Blockchain in Financial Intermediation and Beyond: Institutional Barriers, Welfare Gains, and a Pathway to Diffusion

Blockchain-enabled instruments are increasingly entering financial intermediation, challenging traditional institutions. While adoption is accelerating, recent events - such as the 2022/3 cryptocurrency scandals – have exposed regulatory gaps, heightening the urgency for policy reform.
This paper examines the barriers to adopting blockchain-enabled Financial Intermediation Services (FIS). Drawing on theories of technology innovation and diffusion, we propose a conceptual framework that identifies three core, interconnected barriers: regulatory, technological, and environmental. We highlight key points of misalignment between blockchain and existing institutional structures and supplement our analysis with a stylized model illustrating how these frictions shape the comparative advantage of blockchain-based over traditional FIS.
We argue that lowering these barriers would be particularly welfare-enhancing in emerging markets, where blockchain can foster more inclusive and decentralized financial systems. Finally, we outline practical strategies to support responsible adoption, including regulatory harmonization (e.g., the EU’s MiCA framework) and technical advances such as Ethereum 2.0, which address scalability, speed, and energy efficiency. While significant challenges remain, the potential societal and economic gains from blockchain diffusion justify continued research and policy engagement.