Decentralized Finance and Tokenization Growth Still Disappoints: JPMorgan

The growth of decentralized finance (DeFi) and asset tokenization continues to underwhelm, JPMorgan's Nikolaos Panigirtzoglou said in a research report Wednesday, citing the stagnant recovery since the 2022 crypto winter.

Total Value Locked (TVL) in DeFi remains below 2021 highs, with most activity still driven by crypto-native and retail users, the report noted.

Institutional adoption has lagged despite the development of compliance-ready infrastructure, such as permissioned lending pools and KYC-enabled vaults, Panigirtzoglou wrote.

Major barriers remain. Institutions face regulatory fragmentation, legal uncertainty around on-chain assets, and concerns about smart contract security, the analysts wrote. As a result, most institutional crypto activity remains concentrated in bitcoin (BTC).

Tokenization has also struggled to deliver. While the sector has seen some traction, with $25 billion in tokenized assets, $8 billion in tokenized bonds, and growing adoption in money market funds, most initiatives remain small, illiquid, or experimental, the bank said. Prominent efforts like BlackRock’s BUIDL and Broadridge’s Distributed Ledger Repo (DLR) platform offer efficiency gains, but lack scale.

Panigirtzoglou noted that in private markets, tokenization is heavily concentrated among a few players and lacks meaningful secondary market activity.

Many traditional investors remain skeptical, especially given blockchain’s transparency, a drawback for institutions that favor opaque trading venues like dark pools, according to the report. The continued rise of off-exchange equity trading illustrates this preference.

Despite regulatory initiatives like the SEC’s “Project Crypto,” Panigirtzoglou doubts whether rule changes alone can overcome the deeper issue: traditional finance doesn’t yet see a clear need for blockchain.

Fintech has already improved speed and efficiency within the current system, reducing the urgency to adopt tokenized alternatives, the report added.

Read more: SEC Chief Paul Atkin's Project Crypto Flying Under Radar Amid Market Selloff: Bernstein

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