Trillions of dollars in fusion begin: TradFi and DeFi move towards a new era of symbiosis

According to forecasts, the blockchain market size is expected to reach $49 billion by 2025, with its growth engine increasingly shifting toward the deep integration of cryptocurrencies and TradFi. Giants like BlackRock, Fidelity, and JPMorgan are entering through spot Bitcoin and Ethereum ETFs, marking the transformation of digital assets from speculative fringe assets into mainstream strategic asset classes. Currently, 88% of banks worldwide are involved in blockchain services, showcasing a modern revolution in financial infrastructure centered on compliance and institutionalization. This integration not only injects trillions of dollars of liquidity into the market but also signals the birth of a new hybrid financial ecosystem that combines the robustness of TradFi with the innovation of DeFi.

Institutional Wave: Crypto Assets Moving from Margins to Financial Core

In the past, “cryptocurrencies” and “TradFi institutions” seemed to exist in parallel universes, observing each other with little intersection. However, the current landscape is entirely different. The institutionalization of cryptocurrencies is unfolding with unprecedented depth and breadth. It is no longer just a simple story of hedge funds allocating Bitcoin; instead, it represents a systemic, profound transformation of financial infrastructure. The core features of this new phase are the maturity of liquidity, regulation, and technology, which together blur the once-clear boundaries between TradFi and decentralized finance.

Today’s institutions are adopting licensed custody and trading platforms, AML/KYC-compliant DeFi protocols, and increasingly large-scale real-world asset tokenization projects. Represented by JPMorgan’s Onyx and Société Générale’s EURCV stablecoin, blockchain technology is being deeply embedded into daily operations of global banking. The management assets of spot Bitcoin ETFs by BlackRock and Fidelity have accumulated over a trillion dollars in a short period, providing compliant access for mainstream investors and publicly affirming that crypto assets have shifted from alternative investments to a foundational financial infrastructure layer. As forecasted, by 2034, stablecoins may account for 10% of the global money supply, serving as a key bridge connecting TradFi efficiency with DeFi innovation.

This process is fundamentally a two-way adaptation and evolution. The crypto world is learning to integrate into existing regulatory and operational frameworks, while TradFi must evolve to harness blockchain’s transparency, automation, and cost-efficiency advantages. The outcome is not merely “who acquires whom,” but the emergence of a hybrid financial architecture designed for scale, security, and innovation. This marks a critical turning point in financial evolution: digital assets are no longer just trading targets but are becoming the underlying engines reshaping capital flows, asset creation, and value settlement.

Strategic Shift: Why TradFi Must Embrace Blockchain

The attitude of TradFi giants toward cryptocurrencies has shifted from cautious observation to strategic embrace. The catalyst for this change was undoubtedly the approval of the first spot Bitcoin ETFs by the US SEC in early 2024. This regulatory milestone instantly opened compliant investment channels for pension funds, insurance companies, and large asset managers. The massive capital inflow within months has fundamentally altered liquidity structures and participant profiles in the crypto market. The subsequent approval of Ethereum ETFs further solidifies institutional confidence across the entire digital asset class.

However, the driving force behind TradFi’s deeper engagement is far beyond market speculation. It is propelled by an internal demand for strategic modernization. Under increasing competition and squeezed profit margins, financial institutions see blockchain technology as a key tool to achieve core objectives: first, improving operational efficiency through near-instant settlement and automated reconciliation, significantly reducing back-office costs and operational risks; second, opening new revenue streams via asset tokenization, digital asset custody, and trading services, reaching previously inaccessible markets and client segments; third, meeting client demands, especially from the new generation of high-net-worth and institutional clients seeking compliant crypto exposure.

From Deutsche Bank’s digital asset custody collaborations to BlackRock’s tokenized money market fund BUIDL, clear evidence shows that digital asset infrastructure is no longer on the periphery of financial business. It is rapidly becoming part of core institutional strategy. The entry of TradFi is not about disrupting itself but about leveraging new technology to strengthen its moat and expand its business boundaries. In this process, TradFi brings the scale, credibility, and stability that the crypto market urgently needs, while crypto technology offers efficiency, programmability, and new business model possibilities.

Core Drivers for TradFi Embracing Crypto Technology

• Operational Efficiency: Using blockchain for T+0 or real-time settlement, replacing traditional T+2 or longer processes, eliminating reconciliation friction, reducing operational costs and risks.
• New Revenue Streams: Developing tokenized funds, structured products, custody, and asset management services to tap into a multi-trillion dollar incremental market.
• Client Demand: Meeting the allocation needs of institutional clients, family offices, and younger investors for digital assets, preventing client attrition.
• Market Competition: Keeping pace with peers and competitors to avoid falling behind in the fintech transformation wave.

