The Great Financial Convergence is Already Here
The question of whether traditional finance is eating DeFi or DeFi is disrupting TradFi has been definitively answered in 2024-2025: neither is consuming the other. Instead, a sophisticated convergence is underway where TradFi institutions are deploying $21.6 billion per quarter into crypto infrastructure while simultaneously DeFi protocols are building institutional-grade compliance layers to accommodate regulated capital. JPMorgan has processed over $1.5 trillion in blockchain transactions, BlackRock's tokenized fund controls $2.1 billion across six public blockchains, and 86% of surveyed institutional investors now have or plan crypto exposure. Yet paradoxically, most of this capital flows through regulated wrappers rather than directly into DeFi protocols, revealing a hybrid "OneFi" model emerging where public blockchains serve as infrastructure with compliance features layered on top.
The five industry leaders examinedâThomas Uhm of Jito, TN of Pendle, Nick van Eck of Agora, Kaledora Kiernan-Linn of Ostium, and David Lu of Driftâpresent remarkably aligned perspectives despite operating in different segments. They universally reject the binary framing, instead positioning their protocols as bridges enabling bidirectional capital flow. Their insights reveal a nuanced convergence timeline: stablecoins and tokenized treasuries gaining immediate adoption, perpetual markets bridging before tokenization can achieve liquidity, and full institutional DeFi engagement projected for 2027-2030 once legal enforceability concerns are resolved. The infrastructure exists today, the regulatory frameworks are materializing (MiCA implemented December 2024, GENIUS Act signed July 2025), and the capital is mobilizing at unprecedented scale. The financial system isn't experiencing disruptionâit's experiencing integration.
Traditional finance has moved beyond pilots to production-scale blockchain deploymentâ
The most decisive evidence of convergence comes from what major banks accomplished in 2024-2025, moving from experimental pilots to operational infrastructure processing trillions in transactions. JPMorgan's transformation is emblematic: the bank rebranded its Onyx blockchain platform to Kinexys in November 2024, having already processed over $1.5 trillion in transactions since inception with daily volumes averaging $2 billion. More significantly, in June 2025, JPMorgan launched JPMD, a deposit token on Coinbase's Base blockchainâmarking the first time a commercial bank placed deposit-backed products on a public blockchain network. This isn't experimentalâit's a strategic pivot to make "commercial banking come on-chain" with 24/7 settlement capabilities that directly compete with stablecoins while offering deposit insurance and interest-bearing capabilities.
BlackRock's BUIDL fund represents the asset management analog to JPMorgan's infrastructure play. Launched in March 2024, the BlackRock USD Institutional Digital Liquidity Fund surpassed $1 billion in assets under management within 40 days and now controls over $2.1 billion deployed across Ethereum, Aptos, Arbitrum, Avalanche, Optimism, and Polygon. CEO Larry Fink's vision that "every stock, every bond will be on one general ledger" is being operationalized through concrete products, with BlackRock planning to tokenize ETFs representing $2 trillion in potential assets. The fund's structure demonstrates sophisticated integration: backed by cash and U.S. Treasury bills, it distributes yield daily via blockchain, enables 24/7 peer-to-peer transfers, and already serves as collateral on crypto exchanges like Crypto.com and Deribit. BNY Mellon, custodian for the BUIDL fund and the world's largest with $55.8 trillion in assets under custody, began piloting tokenized deposits in October 2025 to transform its $2.5 trillion daily payment volume onto blockchain infrastructure.
Franklin Templeton's BENJI fund showcases multi-chain strategy as competitive advantage. The Franklin OnChain U.S. Government Money Fund launched in 2021 as the first U.S.-registered mutual fund on blockchain and has since expanded to eight different networks: Stellar, Polygon, Avalanche, Aptos, Arbitrum, Base, Ethereum, and BNB Chain. With $420-750 million in assets, BENJI enables daily yield accrual via token airdrops, peer-to-peer transfers, and potential DeFi collateral useâessentially transforming a traditional money market fund into a composable DeFi primitive while maintaining SEC registration and compliance.
