The creation of a bank like this doesn't happen every day. Just over a year ago, Peter Grosskopf and his colleagues at Unstoppable Finance thought up the Iron Bank project, which aims to become the first fully regulated blockchain bank. „With this venture, we are operating on two tracks, because alongside the bank, there is the Iron Chain project, which is naturally interconnected. We will establish the core banking system as our proprietory development on the Solana blockchain, and simultaneously offer banking services through our Chain in the form of DeFi protocols“, Grosskopf explained in a conversation with Börsen-Zeitung.

The advantage of a native blockchain infrastructure lies initially in interoperability through the „shared ledger“, preventing data from being trapped in silos and saving on processing costs. Additionally, after years of development, several blockchains now boast powerful transaction speeds. „Solana has achieved Mastercard-level transaction speeds as a Layer-1 infrastructure. This eliminates the need for Layer-2 blockchains for scaling, as seen with Ethereum," says Grosskopf.

The approach to commercialisation involves offering the blockchain infrastructure to other banks and financial services providers, enabling them to build their own Onchain business models. Operators of blockchain nodes (also called validators) earn from transaction fees. Grosskopf, one of the founders of Solarisbank and a driving force behind Banking-as-a-Service, which provided a regulated infrastructure for fintechs to swiftly market products with less capital, is keenly aware of this.

The challenge for a blockchain bank lies in setting up infrastructure and processes to ensure full regulatory compliance. With progress on the license application, the Iron Bank project is moving forward. „We are well advanced in document management for our initial submission. Having experience with license applications, we are handling this internally without external law firms. Despite uncertainties, I hope for a license to be granted within the next one to two years," says Grosskopf.

Grosskopf is not yet revealing where Iron Bank will be domiciled. It's not Germany – though the industry has clear views on where conditions are favourable for digital assets, that might not fall under the MiCA regulation.

Iron Bank intends to obtain licenses for deposit-taking and lending, utilizing tokenized deposits and interest-bearing instruments, currently excluded under MiCA. „We can utilize our own DeFi protocol to enable the exchange of various forms of digital money. Thus, as a regulated bank, we would act as the counterparty rather than a DAO, as typical in DeFi.“

In trade and custody, all tokenizable assets are fair game. Investors must accept that this occurs via „public blockchain“, not a private network. Basic IT compliance and audits are manageable, as Grosskopf notes, but meeting rules like Dora, concerning data security and outsourcing, will require significant DLT infrastructure effort. Development on the chain is progressing well, and a testnet will launch this year, connecting with the ecosystem of open-source developers.

„One major advantage of blockchain infrastructure in banking is its inherent transaction transparency, simplifying supervision“, Grosskopf says. „We are also addressing cybersecurity for complete data protection, along with IT compliance and governance mechanisms to meet requirements like the Digital Operational Resilience Act.“

With two funding rounds (totaling 17 million euros) and the sale of the Ultimate Wallet (to the Solana ecosystem's Jupiter), initial financing for operations is secure, alleviating current funding pressure. Nonetheless, there are plans to raise regulatory capital once a licence has been approved. This is what makes bank startups challenging from day one – regulatory frontloading in risk management, IT, process economics, and capitalisation.