This could be big. If banks are able to offer custody, users could see the benefits of crypto while also enjoying the protections and security of banks. No more storing crypto on exchanges and hot wallets.
This will drive mainstream adoption of crypto. We had to register with Gemini and CoinBase just to properly cash out crypto to banks. Now there will be more than just a couple gateways. Imagine if the banks would start to custody crypto. They’d start issuing loans backed by them. They’d develop new applications.
But this will also go in both directions, and the whole banking industry will become more decentralized. The whole early DeFi world right now is mostly around stablecoins and crypto lending. But we will have decentralized software replacing many services that banks are providing.
This is just like the early days of the World Wide Web, where only execs at Magazines and Newspapers were able to create new content, and then all you needed was a web server and some software developers. Or when execs on Radio and TV channels were able to create new content, but after the early days of YouTube and Spotify etc, anyone with recording equipment and software can produce their own channel.
I feel like for now banks wouldn’t really issue loans backed by crypto though. The asset class is still too volatile. Overcollateralization is one way to enhance the credit quality of the asset but in traditional finance it takes multiple enhancements usually before investors (institutional especially) are willing to bite (i.e. insurance on the loan)
Wel, stablecoins are being rolled out by Gemini and others. There are crypto-collateralized ones and there are ones backed by audited reserves. They form the backbone of the new DeFi. Institutions park some money and represent it in essentially a public blockchain like Ethereum. Then people can use DeFi apps with the resulting tokens.