Programmable money disintermediates banks. The core utility of a bank—custody, clearing, and settlement—is a software function. Stablecoins like USDC and USDT execute these functions on public blockchains, settling in seconds for fractions of a cent, bypassing the correspondent banking network entirely.
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The Future of Banking: Disintermediated by CBDCs and Stablecoins
A technical analysis of how direct central bank liabilities to consumers and corporations bypass traditional credit intermediation, forcing commercial banks to compete for deposits and fundamentally reshaping their role.
introduction
THE DISINTERMEDIATION
Introduction
The banking industry's core functions are being unbundled by programmable digital currencies, rendering traditional intermediaries optional.
CBDCs are a defensive play. Central Bank Digital Currencies are not innovation but a regulatory response to stablecoin dominance. They represent a state's attempt to retain monetary sovereignty and control the rails, creating a new, permissioned layer of financial infrastructure.
The endgame is composability. The future system is a competitive mesh of liquidity pools and smart contracts. Protocols like Aave and Compound already perform credit functions, while cross-chain bridges like LayerZero and Wormhole enable global settlement, making geography and legacy bank partnerships irrelevant.
key-trends
THE END OF INTERMEDIATION
Executive Summary: The Three-Pronged Attack
The incumbent banking model faces a simultaneous assault from three distinct, technologically superior vectors, each targeting a core pillar of its business.
01
The Problem: Rent-Seeking Settlement Layers
Traditional cross-border payments rely on a cobweb of correspondent banks, each taking a cut. This creates ~3-5 day settlement times and 6-8% average cost for remittances. The system is a black box of fees.
- Inefficiency: SWIFT messages are just IOUs; actual settlement lags.
- Cost: Multi-layered intermediation extracts value without adding any.
- Opacity: End-users cannot trace payments or predict final arrival amounts.
3-5 Days
Settlement
6-8%
Avg. Cost
02
The Solution: Programmable Stablecoins (USDC, DAI)
Algorithmic and fiat-backed stablecoins create a native digital dollar that settles on-chain in ~15 seconds for <$1. This disintermediates correspondent banks by making the asset and its settlement rail the same thing.
- Direct Ownership: Users hold the actual settlement asset, not a bank ledger promise.
- Composability: Enables DeFi protocols like Aave and Compound for instant lending/borrowing.
- Transparency: Every transaction is publicly verifiable on Ethereum, Solana, or other L1s.
~15s
Settlement
$130B+
Combined TVL
03
The Solution: Wholesale CBDCs (Project mBridge, Jura)
Central banks are building wholesale CBDC networks to bypass commercial banks for international settlements. These are permissioned blockchains for institutions, offering atomic cross-border swaps.
- Sovereign Control: Central banks retain monetary policy levers and oversight.
- Institutional-Only: Targets the $5T+/day forex market, not retail users.
- Strategic Threat: Co-opts blockchain efficiency while potentially freezing out public stablecoins like USDC from core banking channels.
Atomic
Settlement
$5T+/Day
Target Market
04
The Solution: Retail CBDCs (Digital Yuan, eNaira)
Retail CBDCs are a state-issued digital currency that gives central banks a direct liability relationship with citizens. This disintermediates commercial banks from payments and deposits, threatening their primary revenue source.
- Direct Monetary Tool: Enables programmable fiscal policy (e.g., expiry dates on stimulus).
- Surveillance Risk: Enables full transaction traceability and potential social scoring.
- Defensive Move: A strategic response to the existential threat posed by global stablecoins.
100%
Traceable
$260B+
e-CNY Txn Volume
05
The Problem: Fragmented Monetary Sovereignty
Nation-states are losing control over the monetary layer within their borders. Global stablecoins operate extraterritorially, and crypto dollars can flow more freely than native currency, undermining capital controls and monetary policy transmission.
- Currency Substitution: Citizens in unstable economies prefer USDT over local fiat.
- Policy Lag: Central bank rate changes are slow to affect on-chain credit markets.
- Sovereign Risk: The monetary base becomes a function of Circle and Tether's reserves, not the central bank.
Global
Jurisdiction
>50%
FX in Some Nations
06
The Synthesis: The Hybrid Future (Regulated DeFi)
The end-state is not a single winner, but a hybrid system. Wholesale CBDCs will settle between central banks, regulated stablecoins (like USDC) will power most consumer and commercial DeFi, and retail CBDCs will exist in authoritarian or highly controlled economies. Banks that survive will become node operators and compliance layers, not custodians of value.
- Interoperability: Bridges like LayerZero and Wormhole will connect these spheres.
- New Rent Extraction: Fees will shift from settlement to oracle services, identity attestation, and smart contract auditing.
- Inevitable: The technology for disintermediation exists; the battle is now over its governance.
