Institutional adoption may be a big opportunity, but a16z said that it is not simply an extension of DeFi.
TradFi institutions are adopting blockchain to improve their existing operations, not because they have embraced decentralization, venture capital firm a16z said in its latest report.
The technology helps lower operating costs, speed up settlement, expand distribution, and “tighten its grip” on customer relationships, which makes it a practical business tool rather than an ideological shift.
TradFi’s Blockchain Push
Institutions are not blending into DeFi as it exists today. Instead, a16z stated that they are adopting only the elements of DeFi that fit their regulatory, operational, and risk requirements while leaving behind features that do not. This selective approach is reshaping blockchain-based finance into something different from both traditional finance and current DeFi.
The result is an emerging form of programmable financial infrastructure designed to meet institutional needs while using the technology as its foundation.
According to a16z, initiatives such as JPMorgan’s permissioned blockchain for institutional deposits and tokenized money market funds from BlackRock and Franklin Templeton are not examples of institutions embracing DeFi. Instead, they are using blockchain to improve existing financial services like interbank settlements, fund subscriptions, and yield-bearing products.
They benefit from blockchain features such as programmability, transparency, and atomic settlement while intentionally avoiding core DeFi principles like open access, pseudonymity, and trustless execution. The focus is on making traditional financial infrastructure more efficient rather than adopting decentralized finance in its original form.
Crypto Must Look Beyond Wall Street
The blockchain capabilities now being adopted by institutions were first developed in open, permissionless ecosystems rather than inside banks or traditional financial firms. Those environments allowed developers to test new financial models and infrastructure. As a result, institutional adoption is largely built on innovations that originated in the open crypto ecosystem.
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The report argued that the industry should not focus too heavily on banks and asset managers simply because they are major customers. While traditional financial institutions represent an important source of demand, they do not define the industry’s full potential, and opportunities beyond TradFi should not be overlooked.
“Designing for institutional requirements is a legitimate and valuable pursuit, but it is only one lane, not the whole road.”