The custody layer reveals banks' strategic positioning. Goldman Sachs holds $2.05 billion in Bitcoin and Ethereum ETFs as of late 2024, representing a 50% quarterly increase, while simultaneously investing $135 million with Citadel into Digital Asset's Canton Network for institutional blockchain infrastructure. Fidelity, which began mining Bitcoin in 2014 and launched Fidelity Digital Assets in 2018, now provides institutional custody as a limited purpose trust company licensed by New York State. These aren't diversionary experimentsâthey represent core infrastructure buildout by institutions collectively managing over $10 trillion in assets.
Five DeFi leaders converge on "hybrid rails" as the path forwardâ
Thomas Uhm's journey from Jane Street Capital to Jito Foundation crystallizes the institutional bridge thesis. After 22 years at Jane Street, including as Head of Institutional Crypto, Uhm observed "how crypto has shifted from the fringes to a core pillar of the global financial system" before joining Jito as Chief Commercial Officer in April 2025. His signature achievementâthe VanEck JitoSOL ETF filing in August 2025ârepresents a landmark moment: the first spot Solana ETF 100% backed by a liquid staking token. Uhm worked directly with ETF issuers, custodians, and the SEC through months of "collaborative policy outreach" beginning in February 2025, culminating in regulatory clarity that liquid staking tokens structured without centralized control are not securities.
Uhm's perspective rejects absorption narratives in favor of convergence through superior infrastructure. He positions Jito's Block Assembly Marketplace (BAM), launched July 2025, as creating "auditable markets with execution assurances that rival traditional finance" through TEE-based transaction sequencing, cryptographic attestations for audit trails, and deterministic execution guarantees institutions demand. His critical insight: "A healthy market has makers economically incentivized by genuine liquidity demand"ânoting that crypto market making often relies on unsustainable token unlocks rather than bid-ask spreads, meaning DeFi must adopt TradFi's sustainable economic models. Yet he also identifies areas where crypto improves on traditional finance: expanded trading hours, more efficient intraday collateral movements, and composability that enables novel financial products. His vision is bidirectional learning where TradFi brings regulatory frameworks and risk management sophistication while DeFi contributes efficiency innovations and transparent market structure.
TN, CEO and founder of Pendle Finance, articulates the most comprehensive "hybrid rails" strategy among the five leaders. His "Citadels" initiative launched in 2025 explicitly targets three institutional bridges: PT for TradFi (KYC-compliant products packaging DeFi yields for regulated institutions through isolated SPVs managed by regulated investment managers), PT for Islamic Funds (Shariah-compliant products targeting the $3.9 trillion Islamic finance sector growing at 10% annually), and non-EVM expansion to Solana and TON networks. TN's Pendle 2025: Zenith roadmap positions the protocol as "the doorway to your yield experience" serving everyone "from a degenerate DeFi ape to a Middle Eastern sovereign fund."
His key insight centers on market size asymmetry: "Limiting ourselves only to DeFi-native yields would be missing the bigger picture" given that the interest rate derivatives market is $558 trillionâroughly 30,000 times larger than Pendle's current market. The Boros platform launched in August 2025 operationalizes this vision, designed to support "any form of yield, from DeFi protocols to CeFi products, and even traditional benchmarks like LIBOR or mortgage rates." TN's 10-year vision sees "DeFi becoming a fully integrated part of the global financial system" where "capital will flow freely between DeFi and TradFi, creating a dynamic landscape where innovation and regulation coexist." His partnership with Converge blockchain (launching Q2 2025 with Ethena Labs and Securitize) creates a settlement layer blending permissionless DeFi with KYC-compliant tokenized RWAs including BlackRock's BUIDL fund.
