Traditional financial institutions are adopting blockchain technology to improve operational efficiency, not to embrace decentralized finance, according to venture capital firm a16z. The firm stated in its latest report that TradFi firms are selectively using elements of DeFi that meet their regulatory and risk requirements while leaving behind features like open access and pseudonymity. The technology helps lower costs, speed up settlements, and tighten customer relationships, making it a practical business tool rather than an ideological shift. a16z noted that the industry should not focus solely on Wall Street, as opportunities beyond traditional finance should not be overlooked.
a16z said in its latest report that institutional adoption of blockchain is not an extension of DeFi. Traditional financial institutions are adopting the technology to improve existing operations, not because they have embraced decentralization.
The technology helps lower operating costs, speed up settlement, expand distribution, and “tighten its grip” on customer relationships. Institutions are not blending into DeFi as it exists today, but instead adopting only the elements that fit their regulatory, operational, and risk requirements.
Initiatives from JPMorgan, BlackRock, and Franklin Templeton are examples of using blockchain to improve interbank settlements and fund subscriptions. These projects intentionally avoid core DeFi principles like open access and trustless execution.
The report argued that the industry should not focus too heavily on banks and asset managers. “Designing for institutional requirements is a legitimate and valuable pursuit, but it is only one lane, not the whole road,” it stated.
Blockchain capabilities now being adopted by institutions were first developed in open, permissionless ecosystems. Those environments allowed developers to test new financial models before being adopted by traditional finance.
