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Why Institutions Are Finally Taking DeFi Seriously

  • Writer: Harsim Ranjit Singh
    Harsim Ranjit Singh
  • Dec 2, 2024
  • 4 min read

Updated: Apr 14

December 2, 2024 | DeFi | Crypto | By Harsim Ranjit Singh


Institutional interest in decentralized finance (DeFi) has accelerated in recent years, moving beyond exploratory proofs-of-concept to real on-chain transactions. A key turning point was improved infrastructure and compliance solutions that address prior barriers. For example, major financial firms like JPMorgan and DBS executed foreign exchange and bond trades on public DeFi protocols (Aave and Uniswap) in a Monetary Authority of Singapore pilot, calling it a “monumental step forward for DeFi”1. Such pilots demonstrated that regulated banks can leverage DeFi while meeting KYC/AML requirements through permissioned participation and verified credentials.


Several factors explain why institutions are taking DeFi seriously now:


  1. Yield Opportunities & Market Conditions: In a low-yield environment post-2020, DeFi’s higher returns drew attention. Even as interest rates rose in 2022–2023, DeFi began offering “real yield” from fees (trading fees, lending interest) rather than just token incentives. For instance, leading decentralized exchange GMX generated over $98 million in fee revenue in 20232, much of which was paid out to token holders, showcasing sustainable cash flows. Institutions recognize these on-chain yields as a new source of return uncorrelated to traditional markets.


    Institutional DeFi Adoption: Key Milestones (2020–2025)
    Institutional DeFi Adoption: Key Milestones (2020–2025)

  2. Post-Crisis Confidence: The resilience of DeFi during CeFi crises has been noted by executives. DeFi protocols continued operating transparently through events like the 2022 exchange failures. This highlighted the benefit of “code is law” – automated, rules-based finance without single points of failure. As BlackRock’s CEO, Larry Fink remarked, “the next generation for markets, the next generation for securities, will be tokenization” on blockchains3. Such endorsements signal growing confidence that on-chain finance is here to stay.


  3. Infrastructure Maturity: The institutional DeFi infrastructure has matured. There are now providers (e.g. Anchorage, Fireblocks) enabling secure key management and multi-user controls, compliant on-chain execution, and integration with core banking systems. Multi-party computation (MPC) wallets and policy-based approvals allow firms to participate in DeFi while adhering to internal governance processes4. Additionally, advanced blockchain analytics tools (Chainalysis, TRM) can flag illicit addresses, helping institutions avoid sanctioned counterparties even in pseudonymous networks.


    On-Chain Yield vs Traditional Finance: A 2023 Comparison
    On-Chain Yield vs Traditional Finance: A 2023 Comparison

  4. Regulatory Engagement: Global hubs have started engaging with DeFi through sandboxes and guidance, easing institutional trepidation3. Singapore, Hong Kong, and the UAE (Dubai/Abu Dhabi) have been proactive in this regard. Singapore’s Project Guardian (MAS) in 2022–2023 brought banks into DeFi pilots under regulatory oversight5. In the EU, new regulations like MiCA (Markets in Crypto-Assets Regulation) are clarifying rules for digital assets, and while DeFi protocols aren’t directly regulated under MiCA yet, the direction of travel is toward greater legal certainty6. In the US, even amid uncertainty, federal agencies (like the U.S. Treasury) acknowledge DeFi’s growth and are studying its risks and benefits, which is a prelude to tailored policy7. This regulatory dialogue gives institutions more confidence to participate, anticipating that compliance frameworks will solidify.


  5. Case Studies of Adoption: Real-world case studies are proving DeFi’s value. Regional banks and asset managers have tapped DeFi for liquidity and settlement. For instance, France’s Société Générale and a U.S. community bank each worked with MakerDAO to finance loans via on-chain collateral, directly linking traditional banking with DeFi8. In Asia and the Middle East, large banks (Standard Chartered, HSBC, SBI) have announced tokenization initiatives that involve DeFi connectivity, such as issuing tokenized bonds or deposits that can interface with decentralized protocols9. These early movers report efficiency gains like near-instant settlement and 24/7 market access.


Institutional Case Studies in DeFi
Institutional Case Studies in DeFi

Overall, institutions are taking DeFi seriously because the risk-reward profile has shifted. The combination of robust yields, better risk management, increased regulatory clarity, and successful pilots suggests DeFi can complement traditional finance rather than merely challenge it. As a result, surveys show a notable jump in institutional sentiment: 17% of family offices were bullish on crypto in 2023 (up from 8% the prior year)10, and 91% of institutional investors expect to invest in tokenized assets (like on-chain bonds) by 20269. DeFi is no longer viewed as a fringe experiment but as a strategic area where early adoption can yield competitive advantages in efficiency and returns.


Institutional engagement with decentralized finance (DeFi) is clearly at an inflection point. Driven by a more mature infrastructure, clearer regulatory guidance, robust on-chain yield opportunities, and proven resilience in market crises, DeFi has evolved from a niche experiment into a legitimate component of mainstream financial operations. As institutions increasingly embrace DeFi, their participation not only enhances market legitimacy but also accelerates further innovation, fostering a future where traditional finance and decentralized protocols coexist seamlessly.



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