Nick van Eck of Agora provides the crucial stablecoin perspective, tempering crypto industry optimism with realism informed by his traditional finance background (his grandfather founded VanEck, the $130+ billion asset management firm). After 22 years at Jane Street, van Eck projects that institutional stablecoin adoption will take 3-4 years, not 1-2 years, because "we live in our own bubble in crypto" and most CFOs and CEOs of large U.S. corporations "aren't necessarily aware of the developments in crypto, even when it comes to stablecoins." Having conversations with "some of the largest hedge funds in the US," he finds "there's still a lack of understanding when it comes to the role that stablecoins play." The real curve is educational, not technological.
Yet van Eck's long-term conviction is absolute. He recently tweeted about discussions to move "$500M-$1B in monthly cross-border flows to stables," describing stablecoins as positioned to "vampire liquidity from the correspondent banking system" with "100x improvement" in efficiency. His strategic positioning of Agora emphasizes "credible neutrality"âunlike USDC (which shares revenue with Coinbase) or Tether (opaque) or PYUSD (PayPal subsidiary competing with customers), Agora operates as infrastructure sharing reserve yield with partners building on the platform. With institutional partnerships including State Street (custodian with $49 trillion in assets), VanEck (asset manager), PwC (auditor), and banking partners Cross River Bank and Customers Bank, van Eck is constructing TradFi-grade infrastructure for stablecoin issuance while deliberately avoiding yield-bearing structures to maintain broader regulatory compliance and market access.
Perpetual markets may frontrun tokenization in bringing traditional assets on-chainâ
Kaledora Kiernan-Linn of Ostium Labs presents perhaps the most contrarian thesis among the five leaders: "perpification" will precede tokenization as the primary mechanism for bringing traditional financial markets on-chain. Her argument is rooted in liquidity economics and operational efficiency. Comparing tokenized solutions to Ostium's synthetic perpetuals, she notes users "pay roughly 97x more to trade tokenized TSLA" on Jupiter than through Ostium's synthetic stock perpetualsâa liquidity differential that renders tokenization commercially unviable for most traders despite being technically functional.
Kiernan-Linn's insight identifies the core challenge with tokenization: it requires coordination of asset origination, custody infrastructure, regulatory approval, composable KYC-enforced token standards, and redemption mechanismsâmassive operational overhead before a single trade occurs. Perpetuals, by contrast, "only require sufficient liquidity and robust data feedsâno need for underlying asset to exist on-chain." They avoid security token frameworks, eliminate counterparty custody risk, and provide superior capital efficiency through cross-margining capabilities. Her platform has achieved remarkable validation: Ostium ranks #3 in weekly revenues on Arbitrum behind only Uniswap and GMX, with over $14 billion in volume and nearly $7 million in revenue, having 70x'd revenues in six months from February to July 2025.
The macroeconomic validation is striking. During weeks of macroeconomic instability in 2024, RWA perpetual volumes on Ostium outpaced crypto volumes by 4x, and 8x on days with heightened instability. When China announced QE measures in late September 2024, FX and commodities perpetuals volumes surged 550% in a single week. This demonstrates that when traditional market participants need to hedge or trade macro events, they're choosing DeFi perpetuals over both tokenized alternatives and sometimes even traditional venuesâvalidating the thesis that derivatives can bridge markets faster than spot tokenization.
Her strategic vision targets the 80 million monthly active forex traders in the $50 trillion traditional retail FX/CFD market, positioning perpetuals as "fundamentally better instruments" than the cash-settled synthetic products offered by FX brokers for years, thanks to funding rates that incentivize market balance and self-custodial trading that eliminates adversarial platform-user dynamics. Co-founder Marco Antonio predicts "the retail FX trading market will be disrupted in the next 5 years and it will be done by perps." This represents DeFi not absorbing TradFi infrastructure but instead out-competing it by offering superior products to the same customer base.
David Lu of Drift Protocol articulates the "permissionless institutions" framework that synthesizes elements from the other four leaders' approaches. His core thesis: "RWA as the fuel for a DeFi super-protocol" that unites five financial primitives (borrow/lend, derivatives, prediction markets, AMM, wealth management) into capital-efficient infrastructure. At Token2049 Singapore in October 2024, Lu emphasized that "the key is infrastructure, not speculation" and warned that "Wall Street's move has started. Do not chase hype. Put your assets on-chain."
