Defi growth is impressive, but work remains to attract greater institutional adoption
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Even if the crypto-assembly ecosystem increases, stock market capitalizations remain near all time, and Tradfi institutions continue to deploy a range of products and services, a subset of the cryptographic ecosystem always seeks to recover the 2021 and 2022 excitement: decentralized finance. This may surprise certain crypto-native investors, because the total locked value increased to a new record of $ 130 billion according to Defillama research. These deposits, placed and managed in a blockchain or a DEFI protocol, have more than doubled since April and reflect the global change both in the political guidelines and the feeling of investors. Ironically, growth and deposits in the DEFI sector continue to tend to centralization, with three (3) players dominating space.
Aave has a TVL of more than $ 68 billion, which is the largest of all DEFI loan protocols, operates a loan protocol based on the swimming pool and, in August, launched an institutional platform allowing larger investors to participate. Morpho and Justlend complete the best players in the DEFI landscape, but both have significantly lower TVL offers and – in some cases – more limited offers. Despite these record levels of positive deposits and rear winds, institutional adoption and the use of DEFI continue to delay.
JPMorgan, itself one of the most innovative tradfi banks via its Kinexys suite (formerly ONYX) of chain products and services, recently noted the disappointing progress for the active assets and tokenized by institutions in the Trafi space. In particular, most of the activity and growth of DEFI comes from retail and / or cryptive retail institutions.
Let’s take a look at a few reasons for which DEFI, despite its growth and its registered deposits, always needs better regulations.
Interoperability and transversal evaluations
A common problem which continues to stall a broader use of deffi in the wider areas of the economy – both cryptocurrency and tradfi – are problems related to interoperability and liquidity between several channels. Although the most common manifestation of this takes the form of different evaluations for certain tokens when analyzed between the channels, which includes stablecoin assessments, there are other problems that DEFI must solve. First, the traceability and transparency of transactions, tokens and token workers as they move through the channels is something that should be standardized and improved to obtain institutional adoption.
In addition, although consumers have been the main engines of this recent increase in TVL DEFI, institutions of all kinds must have absolute confidence that transactions, payments and confirmations can occur in a transparent manner that in order using current payment rails and options. Just like the way Bitcoin has reached and maintained higher price levels, obtained political victories and generated increased interests once companies like Blackrock have entered space via Spot ETF products, DEFI will need tradfi companies to adopt DEFIRST options to generate similar growth.
Insurance and execution of smart contracts
A problem in progress in the wider cryptocurrency ecosystem, not limited to the DEFI space, is the standards and best practices still evolving linked to audit and insurance connected to blockchain, cryptoassets, and intelligent contracts which feed many of layer 2, web 3 and more innovative use cases which were deployed in the 2024-2025 Timespan. Cybercriminals having already stolen more than $ 2 billion in 2025, according to Defillama, an increase of 77% compared to 2024, the weaknesses of the DEFI ecosystem continue to prove to be lucrative for pirates and other criminal elements.
Although the intelligent contract space has certainly evolved considerably since initially the introduction, many organizations taking advantage of these applications, the fact remains that the standards, transparency and auditability of intelligent contracts are work in progress. This status provides several obstacles to the institutional adoption of DEFI. First, if organizations cannot trust intelligent contracts – or at least trust that problems can be resolved in a timely manner – customers and regulators will not be on board either. Second, in particular for listed organizations on the stock market, if audit and registers hold and traceability remain questions, organizations such as the SEC (even under the new Pro-Crypto regime) will hesitate to approve the related projects.
In short, the very intelligent contracts that power defies to the most important level continues to prove a point of weakness.
Scale and reliability
Finally and above all, the DEFI sector – even with nearly 200 billion dollars of total locked value – remains a tiny fraction of the overall loans and financial ecosystem. For contextual purposes, JP Morgan Chase reported a volume of daily payments of $ 10 billions of dollars in a recent winning press release. Crypto and crypto -adjacent products and services have experienced significant growth, adoption and acceptance since starting the last bears market by the collapse of the FTX, but are still – for all useful purposes – a marginal component of the financial world.
To remedy this, in addition to the points raised above, are directly linked to the capacity of protocols DEFI to evolve to meet customer demand as well as to respond to reliability, reversibility and potential hacking of intelligent contracts that underlie the protocols. An essential element of this process will both work to work on the Tradfi financial sector as well as the improvement of regulatory mechanisms such as KYC and AML guarantees. While the policy continues to rotate and produce rear winds compared to the opposite winds, it is reasonable to assume that this will happen, but investors and decision -makers must remain cautious before putting pressure for general use that the infrastructure is still prepared.
DEFI continues to grow, but the work remains to attract institutional membership.