Hybrid
Architecture
New Rent
Extraction Points
thesis-statement
THE DISINTERMEDIATION
The Core Argument: Credit Creation Without the Bank
CBDCs and stablecoins bypass traditional banks by enabling peer-to-peer credit creation on public ledgers.
Credit is a ledger entry. Traditional banking creates credit by recording a liability (your deposit) and an asset (a loan) on its private ledger. A public blockchain like Ethereum or Solana is a superior, shared ledger for this function.
Stablecoins are primitive credit instruments. USDC and DAI represent a claim on an underlying asset, but their issuance is permissioned and custodial. The next evolution is algorithmic credit markets like Aave and Compound, where users directly lend and borrow assets peer-to-peer.
CBDCs disintermediate deposit-taking. A retail CBDC held in a digital wallet at the central bank removes the need for commercial bank deposits. This starves banks of their primary funding source, forcing them to compete for funding in open markets.
Evidence: The DeFi lending sector, led by Aave and Compound, has consistently facilitated over $10B in active loans, demonstrating robust demand for non-custodial credit outside traditional banking channels.
LIQUIDITY VECTORS
The Deposit Flight: On-Chain vs. Off-Chain Liquidity
A technical comparison of deposit yield and risk vectors across traditional banking, CBDC rails, and permissionless stablecoin protocols.
| Feature / Metric | Traditional Bank Deposit | Wholesale CBDC (e.g., JPM Coin, mBridge) | Permissionless Stablecoin (e.g., USDC, DAI, crvUSD) |
|---|---|---|---|
Primary Custodian | Licensed Bank | Central Bank / Consortium Bank | Smart Contract (e.g., Maker, Aave) |
Yield Source | Bank Loans & Treasuries (~4.5% APY) | Overnight Repo / Central Bank Rate (~5.0% APY) | DeFi Lending Pools (e.g., Aave) & LSTs (~3-8% APY) |
Settlement Finality | T+2 Business Days | < 10 Seconds (DLT) | ~12 Seconds (Ethereum) |
Programmability | False | Conditional Logic (e.g., smart contracts) | Composable Smart Contracts (e.g., Uniswap, Compound) |
Counterparty Risk | Bank Solvency (FDIC insured to $250k) | Central Bank / Consortium Solvency | Protocol & Collateral Solvency (e.g., USDC blacklist risk) |
Global Access | Geofenced by Jurisdiction | Geofenced by Consortium | Permissionless (Any Internet Connection) |
Operational Cost (Basis Points) | 150-250 bps (Compliance, Branches) | 20-50 bps (DLT Infrastructure) | 5-15 bps (Gas & Protocol Fees) |
Liquidity Composability | False | Within Consortium Network | Cross-Protocol (e.g., Curve Wars, EigenLayer restaking) |
deep-dive
THE ARCHITECTURAL SHIFT
Mechanics of Disintermediation: From Wholesale to Retail
Disintermediation is a technical process that dismantles the traditional banking stack, replacing its layered functions with programmable, atomic protocols.
Disintermediation is not destruction but replacement. The current banking stack—correspondent banking, SWIFT, ACH—is a fragile network of trusted intermediaries. Programmable money protocols like Circle's USDC and MakerDAO's DAI replace these layers with deterministic, on-chain logic for issuance and settlement.
Wholesale disintermediation targets interbank rails. Projects like JPMorgan's Onyx and Project Guardian experiment with permissioned DeFi for FX and repo markets. This creates a hybrid model where regulated entities use blockchain to bypass correspondent banks but retain control over the entry layer.
Retail disintermediation bypasses deposit-taking. A user holds a non-custodial wallet with direct central bank liability via a CBDC or a fully-backed stablecoin. This eliminates the bank's role in credit creation and payment processing, transferring monetary sovereignty to the individual.
The endpoint is a unified settlement layer. Whether wholesale CBDCs or public stablecoins, all value converges on a global settlement substrate like Ethereum or Solana. The bank becomes an optional service provider for identity and advisory, not a mandatory financial gatekeeper.
counter-argument
THE INSTITUTIONAL REALITY
Steelman: Why Banks Will Adapt (And Why They Might Not)
A clear-eyed analysis of the structural incentives and technical barriers that will dictate the pace of banking's evolution.
Regulatory arbitrage is the primary catalyst. Banks will adopt tokenized deposits and private permissioned ledgers to retain control over compliance and KYC/AML, creating a walled-garden DeFi ecosystem that mirrors public chains like Ethereum but with trusted participants.
The settlement layer will bifurcate. High-value interbank transactions will migrate to wholesale CBDC rails for finality, while consumer-facing applications will interface with public chains via regulated gateways like Circle's CCTP or Polygon's Supernets for liquidity.
