For years, Wall Street dismissed Decentralized Finance (DeFi) as a peripheral experiment, viewing it as a volatile space suited for online speculators. That perception is changing dramatically as renowned financial institutions begin to embrace and integrate DeFi technology into their core operations. Major players such as BlackRock, JPMorgan, and Franklin Templeton are now forging pathways between traditional finance and the burgeoning realm of digital finance, signalling a transformative shift in the industry.
At the heart of this transformation is the concept of tokenization—a process that allows real-world assets like private loans, office buildings, and government debt to be converted into digital tokens. This innovation facilitates quicker transactions and liquidity for assets that were previously difficult to sell, creating what experts believe could evolve into a market valued at $18.9 trillion by the end of the decade, according to the Boston Consulting Group.
Tokenization proves beneficial for all parties involved. Traditional finance gains access to a global, 24/7 marketplace for its often cumbersome assets while DeFi gains stability through tangible assets with verifiable value. BlackRock’s BUIDL fund exemplifies this shift, aiming to place U.S. Treasuries on public blockchains. With the fund reportedly nearing $2 billion in assets, it underscores the appetite among institutions for on-chain products that offer immediate yield and swift settlement.
Franklin Templeton has been a pioneer in the tokenization space and provides a tokenized Treasury fund across multiple blockchains, including Stellar and Solana. Collectively, the industry for tokenized funds has rapidly grown into a $10 billion sector.
DeFi’s appeal for large institutions lies in its provision of solutions for long-standing challenges in the financial sector. Technologies facilitating “atomic settlement” allow trades to clear instantly, eradicating the uncertainties associated with the existing trading frameworks that rely on delayed settlements. JPMorgan’s Kinexys platform is already processing approximately $2 billion daily through this model, settling foreign exchange transactions almost instantaneously.
Moreover, tokenizing assets unlocks cash that would remain otherwise tied up, enabling a broader range of assets to be utilized as collateral for loans. The transparency embedded within these transactions, observable on public ledgers, fosters trust and allows stakeholders—including regulators and business partners—to engage with a shared version of reality.
The framework supporting this transition has become clearer, too. In July 2025, the GENIUS Act was enacted in the United States, establishing a legal basis for stablecoins by requiring them to be backed by real dollars and outlining a licensing framework to alleviate institutional uncertainties.
Similarly, Europe has introduced the MiCA regulations, resulting in a surge of 45% in institutional investments directed toward compliant crypto enterprises. Nevertheless, figures like Christine Lagarde of the ECB are advocating for further regulation on stablecoins issued outside the EU. Singapore’s Project Guardian signifies a different approach; it involves significant banks working within a live testing environment to refine policies related to asset tokenization.
For institutions entering the DeFi space, security and compliance remain paramount. A new class of digital asset custodians—such as Anchorage Digital, Coinbase Custody, and BitGo—have emerged to provide secure storage for digital assets, often leveraging intricate cryptographic techniques. Even traditional financial institutions like BNY Mellon are establishing connections between older financial systems and newer technologies.
However, an underlying discord persists regarding whether this new model can be classified as true DeFi. The requirement for compliance and control by institutions raises questions about the fundamental principles of decentralization. This tension persists in an environment that still grapples with the technical limitations of existing blockchain infrastructures to process the massive transaction volumes typical of Wall Street.
The future may not ultimately favor a wholesale replacement of traditional finance with crypto alternatives. Instead, the landscape is evolving into a hybrid system where the functions of banks and asset managers are shifting. They are moving from being mere gatekeepers to becoming expert navigators within an increasingly complex financial ecosystem. As technological advancements and regulatory clarity solidify, the trickle of institutional investment into DeFi is poised to swell, potentially reshaping the global capital landscape for the long term.