Drift's May 2025 launch of "Drift Institutional" operationalizes this vision through white-glove service guiding institutions in bringing real-world assets into Solana's DeFi ecosystem. The flagship partnership with Securitize to design institutional pools for Apollo's $1 billion Diversified Credit Fund (ACRED) represents the first institutional DeFi product on Solana, with pilot users including Wormhole Foundation, Solana Foundation, and Drift Foundation testing "onchain structures for their private credit and treasury management strategies." Lu's innovation eliminates the traditional $100 million+ minimums that confined credit facility-based lending to the largest institutions, instead enabling comparable structures on-chain with dramatically lower minimums and 24/7 accessibility.
The Ondo Finance partnership in June 2024 demonstrated Drift's capital efficiency thesis: integrating tokenized treasury bills (USDY, backed by short-term U.S. treasuries generating 5.30% APY) as trading collateral meant users "no longer have to choose between generating yield on stablecoins or using them as collateral for trading"âthey can earn yield and trade simultaneously. This composability, impossible in traditional finance where treasuries in custody accounts can't simultaneously serve as perpetuals margin, exemplifies how DeFi infrastructure enables superior capital efficiency even for traditional financial instruments. Lu's vision of "permissionless institutions" suggests the future isn't TradFi adopting DeFi technology or DeFi professionalizing toward TradFi standards, but rather creating entirely new institutional forms that combine decentralization with professional-grade capabilities.
Regulatory clarity is accelerating convergence while revealing implementation gapsâ
The regulatory landscape transformed dramatically in 2024-2025, shifting from uncertainty to actionable frameworks in both Europe and the United States. MiCA (Markets in Crypto-Assets) achieved full implementation in the EU on December 30, 2024, with remarkable compliance velocity: 65%+ of EU crypto businesses achieved compliance by Q1 2025, 70%+ of EU crypto transactions now occur on MiCA-compliant exchanges (up from 48% in 2024), and regulators issued âŹ540 million in penalties to non-compliant firms. The regulation drove a 28% increase in stablecoin transactions within the EU and catalyzed EURC's explosive growth from $47 million to $7.5 billion monthly volumeâa 15,857% increaseâbetween June 2024 and June 2025.
In the United States, the GENIUS Act signed in July 2025 established the first federal stablecoin legislation, creating state-based licensing with federal oversight for issuers exceeding $10 billion in circulation, mandating 1:1 reserve backing, and requiring supervision by the Federal Reserve, OCC, or NCUA. This legislative breakthrough directly enabled JPMorgan's JPMD deposit token launch and is expected to catalyze similar initiatives from other major banks. Simultaneously, the SEC and CFTC launched joint harmonization efforts through "Project Crypto" and "Crypto Sprint" in July-August 2025, holding a joint roundtable on September 29, 2025, focused on "innovation exemptions" for peer-to-peer DeFi trading and publishing joint staff guidance on spot crypto products.
Thomas Uhm's experience navigating this regulatory evolution is instructive. His move from Jane Street to Jito was directly tied to regulatory developmentsâJane Street reduced crypto operations in 2023 due to "regulatory challenges," and Uhm's appointment at Jito came as this landscape cleared. The VanEck JitoSOL ETF achievement required months of "collaborative policy outreach" beginning in February 2025, culminating in SEC guidance in May and August 2025 clarifying that liquid staking tokens structured without centralized control are not securities. Uhm's role explicitly involves "positioning the Jito Foundation for a future shaped by regulatory clarity"âindicating he sees this as the key enabler of convergence, not just an accessory.
Nick van Eck designed Agora's architecture around anticipated regulation, deliberately avoiding yield-bearing stablecoins despite competitive pressure because he expected "the US government and the SEC would not allow interest-bearing stablecoins." This regulatory-first design philosophy positions Agora to serve U.S. entities once legislation is fully enacted while maintaining international focus. His prediction that institutional adoption requires 3-4 years rather than 1-2 years stems from recognizing that regulatory clarity, while necessary, is insufficientâeducation and internal operational changes at institutions require additional time.
