This episode dismantles the hype around institutional crypto adoption, revealing why public blockchains are fundamentally unsuited for banks and what a compliant, private, and interconnected future actually requires.
The Real Story of Institutional Crypto Adoption
- Homegrown Institutions: The first wave involved crypto-native firms like Cumberland (which Eric co-founded) growing into institutional-sized players. As Eric puts it, "the quote unquote dgens became institutions."
- Traditional Finance Experiments: Since as early as 2014, major banks like J.P. Morgan have been building their own private blockchain solutions, indicating a long-standing need for controlled, permissioned environments.
- Key Inflection Points: Sarani identifies two major drivers of broader interest:
- The rise of stablecoins, which appeal beyond the "crypto casino."
- The tokenization of Real-World Assets (RWAs), which unlocks access to previously constrained asset classes.
The Genesis of Cumberland and Canton Network
- Cumberland's Thesis: Inspired by market makers in traditional finance, the goal was to provide a reliable two-way market in crypto, helping to build a "larger flywheel" of activity.
- Identifying the Gap: It became clear that institutions lacked a proper entry point to use crypto rails for actual financial workflows. This insight spurred the creation of Digital Asset in 2014.
- A Decade of Building: The development of Canton Network was a long-term project focused on addressing the fundamental features that large institutions require, which were glaringly absent from public blockchains.
Why Public Blockchains Fail Institutions: Privacy and Control
- Privacy as a Threshold Issue: Publicly broadcasting transaction data is a non-starter for any serious financial institution. Sarani notes, "It doesn't make any sense that anybody in the world would know how much money I have or what position a trading firm has." He points out that even Satoshi Nakamoto recognized Bitcoin's need for privacy.
- The Need for Controlled Environments: The "one-size-fits-all" model of a single, pseudonymous validator set (like in Ethereum or Solana) is inappropriate for regulated assets like treasuries or equities. Institutions need to define their own trust models, validator sets, and jurisdictional constraints.
- Incentive Misalignment: Sarani critiques Ethereum's incentive model, which exclusively rewards infrastructure providers (miners/validators) while extracting value from the application layer that drives adoption. In contrast, Canton Network allocates 50% of its network rewards to the applications that generate volume, directly incentivizing ecosystem growth.
Bitcoin's Evolving Role: Collateral, Not a DeFi Platform
- Utility vs. Simplicity: While some utility is necessary to avoid "curiosification," Sarani cautions against introducing major changes to Bitcoin's core protocol. He views L2s and bridging mechanisms as more appropriate ways to extend its utility.
- Bitcoin as Institutional Collateral: Its deep liquidity and 24/7 transferability make it a "no-brainer" for use as collateral, similar to a treasury bond. It is already used at scale for two primary purposes:
- Borrowing Cash: Pledging Bitcoin to borrow cash for other investments.
- Capital Efficiency: Using Bitcoin to meet margin requirements on derivatives exchanges.
The Misconception of Institutional Stablecoin Use
- Sarani delivers a provocative take on stablecoins, stating, "the institutions are not really using stable coins today." He argues that their product-market fit is confined to the "crypto casino" and that using them on public blockchains for institutional use cases like payroll or B2B payments is "deeply inappropriate" due to privacy risks.
- Privacy and Physical Risk: Paying an Uber driver with a public stablecoin would reveal their entire financial history, creating a physical safety risk.
- Corporate Confidentiality: Running payroll on a public chain would leak every employee's salary and bonus, a non-starter for most companies.
- The Hyper-Concentration Fallacy: The proposed solution of having everyone use a single custodian like Coinbase or Stripe to obscure transactions defeats the purpose of decentralization and introduces significant counterparty risk.
- Regulatory and Accounting Hurdles: For audited firms, stablecoins are often not treated as a cash equivalent on the balance sheet, creating significant friction for adoption.
Canton Network: A New Paradigm for Privacy and Composability
- Pragmatic Privacy: In Canton, an issuer like Circle must have full visibility over all USDC transactions, and they can permission auditors like Elliptic or TRM to have the same view. Parties not involved in a transaction have zero visibility.
- A Network of Networks: Unlike monolithic blockchains like Ethereum or Solana, which Sarani describes as "singleton databases," Canton is a heterogeneous network. Applications can choose their own validator sets, infrastructure, and trust models—from fully centralized to fully decentralized.
- Preserving Composability: Composability is the ability to combine different assets and workflows from separate applications into a single, atomic transaction. Sarani argues this is the most critical technological breakthrough for RWAs. Canton preserves composability across its entire fragmented network through a shared ordering layer.
- How it Works: While different applications run on independent validator sets, they can perform a composable transaction by sharing a common synchronizer (an ordering service) for that specific update, guaranteeing atomicity without sacrificing privacy.
The Canton Ecosystem and Its Moat
- Current Users:
- By Notional Value: Major financial players like Broadridge, Goldman Sachs, HSBC, and BNP Paribas are running large-scale applications for repo, feeder funds, and commodity settlements.
- By Daily Volume: A growing ecosystem of wallets (Copper, Fireblocks, Ledger), stablecoins, and early DeFi protocols (DEXes, AMMs) are driving daily activity.
- The Future of DeFi on Canton: Sarani predicts the next evolution beyond AMMs (Automated Market Makers) and CLOBs (Central Limit Order Books) will be dark pools—private, compliant trading venues for institutional-grade DeFi.
- The Long-Term Moat: The ultimate defensibility lies in the network effects of its interconnected capital markets ecosystem. The ability to atomically settle transactions between entities like Broadridge, DTCC, and major banks on a single network creates a powerful, differentiated value proposition that public chains cannot replicate.
Conclusion
This discussion reveals that true institutional adoption requires infrastructure built for privacy, control, and interoperability—not transparency. For investors and researchers, the key is to look beyond public chain metrics and focus on platforms like Canton that solve the foundational problems preventing trillions in capital from moving on-chain.
