An Open Letter to the Financial Industry on the Future of Interoperability

Networks are the most powerful tool we've ever invented for human flourishing and creativity. They let people with different ideas, experiences, and resources find each other to compete, collaborate, and build, moving the world forward in ways no one could do alone.

The internet revolution showed what happens when anyone can exchange information with anyone else: Our lives transformed completely, and whole industries appeared that nobody planned for. Money hasn't had that moment yet.

Tokenization and blockchain were supposed to give us this. Program money and assets just like you program a website. Bring together all types of assets and financial primitives into a single shared ledger. Settle any type of transaction with anyone in the world in seconds without worrying about reconciliation.

That is what first excited me about the industry, and we’ve made real progress on this vision. The world's biggest financial institutions are tokenizing money and securities, connecting to public networks, joining shared/consortium networks, and migrating their legacy ledgers to blockchain-based ones.

But each new network and asset tends to become its own island with a limited set of participants and liquidity. Value flows easily within the network, but the benefits of tokenization evaporate at the edges. We lose the programmability, the low fees, the shared view of settlement. In theory, you can connect these networks and assets through messaging bridges, market makers, on/off-ramps, payment processors, and the like. Each creates a choke point at the network edge: a new fee, a security dependency, or a liquidity constraint. The result is fragmentation and a quiet race to build the best choke points.

I spend most of my time with banks, payment networks, central banks, and other companies trying to build better tokenized financial products for consumers and businesses. Ask any of them what the hardest problem is, and they'll say interoperability or fragmentation. It comes up in nearly every session at every conference. It’s the reason many tokenization pilots die on the vine. They say, “Great, I tokenized an asset. Now what can my customers do with it? Where can they use it?” The answer depends on paying the gatekeepers.

We've seen this pattern before. Before the internet, plenty of computer networks existed. Companies ran their own networks on proprietary IBM and DEC protocols. Consumers dialed into CompuServe, Prodigy, and AOL. Apple even tried its hand. It was better than being alone, just as tokenized assets are better than the alternative, but it was deeply inefficient. Users on one service often couldn't message users on another.

This fragmentation harmed users and the world because a network's value is proportional to the square of its size. It only benefited the largest closed networks, which could extract massive fees. When presented with the idea of packet switching, which is the foundation of the modern internet, AT&T’s Jack Osterman supposedly said, “First, it can’t possibly work, and if it did, damned if we are going to allow the creation of a competitor to ourselves.”

Eventually, network operators couldn't resist the massive value global interconnectivity created for their customers, and TCP/IP became the global networking standard. It lets any network connect to any other without giving up control of its own. It won because it was free, open, and publicly governed. Once it existed, closed networks had a choice: connect or slowly shrink into irrelevance, like their competitors. That pressure eventually turned a set of competitive networks into a global network that no one owns.

Finance needs its own TCP/IP: open standards and protocols for moving assets and data between traditional and digital asset ledgers, compatible across very different technology stacks, owned by no one (not a company, and not a token or its holders either), and built by many.

This is why we are contributing IBC to the LF Decentralized Trust (LFDT), the open source foundation for decentralized technologies within the Linux Foundation. Established in 2013, the Linux Foundation is the largest steward of open source technologies in the world. LFDT is the home of flagship digital ledger technologies like Hyperledger, used by hundreds of companies worldwide.

Since the first IBC transaction in 2021, the protocol has achieved global adoption. Today, standards-based, open source, network-agnostic, application-agnostic, battle-tested with tens of billions in volume, and not attached to a token. Now, under the LFDT, it has a neutral, transparent, open, contributor-led governance structure.

We’re grateful to hundreds of developers who have contributed to and used IBC around the world over the last half-decade. We’re thrilled that two dozen financial institutions, blockchain ecosystems, and technology companies sponsored the contribution to the LF Decentralized Trust. And we’re honored to welcome developers from OpenZeppelin and Datachain as voting maintainers, alongside our own team members. All of these users and contributors are open source owners of IBC now.

I'm incredibly optimistic about where this goes, because our goal is to create the largest financial network on the planet; larger than any asset, blockchain, or business. That means building a movement, not just a protocol. Institutions are moving money onto digital ledgers; the technology works, and there's broad agreement that solving fragmentation will generate global growth. We’re already supporting a half-dozen teams to add new application standards, ecosystems, and security mechanisms that we wouldn’t have thought of. More engineers are working on IBC than ever.

If you work on or care about financial infrastructure, I'd love to welcome you to the movement. We’re building the largest financial network in the world. You already own it, so you might as well use it.