Yet critical gaps persist. DeFi protocols themselves remain largely unaddressed by current frameworksâMiCA explicitly excludes "fully decentralized protocols" from its scope, with EU policymakers planning DeFi-specific regulations for 2026. The FIT21 bill, which would establish clear CFTC jurisdiction over "digital commodities" versus SEC oversight of securities-classified tokens, passed the House 279-136 in May 2024 but remains stalled in the Senate as of March 2025. The EY institutional survey reveals that 52-57% of institutions cite "uncertain regulatory environment" and "unclear legal enforceability of smart contracts" as top barriersâsuggesting that while frameworks are materializing, they haven't yet provided sufficient certainty for the largest capital pools (pensions, endowments, sovereign wealth funds) to fully engage.
Institutional capital is mobilizing at unprecedented scale but flowing through regulated wrappersâ
The magnitude of institutional capital entering crypto infrastructure in 2024-2025 is staggering. $21.6 billion in institutional investments flowed into crypto in Q1 2025 alone, with venture capital deployment reaching $11.5 billion across 2,153 transactions in 2024 and analysts projecting $18-25 billion total for 2025. BlackRock's IBIT Bitcoin ETF accumulated $400 billion+ in assets under management within approximately 200 days of launchâthe fastest ETF growth in history. In May 2025 alone, BlackRock and Fidelity collectively purchased $590 million+ in Bitcoin and Ethereum, with Goldman Sachs revealing $2.05 billion in combined Bitcoin and Ethereum ETF holdings by late 2024, representing a 50% quarter-over-quarter increase.
The EY-Coinbase institutional survey of 352 institutional investors in January 2025 quantifies this momentum: 86% of institutions have exposure to digital assets or plan to invest in 2025, 85% increased allocations in 2024, and 77% plan to increase in 2025. Most significantly, 59% plan to allocate more than 5% of AUM to crypto in 2025, with U.S. respondents particularly aggressive at 64% versus 48% for European and other regions. The allocation preferences reveal sophistication: 73% hold at least one altcoin beyond Bitcoin and Ethereum, 60% prefer registered vehicles (ETPs) over direct holdings, and 68% express interest in both diversified crypto index ETPs and single-asset altcoin ETPs for Solana and XRP.
Yet a critical disconnect emerges when examining DeFi engagement specifically. Only 24% of surveyed institutions currently engage with DeFi protocols, though 75% expect to engage by 2027âsuggesting a potential tripling of institutional DeFi participation within two years. Among those engaged or planning engagement, use cases center on derivatives (40%), staking (38%), lending (34%), and access to altcoins (32%). Stablecoin adoption is higher at 84% using or expressing interest, with 45% currently using or holding stablecoins and hedge funds leading at 70% adoption. For tokenized assets, 57% express interest and 72% plan to invest by 2026, focusing on alternative funds (47%), commodities (44%), and equities (42%).
The infrastructure to serve this capital exists and functions well. Fireblocks processed $60 billion in institutional digital asset transactions in 2024, custody providers like BNY Mellon and State Street hold $2.1 billion+ in digital assets with full regulatory compliance, and institutional-grade solutions from Fidelity Digital Assets, Anchorage Digital, BitGo, and Coinbase Custody provide enterprise security and operational controls. Yet the infrastructure's existence hasn't translated to massive capital flows directly into DeFi protocols. The tokenized private credit market reached $17.5 billion (32% growth in 2024), but this capital primarily comes from crypto-native sources rather than traditional institutional allocators. As one analysis noted, "Large institutional capital is NOT flowing to DeFi protocols" despite infrastructure maturity, with the primary barrier being "legal enforceability concerns that prevent pension and endowment participation."
