Exploring the Accelerating Convergence of Traditional and Decentralized Finance
Nelli Zaltsman, a blockchain innovation lead at JPMorgan’s Kinexys, recently claimed that the divide between traditional finance (TradFi) and decentralized finance (DeFi) could disappear within the next few yearscointelegraph.com. She predicts that the gap between TradFi and DeFi will close sooner than many expect, thanks to rapid technological advances and growing willingness of institutions to collaboratecointelegraph.com. This report examines how true that claim is by analyzing three key areas: market adaptation, technological readiness, and societal readiness. We will also consider the steps being taken toward convergence and counterpoints from those who remain skeptical.
Market Adaptation: Institutional Adoption and Industry Trends
Traditional financial institutions and investors are increasingly bridging the gap with the crypto and blockchain world. Major banks and asset managers are actively experimenting with or adopting digital asset technology: for example, JPMorgan has piloted a system using Chainlink to synchronize settlements across multiple blockchains, demonstrating how a bank’s on-chain deposits can transact on different networkscointelegraph.com. JPMorgan also launched a deposit token (JPM D+) on a public blockchain (Base network) to give clients on-chain liquidity while staying within the bank’s regulated systemcointelegraph.com. These moves signal that mainstream finance is moving on-chain in a controlled, compliant way.
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At the same time, leading asset managers are tokenizing traditional assets, bringing real-world value onto blockchain networks. BlackRock, the world’s largest asset manager, introduced a tokenized money market fund called BUIDL (BlackRock USD Digital Liquidity) on Ethereum in 2024. Within a year, this fund’s assets surged from $615 million to about $1.87 billion – tripling in just three weeks in early 2025 amid high demandcointelegraph.com. Industry observers noted that “the tokenization wave is hitting faster than most realize,” as institutional investors seek safer digital assets like tokenized U.S. Treasury billscointelegraph.com. In fact, overall tokenized real-world asset (RWA) markets are approaching record highs (~$20B on-chain) as more traditional assets are minted into blockchain formcointelegraph.com. TradFi institutions are beginning to view tokenized assets as a “serious bridge to DeFi,” especially for investment products with predictable yieldscointelegraph.com.
For example. BlackRock’s Ethereum-based tokenized fund (BUIDL) across various blockchains in Q1 2025. The fund’s value soared from $615M to $1.87B within three weekscointelegraph.com, reflecting surging institutional appetite for on-chain assets. (Source: Cointelegraph)
Broader market surveys and metrics also underscore rising institutional adaptation. A late-2024 EY-Parthenon and Coinbase survey of 350 institutional investors found that 83% plan to increase their digital asset allocations in 2025, indicating strong enthusiasm to integrate crypto into portfoliosey.com. These investors specifically cited regulatory clarity as the top catalyst for growth, along with interest in new products including DeFi protocols, stablecoins, and tokenized assetsey.com. Indeed, by the end of 2024 the total value locked in DeFi platforms had swollen to over $125 billion, a dramatic leap from around $0.5 billion in early 2020news.tokocrypto.com. Such growth suggests that not only retail users but also large institutions have begun allocating capital into DeFi, seeking yield and efficiencynews.tokocrypto.com.
Regulatory developments and mainstream financial products are further driving market convergence. The approval of the first U.S. Bitcoin spot ETF in late 2024 was hailed as a major milestone bringing crypto into traditional investment channels and legitimizing institutional participationnews.tokocrypto.com. In Europe, the comprehensive MiCA regulation now provides clearer rules for digital assets, giving banks and asset managers a defined legal framework to engage with cryptonews.tokocrypto.com. Financial hubs like Hong Kong and Singapore have also embraced progressive crypto policies, encouraging innovation and attracting traditional firms to the sectornews.tokocrypto.com. As regulatory certainty improves, financial institutions feel more confident entering the crypto market, which opens the door to wider expansion and adoption of these technologiesnews.tokocrypto.com.
