Institutional investors are the lifeblood of any economy. When they enter a new market, prices tend to go up as they buy what they believe is high-quality inventory. In the world of DeFi, institutional investors have largely stayed on the sidelines due to a lack of understanding and fear of risk. But is this starting to change? And if it is, could this be the start of massive adoption for DeFi?
Luckily, the answer is yes
The past year has seen a lot of progress in decentralized finance (DeFi), with new projects and protocols popping up nearly daily. This rapid growth has led many to believe that DeFi is on the verge of being adopted by mainstream financial institutions.
By 2021, US 10-year treasuries were only yielding a little higher than 1%. But when we compare them to stablecoins that offer between 2% and 12%, as well exotic DeFi protocols which can yield upwards of 250%, it’s clear why 80% percent or more institutions across America have expressed interest in digital assets.
But the journey towards institutional adoption of DeFi will not occur instantaneously. As with all emerging technology, familiarity leads to increased awareness and use in everyday life for businesses who are already comfortable trading Bitcoin futures or holding digital assets on their balance sheets, as well as those yet unfamiliar but want a more accessible way into this new space without having deal entirely manually themselves – especially once there’s been enough time spent getting everything set up properly so it can meet your need.
The early adopters have been rewarded for their loyalty. In just two years, many financial service institutions have started implementing cryptocurrency and blockchain technology into everyday business practices, which will likely give them an edge over competitors who are still trying out new things with payment processing systems or other technologies.
The financial world has been abuzz lately with stories of major banks reopening their trading desks for digital assets. Goldman Sachs, Morgan Stanley and America’s oldest bank BNY Mellon have all announced that they will offer clients exposure to cryptocurrencies through various means – including offering traditional investment services alongside cryptocurrency-related products like futures contracts or exchange-traded funds (ETF).
The news was not only good reportedly coming out of these firms but also an indication of how quickly this industry is growing; it’s no surprise why many investors are excited about what may lie ahead.
In June 2021, Microstrategy added more Bitcoin to its balance sheet. CEO Michael Saylor recognized that Ethereum was disrupting traditional finance with its use of blockchain technology, allowing for faster and cheaper transactions. This shift in interest from BlackRock comes at a time when other large companies are starting to recognize how lucrative digital assets can be – such as JPMorgan developing an upcoming tokenized platform where clients will have access not only to transfer payments instantaneously but also trade stocks on exchange platforms without having actually purchased them.
As of Q1 2021, HSBC is one of many banks pursuing blockchain-related projects. They have joined forces with other financial institutions and governments worldwide to develop this new technology for various uses, such as trading cryptocurrencies or settling trades between companies that do not use traditional finance systems like PayPal.
With such a shift in global policy, it is no wonder that major banks are now exploring blockchain technology. The list of those pursuing this trend includes many well-known names and newer players, such as Mitsubishi UFJ Financial Group or Signature Bank.
The recent innovations of the open-source Ethereum community have shown that traditional financial institutions can be replaced with new ways to save, store and send money. In time it may even serve as a replacement for cash.
With increasing deployment by crypto firms combined alongside booming adoption rates among both Bitcoin users who want more security when dealing in digital assets or those looking into blockchain technologies, there seems like mass institutionalization is imminent – bringing about an entirely different future where we’ll rely less on banks but instead trust our funds through software programs such as DeFi tools offered by startups and seasoned financial industry players alike.