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FollowingTraditional financial institutions embrace blockchain: Not out of the concept of decentralization
Venture capital firm a16z pointed out in its latest report that traditional financial institutions (TradFi) are adopting blockchain technology to improve existing businesses, rather than out of recognition of decentralization. The technology helps reduce operating costs, speed up settlements, expand distribution, and "strengthen" control over customer relationships-making it a practical business tool rather than an ideological shift.
The blockchain layout of traditional finance
a16z stated that institutions are not integrated into decentralized finance (DeFi) as they are now. Instead, they only adopted those parts of DeFi that met their own regulatory, operational and risk requirements, and dropped other features. This selective approach is reshaping the blockchain-based financial system to be different from both traditional finance and existing DeFi. As a result, an emerging programmable financial infrastructure has emerged, designed to meet institutional needs while being based on blockchain technology.
According to a16z, JPMorgan's licensed blockchain for institutional deposits and BlackRock and Franklin Templeton's tokenized money market funds are not examples of institutions embracing DeFi. Instead, they are using blockchain to improve existing financial services such as interbank settlements, fund subscriptions and income-based products. These applications benefit from blockchain's programmability, transparency, and atomic settlement features, while deliberately avoiding core DeFi principles such as open access, pseudonym, and trustless execution. The focus is on improving the efficiency of traditional financial infrastructure, rather than fully embracing the original form of decentralized finance.
Cryptocurrencies should look beyond Wall Street.
The blockchain capabilities that institutions now employ were originally developed in open, permission-free ecosystems, rather than within banks or traditional financial companies. These environments allow developers to test new financial models and infrastructure. As a result, institutional adoption is largely based on innovations born in the open encryption ecosystem.
The report believes that the industry should not focus too much on banks and asset management companies just because they are important customers. Although traditional financial institutions represent an important source of demand, they do not define the full potential of the industry, and opportunities outside traditional finance should not be ignored.
"Designing to meet institutional needs is a reasonable and valuable pursuit, but it is just one lane, not the entire road."