Technological Readiness: Infrastructure and Innovation.
One reason the gap between TradFi and DeFi is closing is that blockchain technology has matured significantly in recent years. A decade ago, major banks had to build proprietary blockchain systems from scratch due to a lack of options, as Zaltsman notescointelegraph.com. Today, thankfully, that’s no longer the case – a wealth of robust public and private blockchain infrastructure now exists, and tooling has improved to “institutional-grade” levelscointelegraph.com. Improved infrastructure is a key driver in dissolving the old boundaries between traditional and decentralized financecointelegraph.com.
Notably, interoperability and scalability solutions have advanced, making it feasible to integrate with legacy financial systems. For instance, JPMorgan’s recent pilot using Chainlink’s Cross-Chain Interoperability Protocol enabled atomic settlement of transactions across multiple blockchainscointelegraph.com. This kind of technology allows different networks (and by extension, TradFi and DeFi platforms) to communicate and transact seamlessly. The result is that major banks can now connect traditional capital to digital asset markets in real time, a concept that was merely theoretical several years agocointelegraph.com. Likewise, new layers and sidechains (like Base, Polygon, Arbitrum, etc.) offer faster throughput and lower costs, making blockchain transactions more practical for high-volume financial uses.
Another innovation improving readiness is the rise of tokenization platforms and standards. Companies like Securitize are helping banks tokenize fund shares, bonds, and other securities on blockchain while handling compliance. The deposit tokens and stablecoins being issued by banks or in partnership with them illustrate how technology can bridge to TradFi’s core activities. Unlike public stablecoins, JPMorgan’s JPM D+ deposit token stays inside the bank’s balance sheet system but still interacts with public blockchains, effectively connecting on-chain liquidity with the bank’s traditional cash managementtradingview.com. This kind of hybrid model could be a blueprint for other institutions, leveraging blockchain’s speed and transparency without jettisoning the safeguards of traditional banking.
Moreover, security and compliance tech has improved to meet institutional standards. Advances in cryptography (like zero-knowledge proofs) and analytic tools now allow compliance checks and proof of reserves in DeFi platforms, which help reassure institutions. As Sergey Nazarov of Chainlink observed, modern cryptographic proofs and smart contracts can give smaller parties the same level of trust and reliability as top-tier banks, which unlocks new opportunities for broader participationcointelegraph.com. In short, the technology is increasingly ready for prime time: scalable networks, cross-chain operability, tokenization frameworks, and compliance integrations are either in place or rapidly developing. This technological readiness underpins Zaltsman’s optimism that TradFi–DeFi convergence is not a distant dream but an ongoing reality.
Societal Readiness: Public Adoption and Cultural Shift
Technology and institutional buy-in alone are not enough – the readiness of people (investors, consumers, and society at large) is also crucial for closing the TradFi–DeFi gap. Here, indicators show a mixed but increasingly positive picture. On one hand, public awareness of cryptocurrencies and digital assets is at an all-time high (over 90% globally according to some surveys), and a growing portion of the population owns or has used crypto. For example, in the United States roughly 1 in 5 adults (around 21%) now hold digital assets, and a majority of Americans familiar with crypto view it as having a positive impact or at least an important role in the future of financebitget.comsecurity.org. The stigma or mystery around crypto is fading as it gains mainstream media coverage and legitimacy through products like ETFs and corporate involvement.
Demographics are also tilting in favor of crypto adoption. Younger generations (Millennials and Gen Z), who are set to inherit trillions in wealth in coming decades, show particularly high interest in digital assets and decentralized finance. They have grown up in a digital world and are more inclined to trust technology-driven solutions. Their preferences are already influencing financial institutions: banks recognize that if they don’t offer crypto-related services, they risk losing the upcoming cohort of clientsnews.tokocrypto.com. This societal shift is pushing TradFi to adapt – from offering crypto trading and custody, to integrating blockchain for faster services – in order to meet customer demand and remain relevant. In short, people’s readiness is growing, especially among the young and tech-savvy, which supports the convergence trend.
