Traditional Finance Embraces Blockchain Technology While Keeping DeFi at Arm’s Length

Traditional financial institutions are selectively adopting blockchain technology that can make existing financial systems more efficient, rather than embracing decentralized finance itself, a16z Crypto said.

In a post on X on July 15, the firm wrote that institutions are prioritizing tangible business benefits such as lower costs, payment efficiency and improved capital efficiency over the philosophy of decentralization. That suggests traditional finance and DeFi are not converging into a single system, as some had expected. Instead, institutions are picking and choosing specific functions from DeFi.

A16z Crypto said institutions are actively evaluating blockchain-based tools such as programmable money, tokenized collateral and automated pricing mechanisms. Those features can narrow the gap between trade execution and final settlement. They can also automate tasks such as interest payments and margin settlement that were previously handled manually.

By contrast, DeFi’s open architecture, anonymity and irreversible execution model pose challenges for traditional finance, the firm said.

Traditional finance is not adopting DeFi itself, but selectively bringing in blockchain technology that fits existing business models, a16z Crypto added. Institutional financial infrastructure and the open DeFi ecosystem are likely to evolve as complementary systems rather than competitors.

A16z Crypto cited JPMorgan’s Kinexys blockchain platform and tokenized money market funds from BlackRock and Franklin Templeton as leading examples of blockchain technology being applied in traditional finance without full DeFi adoption.

Stablecoins were also cited as a representative case. A16z Crypto said that while stablecoins are digital currencies built on blockchain technology, institutions such as banks do not treat them as DeFi tools. Instead, they are using them as infrastructure to improve cross-border payments and the efficiency of fund transfers.