Legacy tech debt creates a massive moat. Core banking systems from Fiserv and FIS are monolithic and cannot be replaced. Adaptation means building middleware abstraction layers, a process slower than startup innovation but inevitable due to trillions in locked assets.
The failure case is ossification. Banks that treat blockchain as a marketing checkbox will build inefficient, closed-loop systems. Success requires embracing interoperability standards like the Tokenized Asset Coalition's frameworks to avoid irrelevance.
risk-analysis
THE FUTURE OF BANKING: DISINTERMEDIATED BY CBDCS AND STABLECOINS
The Bear Case: Systemic Risks and Unintended Consequences
The rise of programmable money threatens the traditional banking model, but its path is paved with systemic risks and profound unintended consequences.
01
The Problem: The Commercial Bank Run Amplifier
CBDCs and high-velocity stablecoins could trigger instantaneous, system-wide bank runs. Traditional deposit flight took days; digital runs happen in ~seconds. This creates a permanent liquidity crisis for banks reliant on deposits for lending.
- Instantaneous Disintermediation: A single API call can move billions from a bank to a USDC or CBDC wallet.
- Collapse of Maturity Transformation: Banks cannot fund 30-year mortgages with flighty, on-demand digital deposits.
- Systemic Contagion: A run on one protocol (e.g., a de-pegged DAI or FRAX) could cascade across the entire digital money ecosystem.
~seconds
Run Speed
>60%
Deposits At Risk
02
The Problem: Programmable Surveillance & Censorship
CBDCs are not neutral infrastructure; they are monetary policy with code-enforceable rules. This creates unprecedented state capacity for financial surveillance and control, a core tenet of China's digital yuan (e-CNY) pilot.
- Negative Interest Rates Enforced: Central banks could program wallets to levy fees, making hoarding cash digitally impossible.
- Expiration Dates & Geo-Fencing: Money could be programmed to expire for stimulus or be unusable in specific jurisdictions.
- Blacklist-by-Default: The OFAC-sanctioned Tornado Cash precedent shows how easily permissionless access can be revoked, turning open rails into controlled gates.
100%
Transaction Traceability
0
Privacy Default
03
The Problem: Fragmentation & The New Monetary Babel
A multi-currency world of sovereign CBDCs and private stablecoins (USDT, USDC, EURC) fragments liquidity and creates currency competition at the application layer. This isn't interoperability; it's monetary chaos.
- Settlement Layer Wars: Will FedNow, EU's digital euro, and Circle's USDC on Solana interoperate? Unlikely without centralized bridges.
- Smart Contract Incompatibility: A DeFi protocol must now manage risk across a dozen different legal and technical settlement systems.
- The End of the Dollar's Network Effect: The technical ease of currency substitution could erode the USD's dominance faster than any geopolitical shift.
50+
CBDC Projects
$140B+
Stablecoin TVL
04
The Problem: The Death of Privacy & Cash-Like Anonymity
Digital bearer assets are a contradiction. Fully traceable ledgers (Bitcoin, Ethereum) or permissioned CBDC systems eliminate the fundamental privacy of physical cash, creating a panopticon for all economic activity.
- Total Financial Transparency: Every coffee purchase becomes a permanent, analyzable public or state-recorded fact.
- Chilling Effects on Dissent: Donations to controversial causes become impossibly risky under programmable money regimes.
- Privacy Tech as a Felony: Technologies like zk-proofs (e.g., Zcash, Tornado Cash) become existential threats to state control, guaranteeing regulatory conflict.
0%
Cash-Like Privacy
Permanent
Ledger Record
05
The Problem: Centralized Points of Failure
Disintermediating banks merely concentrates risk into new, untested choke points: the stablecoin issuers (Circle, Tether) and CBDC ledger operators. These are now systemically critical Single Points of Failure (SPOFs).
- Issuer Solvency Risk: The entire $110B+ USDT ecosystem hinges on Tether's opaque reserves and legal standing.
- Technical SPOFs: A bug in the Federal Reserve's CBDC ledger or a compromise of Circle's private keys would freeze the economy.
- Regulatory Kill Switch: A single enforcement action against a major issuer could collapse liquidity across DeFi (Aave, Compound) and TradFi simultaneously.
1
Issuer = SPOF
$110B+
Concentrated Risk
06
The Problem: The Illusion of Neutral Infrastructure
The promise of 'neutral rails' is a myth. All monetary systems encode politics. The fight over MEV (Maximal Extractable Value) on Ethereum and the OFAC-compliance of validators proves that infrastructure is governance.
- Validator Censorship: Over 50% of Ethereum blocks are already OFAC-compliant, censoring transactions.
- Governance Capture: Who controls the upgrade keys to a CBDC or a major stablecoin's smart contract? It's a more powerful role than any central banker.
- Monetary Policy by Algorithm: DeFi's 'neutral' lending rates (Compound, Aave) are pro-cyclical amplifiers, crashing exactly when stability is needed most.