This reveals the paradox of current convergence: banks like JPMorgan and asset managers like BlackRock are building on public blockchains and creating composable financial products, but they're doing so within regulated wrappers (ETFs, tokenized funds, deposit tokens) rather than directly utilizing permissionless DeFi protocols. The capital isn't flowing through Aave, Compound, or Uniswap interfaces in meaningful institutional scaleâit's flowing into BlackRock's BUIDL fund, which uses blockchain infrastructure while maintaining traditional legal structures. This suggests convergence is occurring at the infrastructure layer (blockchains, settlement rails, tokenization standards) while the application layer diverges into regulated institutional products versus permissionless DeFi protocols.
The verdict: convergence through layered systems, not absorptionâ
Synthesizing perspectives across all five industry leaders and market evidence reveals a consistent conclusion: neither TradFi nor DeFi is "eating" the other. Instead, a layered convergence model is emerging where public blockchains serve as neutral settlement infrastructure, compliance and identity systems layer on top, and both regulated institutional products and permissionless DeFi protocols operate within this shared foundation. Thomas Uhm's framework of "crypto as core pillar of the global financial system" rather than peripheral experiment captures this transition, as does TN's vision of "hybrid rails" and Nick van Eck's emphasis on "credible neutrality" in infrastructure design.
The timeline reveals phased convergence with clear sequencing. Stablecoins achieved critical mass first, with $210 billion market capitalization and institutional use cases spanning yield generation (73%), transactional convenience (71%), foreign exchange (69%), and internal cash management (68%). JPMorgan's JPMD deposit token and similar initiatives from other banks represent traditional finance's responseâoffering stablecoin-like capabilities with deposit insurance and interest-bearing features that may prove more attractive to regulated institutions than uninsured alternatives like USDT or USDC.
Tokenized treasuries and money market funds achieved product-market fit second, with BlackRock's BUIDL reaching $2.1 billion and Franklin Templeton's BENJI exceeding $400 million. These products demonstrate that traditional assets can successfully operate on public blockchains with traditional legal structures intact. The $10-16 trillion tokenized asset market projected by 2030 by Boston Consulting Group suggests this category will dramatically expand, potentially becoming the primary bridge between traditional finance and blockchain infrastructure. Yet as Nick van Eck cautions, institutional adoption requires 3-4 years for education and operational integration, tempering expectations for immediate transformation despite infrastructure readiness.
Perpetual markets are bridging traditional asset trading before spot tokenization achieves scale, as Kaledora Kiernan-Linn's thesis demonstrates. With 97x better pricing than tokenized alternatives and revenue growth that placed Ostium among top-3 Arbitrum protocols, synthetic perpetuals prove that derivatives markets can achieve liquidity and institutional relevance faster than spot tokenization overcomes regulatory and operational hurdles. This suggests that for many asset classes, DeFi-native derivatives may establish price discovery and risk transfer mechanisms while tokenization infrastructure develops, rather than waiting for tokenization to enable these functions.
Direct institutional engagement with DeFi protocols represents the final phase, currently at 24% adoption but projected to reach 75% by 2027. David Lu's "permissionless institutions" framework and Drift's institutional service offering exemplify how DeFi protocols are building white-glove onboarding and compliance features to serve this market. Yet the timeline may extend longer than protocols hopeâlegal enforceability concerns, operational complexity, and internal expertise gaps mean that even with infrastructure readiness and regulatory clarity, large-scale pension and endowment capital may flow through regulated wrappers for years before directly engaging permissionless protocols.
The competitive dynamics suggest TradFi holds advantages in trust, regulatory compliance, and established customer relationships, while DeFi excels in capital efficiency, composability, transparency, and operational cost structure. JPMorgan's ability to launch JPMD with deposit insurance and integration into traditional banking systems demonstrates TradFi's regulatory moat. Yet Drift's ability to enable users to simultaneously earn yield on treasury bills while using them as trading collateralâimpossible in traditional custody arrangementsâshowcases DeFi's structural advantages. The convergence model emerging suggests specialized functions: settlement and custody gravitating toward regulated entities with insurance and compliance, while trading, lending, and complex financial engineering gravitating toward composable DeFi protocols offering superior capital efficiency and innovation velocity.
