Crypto-native asset managers quadruple holdings to $4 billion in 2023

Crypto-native asset managers have significantly increased their onchain holdings since the start of the year, with their capital base growing from approximately $1 billion to over $4 billion. This growth is indicative of a new class of asset managers that are increasingly leveraging decentralized finance (DeFi) as a back-end for their services. Major firms have locked in nearly $2 billion in the decentralized lending and borrowing platform Morpho Protocol, demonstrating the diverse range of opportunities being explored by these asset managers. Gauntlet, Steakhouse Financial, and Re7 collectively control two-thirds of the market share of total value locked by major crypto-native asset managers, underscoring their dominance in the sector.

The boom in crypto this year can be attributed to the deregulation efforts by the Trump administration in the US, which has instilled confidence in institutions to use crypto and DeFi protocols without the fear of regulatory scrutiny. This regulatory shift, coupled with the evolution of DeFi protocols, has changed institutional sentiment towards viewing DeFi as a complementary and configurable financial layer rather than a disruptive and ungoverned space. Institutions are increasingly using DeFi tools as an "invisible" back-end infrastructure, abstracting the complexity of DeFi to embed yield directly into their user experience. This enhances retention, opens new monetization avenues, and improves capital efficiency.

Centralized platforms are offering stablecoin yields in consumer-facing apps, with crypto exchange providing a yield on USDC deposits and payments giant offering the same for its stablecoin. The report also notes that the three main ways institutions use DeFi are by offering stablecoin yield, crypto yield, and crypto borrowing. These offerings abstract away the complexity of DeFi, making it more accessible to users. On the crypto borrowing and yield side, the report describes these types of offerings as the "DeFi Mullet" (fintech front, DeFi back), such as with crypto loan service that uses the Morpho Protocol.

User experience is emerging as a critical factor driving the adoption and ongoing capital "stickiness" of DeFi protocols. Users are increasingly weighing factors such as reliability, predictability, and overall user experience (UX). Platforms that simplify interactions, reduce friction (like gasless transactions), and build trust through reliability and transparency tend to retain users better over time. This focus on user experience is likely to drive further adoption and growth in the DeFi sector.