Regulatory Clarity: From Major Obstacle to Trust Foundation

In the early stages of cryptocurrency development, regulatory uncertainty was perceived as a “Damocles sword” hanging over the industry, considered the main barrier to institutional capital entry. Times have changed. The current regulatory environment is undergoing a fundamental shift—from a “roadblock” to a “paving stone” and trust cornerstone for healthy industry development. Clear regulatory frameworks introduced by major financial jurisdictions worldwide have cleared legal ambiguities, enabling large-scale institutional participation.

The EU’s Markets in Crypto-Assets Regulation (MiCA) has set a comprehensive regulatory benchmark globally, providing clear operational and investment guidelines for crypto service providers and investors. Meanwhile, the Basel Committee’s final framework on capital requirements for banks holding crypto assets, and the SEC’s approval of spot ETFs in the US, collectively bring urgently needed standardization and legitimacy to the field. These regulatory advances significantly alter the market ecosystem, reduce volatility caused by policy uncertainty, and allow institutions to access digital assets safely via licensed platforms and compliant custody solutions.

Today, regulation is no longer seen as an adversary to innovation. Instead, a robust, predictable regulatory environment is a prerequisite for building institutional trust. It ensures risk management, capital adequacy, and disclosure standards align with global financial norms. This rule-based trust enables TradFi institutions to confidently explore asset tokenization, participate in digital asset trading, and integrate blockchain into core business processes. In essence, current regulatory evolution is laying an institutionalized track for deeper integration of TradFi and cryptocurrencies, ensuring innovation flourishes within safe and stable boundaries.

Mutual Learning: DeFi Drawing from TradFi to Build Compliance Frameworks

The trend of integration is bidirectional. While TradFi strives to absorb blockchain’s transparency and automation advantages, decentralized finance is quietly evolving toward “professionalization” and “institutionalization.” DeFi actively learns from TradFi’s risk management, compliance processes, and governance structures refined over multiple economic cycles. This mutual learning has given rise to a popular hybrid model—CeDeFi, operating within a regulated framework that combines decentralized technology.

A prime example is protocols like Aave Arc, which offer permissioned liquidity pools with KYC verification, specifically serving institutional participants with strict compliance requirements. Additionally, mature governance mechanisms, financial reporting standards, and capital adequacy models from TradFi are increasingly being adapted and re-engineered for DeFi ecosystems. This hybridization allows institutions to enjoy DeFi’s high efficiency and yields while meeting strict safety and accountability standards through regulated custody and audited infrastructure.

Cases like Franklin Templeton’s OnChain money fund and JPMorgan’s tokenized collateral settlement for DeFi exemplify this trend. These demonstrate that DeFi is no longer an outsider incompatible with TradFi. By integrating TradFi’s compliance core, DeFi is transforming into an indispensable part of institutional-grade digital asset infrastructure. This evolution not only broadens DeFi’s user base and capital scale but also, through more rigorous risk controls, may help reduce systemic risks across the ecosystem, laying a more solid foundation for future financial innovation.

Future Outlook: Programmable Finance and the Trillion-Dollar RWA Market

The integration of TradFi and cryptocurrencies is no longer theoretical but a strategic reality reshaping the future of finance. Looking ahead, this process will accelerate along several clear main trajectories. In the short term, tokenization of real-world assets, stablecoin payment rails, and expanding regulated custody services will be the core drivers of institutional participation. Some forecasts suggest that by 2030, the total tokenized asset market could surpass $10 trillion, unlocking enormous potential in traditionally illiquid markets like real estate, private equity, and commodities.

In the longer term, the global financial ecosystem will become increasingly “hybridized.” We will witness the emergence of a new system combining blockchain transparency, programmability, and TradFi’s compliance and scale advantages. Specifically, we can expect: deeper integration between commercial banks and DeFi protocols, more “authorized DeFi” use cases; mature cross-chain liquidity and interoperability solutions enabling seamless capital flows across different digital asset networks; and the rise of programmable finance, where smart contracts automate not only trading but also complex settlement, reporting, compliance, and risk management processes.

For decision-makers in finance, this is a critical strategic window. The cost of hesitation may be falling behind in the future financial landscape. Proactive strategies should include establishing partnerships with compliant digital asset infrastructure providers for rapid capability acquisition; launching small-scale tokenization pilots for bonds, funds, and alternative assets to gain practical experience; and cultivating internal expertise on compliance frameworks, smart contracts, and DeFi risk models. This tech-driven fusion will ultimately determine which institutions lead the next chapter of global finance.