TradFi Tomorrow: DeFi and the Rise of Extensible Finance

We surveyed 300 TradFi professionals—spanning institutions, roles, and regions—and the verdict was near-unanimous: today’s financial system is bogged down by inefficiencies that stifle economic growth and drain resources. The stakes are high, and the cost of inaction is higher. Many see DeFi as a transformative fix—a way to cut the fat and unlock real value. Our survey report makes the case: DeFi isn’t just an alternative; it’s the future TradFi is set to embrace. And that starts with supporting policies that let it thrive.

The full report can be accessed here.

Finding 1: More than two-thirds of TradFi firms are currently looking at DeFi

The current technology infrastructure and systems TradFi uses are labor intensive and require a significant amount of manual intervention. As a result, TradFi firms have been exploring the frontier. They are actively looking for ways to leverage technology to drive down costs, improve risk management, and streamline operational efficiency. Crypto is increasingly embedded in their strategies:

• TradFi firms see DeFi as a solution to operational efficiency problems.
• Almost nine out of every ten are actively investing in or researching ways to leverage the benefits of public blockchains.

TradFi is embracing its own disruption because it knows how much there is to gain from moving to DeFi-powered infrastructure.

Finding 2. TradFi firms think it’s inevitable that DeFi will eventually be critically important to most core businesses.

The data show plainly that TradFi thinks DeFi will eventually be of critical importance to their core products and business lines. This is all downstream of TradFi’s belief that DeFi will bring about actual improvements to the financial system.

We have come a long way from skeptics arguing DeFi will never be relevant outside of crypto. Now, TradFi believes DeFi is not only an inevitability but an opportunity.

Finding 3. TradFi rejects the notion that private blockchains are as valuable as public, permissionless blockchains.

Earlier last year we published research showing that central banks were abandoning proprietary blockchains and increasingly looking toward open-source software and public networks. Now, our survey data shows that most of the TradFi community believes that public, permissionless blockchains are critical for leveraging the benefits of things like smart contracts and tokenization.

It is critically important that such systems remain protected, and there needs to be strong incentives for developing and maintaining open, public infrastructure.

Finding 4. Today, TradFi is most interested in stablecoins, tokenized assets, and DEXs.

We see the most interest from TradFi in stablecoins, tokenized assets, and decentralized exchanges (DEXs), which correlates with increasing onchain volumes in those verticals.

These three “pillars” are necessary to turbocharge markets, as we now have (1) a settlement asset, (2) a generalized way to represent other assets, and (3) extensible protocols that can be used composably to effect financial transactions onchain.

In the next few years, we expect these charts to continue to go up and to the right.

Finding 5. The biggest headwind preventing DeFi from unlocking real economic efficiencies in the short term is the regulatory environment. Policymakers have a generational opportunity to accelerate.

TradFi understands both that DeFi is inevitable and that it represents an improvement over most of their current systems. In this way, they share the same basic view as much of crypto, which has fought to protect the open systems of DeFi so that this innovation is not chopped down before it reaches full flower. The primary obstacle to TradFi embracing crypto is not the need for more robust infrastructure or the absence of utility, but that many banking and market regulators are blocking TradFi firms, banks, exchanges, and funds, from accessing DeFi.

The time for watchful patience has come to an end. We are now four years removed from DeFi summer and have experienced a host of market events globally and in crypto that have shown DeFi’s anti-fragility. It is time for regulators to begin to open the sluicegates that have separated TradFi from DeFi and start allowing TradFi firms to embrace the possibility of this innovative technology.