system is not merely a rule defined over time. Its definition will be whether liquidity, custody and settlement are backed by resilient infrastructure, or concentrated in ways that make the whole market fragile.
