Written by Lewis McLellan, Digital Monetary Institute editor, OMFIF

The integration of public blockchains into regulated financial infrastructure marks an epochal transition fraught with policy challenges, technical breakthroughs and a continual re-negotiation of trust and control. The last five years have seen blockchain mature from an experimental infrastructure into viable components of mainstream finance. Tokenisation, the digital representation of real-world assets on chain, is not mere theory. Institutional funds such as Franklin Templeton’s on-chain US Government Money Fund and Apollo’s ACRED credit token now anchor their market activity on public blockchains such as Aptos and Ripple’s XRPL. Citi predicts the tokenisation of up to $5 trillion in assets by 2030, a market shift echoed by McKinsey and Boston Consulting Group. Yet the promise is held back by regulatory inertia and a technical bias against open, permissionless blockchains — viewed as risky by institutions facing punitive capital requirements. Basel’s SCO60 rules treat freely accessible networks as “high risk”: a stance many consider antithetical to innovation.​

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Regulation at the crossroads

The report underscores a critical flaw in the regulatory playbook: archaic distinction between permissioned (private) and permissionless (public) chains. This binary lens ignores the profound evolution of blockchain protocols, blurring the lines between public and private, or open and closed. Regulators such as the US OCC and the European Banking Authority have begun rethinking these categories, signalling a shift toward function-driven rather than architecture-driven, policy frameworks. Legal liability in decentralised systems proves elusive but guidance is shifting to risk management of banks and issuers, not the protocols themselves — a subtle but vital change.​

Case study 1: Stellar’s proof-of-agreement

The Stellar blockchain upends conventional wisdom by offering a “proof-of-agreement” mechanism. Validators join via mutual trust, not computational brute force or stake accumulation. Unlike other models, transaction fees are burned rather than distributed to potentially unsavoury validators. This means compliance and neutrality without financial incentive for transaction manipulation. The mechanisms guiding entry and consensus have led to successful corporate partnerships and token issuance without catastrophic forks, showing regulators tailored solutions can deliver decentralisation with control.​

Case study 2: XRPL in on-chain settlement

Ripple’s XRPL has offered uninterrupted operation for over a decade, supporting institutional stablecoins and enabling enterprise integration. Here, permission to use the blockchain can be applied at the token or platform level, allowing KYC-compliant on-chain processes for large-scale finance. Ripple’s model shows that deterministic settlement and programmable compliance can be achieved on a public ledger, breaking the myth that open systems invite chaos or criminality. Ripple’s own acquisition of brokerage functions signals imminent convergence of crypto rails and traditional securities, a dynamic field for regulatory innovation.​

Case study 3: Hedera’s public-permissioned hybrid

Hedera’s architecture, led by Fortune 500 governance, exemplifies the emergence of public, permissioned chains with open-source transparency and auditable consensus. Technical finality and leaderless, Byzantine fault-tolerant design mean transaction history cannot be maliciously reversed, even with significant financial resources. By separating asset permissioning from protocol design, Hedera demonstrates operational resilience and compliance capabilities that satisfy capital market standards.​

Interoperability: the Achilles heel

One of blockchain’s greatest strengths — diverse, open networks — sows fragmentation. Semantic inconsistency in tokens, entitlement fragmentation and ill-defined cross-chain standards pose systemic risks. Industry initiatives such as Circle’s Cross-Chain Transfer Protocol and LayerZero’s interoperability standards offer a technical lifeline, underpinned by calls for regulators to set common meta-protocols and machine-readable asset profiles. Spain’s DLT Legal Registry is pioneering ledger-native legal standing, indicating financial market infrastructure will be built on law as much as code.​

Confidentiality and settlement finality: meeting market demands

Institutional users demand not only transparency for regulators but confidentiality for market operations. Solutions such as EY’s Project Nightfall use zero-knowledge proofs on Ethereum to enable private transactions in public systems. Meanwhile, settlement finality has shifted from the probabilistic world of proof-of-work blockchains to deterministic confirmation on modern chains, a prerequisite for regulated asset flows. Legal settlement (the moment an asset is truly “owned”) remains a sovereign decision, but technical rails are catching up fast.​

Policy recommendations: from theory to practice

Regulators are urged to abandon binary taxonomy and focus on operational risk, settlement finality, throughput, asset control and interoperability. Sandbox regimes in the EU (DLT Pilot), UK (Digital Securities Sandbox) and the US are already providing controlled environments to test new blockchain capabilities, fostering innovation without threatening market stability. The OMFIF report calls for risk management standards tailored to blockchain protocols and machine-readable legal frameworks, envisioning a digital financial system built on open collaboration rather than regulatory silos.​

The road ahead: integration, trust, accountability

Public blockchains are here to stay. The core breakthroughs for capital markets settlement (scalability, governance, auditability) have been achieved. The challenge is integration: making highly decentralised systems play well with incumbent frameworks, ensuring regulators can supervise activity, and protecting legal and technical settlement finality. Industry must converge on interoperability, transparency and machine-readable standards. Regulators must lead by example, harmonising oversight without prescribing technical architectures. Only then will the full promise of public blockchains — open, efficient, resilient financial infrastructure — be realised.

The integration of public blockchains into regulated finance marks a structural shift, not a technological fad. Tokenised assets, once dismissed as speculative wrappers are now embedded in institutional products, from Franklin Templeton’s on-chain money funds to Apollo’s tokenised credit. Analysts forecast trillions in tokenised assets by 2030, yet adoption remains throttled by outdated regulation that treats public networks as inherently “high-risk” rather than functionally distinct. Emerging models challenge that orthodoxy: Stellar’s trust-based consensus, XRPL’s institutional settlement rails and Hedera’s public-permissioned governance show decentralisation can co-exist with compliance and deterministic finality. The real bottleneck is interoperability. Without legal settlement frameworks, cross-chain standards and machine-readable asset definitions, tokenisation risks becoming a digital archipelago rather than the next-generation financial system. Regulators must shift from policing architecture to supervising outcomes, settlement assurance, auditability, identity and risk whilst industry must converge on standards that allow public infrastructure to plug into capital markets safely. The question is no longer technical feasibility, but governance.