JPMorgan: Institutional Interest in DeFi Remains Low Amid Regulatory and Structural Hurdles

JPMorgan’s latest research highlights a lack of institutional interest in the decentralized finance (DeFi) sector, despite ongoing innovation and retail enthusiasm. According to the firm’s analysts, led by Nikolaos Panigirtzoglou, traditional finance players have not shown the same level of engagement with DeFi as crypto-native participants or retail investors. This is reflected in DeFi’s total value locked (TVL), which remains well below its 2021 peak, signaling a slow recovery since the 2022 market crash [1].

The report points to several structural and regulatory challenges as key deterrents. Global regulatory fragmentation, unclear legal status for on-chain assets, and persistent concerns about the reliability of smart contracts continue to hinder institutional adoption. Despite the introduction of compliance-driven tools such as permissioned lending pools and KYC-enabled systems, JPMorgan finds that these have done little to shift the stance of institutional investors. The firm argues that while such innovations aim to align DeFi with traditional financial standards, they have yet to address deeper issues of trust and operational complexity [1].

Regulatory developments, including the U.S. Securities and Exchange Commission’s (SEC) “Project Crypto,” are seen as incremental steps toward modernizing oversight, but JPMorgan remains unconvinced that these measures alone will overcome long-standing institutional hesitations. The firm notes that many traditional investors are simply not convinced of DeFi’s utility, particularly in comparison to existing fintech solutions that already offer improved speed and efficiency in financial transactions [1].

The report also touches on the broader landscape of tokenization, where interest from institutions has been similarly muted. Only approximately $25 billion in assets have been tokenized to date, largely driven by crypto-native entities rather than traditional financial institutions. Tokenized assets such as bonds and money market funds, including BlackRock’s BUIDL, have faced limited secondary trading and uneven adoption. While private credit tokenization is showing some growth, it remains concentrated among a small number of market participants [1].

JPMorgan’s analysis suggests that the core issue lies not only in regulatory uncertainty but in the perceived lack of tangible value that DeFi offers to traditional finance. Institutions, which prioritize stability, transparency, and risk control, often favor off-chain solutions such as “dark pools” for sensitive trades, rather than adopting blockchain-based alternatives. The firm concludes that while DeFi and tokenization hold theoretical potential, real demand from institutional investors remains absent — at least for now [1].

Source:

[1] Coindoo – https://coinmarketcap.com/community/articles/6894ee41d451fb53687c5203/