JPMorgan: DeFi and Tokenization Lag as Institutional Interest Stays Low

JPMorgan analysts highlighted in a recent report that decentralized finance (DeFi) and asset tokenization have failed to meet expectations, despite the tokenization market reaching $25 billion in assets and $8 billion in bonds [1]. The report, led by Nikolaos Panigirtzoglou, emphasizes that total value locked (TVL) in DeFi protocols has not surpassed 2021 levels, even after two years of infrastructure development following the broader crypto market downturn. Most of the activity continues to be driven by crypto-native users rather than traditional institutional investors [1].

The bank’s research team noted that although compliance-focused tools such as permissioned lending pools and know-your-customer (KYC)-enabled vaults have emerged, institutional participation in DeFi has not significantly increased. These developments have not led to broader engagement with DeFi protocols, with regulatory uncertainty and unresolved legal questions about on-chain asset classification continuing to hinder institutional involvement [1].

Smart contract security concerns further discourage large-scale capital commitments to DeFi platforms. Institutional cryptocurrency activity remains predominantly focused on Bitcoin, which trades around $116,371. This preference for established assets over newer DeFi protocols and tokenized alternatives highlights the sector’s limited appeal among institutional investors [1].

Asset tokenization has shown some promise but has not achieved meaningful scale. While the $25 billion in tokenized assets represents growth from previous years, most initiatives remain experimental or serve niche markets with limited liquidity. Projects such as BlackRock’s BUIDL platform and Broadridge’s Distributed Ledger Repo platform have demonstrated efficiency improvements, but they have not expanded beyond their initial scope or attracted widespread adoption [1].

Private market tokenization faces additional challenges, with activity concentrated among a small number of participants rather than creating broad market access. Secondary trading remains minimal across most tokenized private assets, limiting their appeal to investors seeking liquidity [1].

Traditional investors continue to question the value proposition of blockchain technology. The transparency of most blockchain networks conflicts with institutional preferences for private trading venues, as seen in the growing market share of dark pools in equity trading. JPMorgan’s analysis also suggests that traditional financial technology has improved significantly, addressing many of the issues blockchain was originally expected to resolve [1].

Payment systems, settlement networks, and trading platforms have become faster and more efficient within traditional frameworks, reducing the urgency for blockchain adoption. The bank’s team argues that regulatory clarity alone will not drive institutional demand for blockchain-based solutions, as traditional alternatives continue to evolve and improve [1].

In conclusion, JPMorgan’s assessment suggests that DeFi and tokenization face structural challenges beyond regulatory clarity. The preference for established financial infrastructure among institutional investors may persist even as blockchain technology matures. Traditional finance’s continued innovation in speed and efficiency reduces the competitive advantage that blockchain solutions once promised to provide.

The concentration of institutional crypto activity in Bitcoin rather than DeFi protocols indicates that institutions view cryptocurrency primarily as an asset class rather than a technological platform. This perspective limits the potential for broader blockchain adoption across traditional financial services [1].

Source:

[1] JPMorgan: DeFi and Tokenization Underperform Expectations Despite $25 Billion Market (https://coinmarketcap.com/community/articles/6894e612d451fb53687c51de/)