>50%
Censored Blocks
Pro-Cyclical
DeFi 'Policy'
future-outlook
THE HYBRID REALITY
The 24-Month Outlook: Hybrid Models and Regulatory Arbitrage
The future of banking is a hybrid system where regulated stablecoins and CBDCs coexist, forcing incumbents to adapt or be disintermediated.
The hybrid model wins. Pure decentralization fails for mass adoption due to compliance and user experience gaps. The next 24 months will see regulated stablecoins like USDC and wholesale CBDCs become the dominant settlement rails, while DeFi protocols like Aave and Compound provide the yield and utility layer.
Disintermediation targets the middle, not the ends. Banks will not disappear but their role will shrink to custodians and KYC/AML providers. The real value shifts to the on-chain application layer, where protocols like Uniswap and MakerDAO directly intermediate capital and credit.
Regulatory arbitrage drives innovation. Jurisdictions with clear frameworks, like Singapore (MAS) and the EU (MiCA), will attract the next wave of compliant DeFi. This creates a competitive landscape where the best monetary technology, not just the strictest rules, captures global liquidity.
Evidence: The combined market cap of USDC and USDT exceeds $150B, dwarfing the transactional volume of most national CBDC pilots. This demonstrates that private, regulated money currently outcompetes state-issued digital currency in open markets.
takeaways
THE DISINTERMEDIATION PLAYBOOK
TL;DR for Protocol Architects and VCs
The future of banking is a battle for the settlement layer, where programmable money renders traditional intermediaries obsolete.
01
The Problem: The 3-Day Float
Traditional cross-border payments are a $150T/year market held hostage by correspondent banking. Value is trapped in nostro/vostro accounts for days, creating massive settlement risk and ~6.5% average cost. The system is a trust-based messaging network, not a value transfer protocol.
- Latency: 2-5 business days
- Cost: 3-7% of transaction value
- Opacity: No real-time tracking
$150T
Annual Volume
3-5 days
Settlement Lag
02
The Solution: Programmable Stablecoin Rails
On-chain stablecoins like USDC, USDT, DAI provide a global, 24/7 settlement layer. Smart contracts replace custodians and correspondents, enabling atomic swaps and composable DeFi. This is the foundational plumbing for the new financial system.
- Finality: ~12 seconds (Ethereum) vs. 3 days
- Cost: <$1 for any size transfer
- Composability: Direct integration with Aave, Compound, Uniswap
$160B+
Stablecoin TVL
>99%
Cost Reduction
03
The Wedge: CBDCs as On-Ramp, Not Competitor
Wholesale CBDCs (wCBDCs) are not competitors to stablecoins; they are their primary fiat on-ramp. Protocols that can interface with FedNow, Project mBridge, or the ECB's digital euro will capture the liquidity gateway. The play is infrastructure, not issuance.
- Market Access: Direct link to $100T+ in institutional liquidity
- Regulatory Shield: Operating within sanctioned monetary rails
- Key Entities: Ripple, Fnality, Partior
130+
CBDC Projects
2025-2030
Adoption Horizon
04
The Endgame: Autonomous Financial Agents
Disintermediation's final stage removes human decision-making. Smart contract wallets (ERC-4337) and intent-based protocols (UniswapX, CowSwap) allow users to delegate transaction construction. Banking becomes a set of permissionless, automated services.
- Architecture Shift: From application-specific to user-centric
- Key Primitive: Account Abstraction enabling gas sponsorship & batch ops
- Efficiency: MEV recapture and optimal routing via Across, Socket
0-Click
User Experience
~$1B
Annual MEV
05
The Risk: Regulatory Re-Intermediation
The greatest threat is not technical failure but regulatory capture. Travel Rule (FATF-16), MiCA, OFAC sanctions can force centralization at the fiat gateway. The winning protocols will be those that maximize credibly neutral settlement while complying at the edges.
- Attack Vector: KYC/AML on stablecoin issuers (Circle, Tether)
- Compliance Tech: Zero-Knowledge KYC, Chainalysis Oracle
- Strategic Imperative: Decouple compliance logic from settlement logic
100+
Global Jurisdictions
#1 Risk
For VCs
06
The Bet: Who Captures the Value?
Value accrues to the liquidity layer and the execution layer, not the application UI. This means L1/L2 base fees, cross-chain messaging (LayerZero, CCIP), and intent solvers. The "bank of the future" is a hyper-optimized, automated market maker.
- Value Capture: Transaction fees & MEV, not spread
- Moats: Liquidity depth, solver network effects, regulatory licenses
- Metrics to Watch: Protocol Revenue, TVL, Cross-Chain Volume
$10B+
Annual Fees at Scale
Infrastructure
Winning Vertical
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