Geographic fragmentation will persist, with Europe's MiCA creating different competitive dynamics than U.S. frameworks, and Asian markets potentially leapfrogging Western adoption in certain categories. Nick van Eck's observation that "financial institutions outside of the U.S. will be quicker to move" is validated by Circle's EURC growth, Asia-focused stablecoin adoption, and the Middle Eastern sovereign wealth fund interest that TN highlighted in his Pendle strategy. This suggests convergence will manifest differently across regions, with some jurisdictions seeing deeper institutional DeFi engagement while others maintain stricter separation through regulated products.
What this means for the next five yearsâ
The 2025-2030 period will likely see convergence acceleration across multiple dimensions simultaneously. Stablecoins reaching 10% of world money supply (Circle CEO's prediction for 2034) appears achievable given current growth trajectories, with bank-issued deposit tokens like JPMD competing with and potentially displacing private stablecoins for institutional use cases while private stablecoins maintain dominance in emerging markets and cross-border transactions. The regulatory frameworks now materializing (MiCA, GENIUS Act, anticipated DeFi regulations in 2026) provide sufficient clarity for institutional capital deployment, though operational integration and education require the 3-4 year timeline Nick van Eck projects.
Tokenization will scale dramatically, potentially reaching BCG's $16 trillion projection by 2030 if current growth rates (32% annually for tokenized private credit) extend across asset classes. Yet tokenization serves as infrastructure rather than end-stateâthe interesting innovation occurs in how tokenized assets enable new financial products and strategies impossible in traditional systems. TN's vision of "every type of yield tradable through Pendle"âfrom DeFi staking to TradFi mortgage rates to tokenized corporate bondsâexemplifies how convergence enables previously impossible combinations. David Lu's thesis of "RWAs as fuel for DeFi super-protocols" suggests tokenized traditional assets will unlock order-of-magnitude increases in DeFi sophistication and scale.
The competitive landscape will feature both collaboration and displacement. Banks will lose cross-border payment revenue to blockchain rails offering 100x efficiency improvements, as Nick van Eck projects stablecoins will "vampire liquidity from the correspondent banking system." Retail FX brokers face disruption from DeFi perpetuals offering better economics and self-custody, as Kaledora Kiernan-Linn's Ostium demonstrates. Yet banks gain new revenue streams from custody services, tokenization platforms, and deposit tokens that offer superior economics to traditional checking accounts. Asset managers like BlackRock gain efficiency in fund administration, 24/7 liquidity provision, and programmable compliance while reducing operational overhead.
For DeFi protocols, survival and success require navigating the tension between permissionlessness and institutional compliance. Thomas Uhm's emphasis on "credible neutrality" and infrastructure that enables rather than extracts value represents the winning model. Protocols that layer compliance features (KYC, clawback capabilities, geographic restrictions) as opt-in modules while maintaining permissionless core functionality can serve both institutional and retail users. TN's Citadels initiativeâcreating parallel KYC-compliant institutional access alongside permissionless retail accessâexemplifies this architecture. Protocols unable to accommodate institutional compliance requirements may find themselves limited to crypto-native capital, while those that compromise core permissionlessness for institutional features risk losing their DeFi-native advantages.
The ultimate trajectory points toward a financial system where blockchain infrastructure is ubiquitous but invisible, similar to how TCP/IP became the universal internet protocol while users remain unaware of underlying technology. Traditional financial products will operate on-chain with traditional legal structures and regulatory compliance, permissionless DeFi protocols will continue enabling novel financial engineering impossible in regulated contexts, and most users will interact with both without necessarily distinguishing which infrastructure layer powers each service. The question shifts from "TradFi eating DeFi or DeFi eating TradFi" to "which financial functions benefit from decentralization versus regulatory oversight"âwith different answers for different use cases producing a diverse, polyglot financial ecosystem rather than winner-take-all dominance by either paradigm.