However, it’s important to note that not everyone in society is ready or willing to embrace these changes just yet. Older and less tech-oriented customers may remain skeptical of cryptocurrencies due to perceptions of volatility, scams, or simply the unfamiliar, self-custodial nature of DeFi. Public trust in the crypto ecosystem was dented by high-profile failures and frauds in the early 2020s (exchange collapses, hacks, etc.), and it will take time to rebuild confidence. Additionally, many everyday users find direct interaction with DeFi protocols to be complex and intimidating. This has led to the rise of intermediary solutions (like fintech apps or banks offering “crypto lite” services) to make the experience friendlier. In essence, societal readiness is improving but uneven – a significant portion of people are enthusiastic or at least open-minded, while others remain cautious. For the TradFi–DeFi gap to truly close, the industry will need to continue building trust, improving user experience, and educating the public about the benefits (and risks) of decentralized finance.
Challenges and Counterpoints: Why the Gap May Not Close Overnight
While momentum is clearly pushing TradFi and DeFi closer together, not everyone agrees that full convergence is imminent. There are several challenges and skeptical viewpoints worth considering:
Regulatory Uncertainty & Risk Aversion: Traditional financial institutions are, by nature, cautious and heavily regulated. In many jurisdictions, crypto regulations remain unclear or inconsistent, which makes banks hesitant to fully dive in. Variations in rules and a lack of global standards – along with concerns about privacy on public blockchains – “widen the gap between DeFi and TradFi,” keeping institutions at arm’s length for nowcointelegraph.com. Banks cannot afford to violate compliance norms, and the open, pseudonymous nature of many DeFi platforms poses due diligence challenges. As long as regulators haven’t clearly labeled what is permissible, many TradFi players will limit their crypto exposure to small pilots or parallel offerings. In fact, a 2024 Fidelity survey found a notable percentage of institutions still citing regulatory ambiguity as a barrier to investing in digital assetsainvest.com.
Security and Trust Concerns: Incidents of smart contract hacks, protocol failures, and fraud in the crypto space make headlines and reinforce a perception that DeFi is “unmanageable risk” for big institutionscointelegraph.com. For banks that prioritize stability and risk management, the idea of plugging into open protocols that could have hidden bugs or be exploited is daunting. DeFi must mature and “clean house” – improving security audits, implementing robust risk controls, and perhaps integrating insurance – before TradFi is comfortable moving beyond experimental stakescointelegraph.comcointelegraph.com. In an opinion piece, blockchain CEO Roy Mayer argued that until DeFi platforms prove they can enforce compliance (KYC/AML) and protect users, mainstream finance will keep its distance, engaging only at the periphery of crypto marketscointelegraph.com.
Cultural and Ideological Gaps: There is also an inherent culture clash. DeFi originated with a vision of decentralization, disintermediating banks and giving individuals more direct control. Some crypto purists are actually resistant to TradFi’s involvement, fearing that the entry of big banks could undermine decentralization or impose TradFi’s rules onto open protocolscointelegraph.com. Conversely, many in traditional finance remain skeptical of the libertarian ethos in crypto. Bridging this divide requires compromise and mutual understanding. We are seeing some of that – with DeFi projects embracing compliance and TradFi acknowledging the efficiency of blockchain – but ideological differences could slow a seamless merger of the two worlds.
Infrastructure Limitations: Despite significant progress, today’s blockchain tech isn’t perfect. Scalability remains an issue for many public chains (though layer-2 networks help), and interoperability standards are still evolving. High transaction fees at times, slow speeds for certain networks, and the complexity of managing private keys all pose practical hurdles. Traditional finance systems process enormous volumes with near-instant throughput (e.g. credit card networks), and matching that scale and reliability in a decentralized context is a work in progress. Additionally, integrating legacy banking systems with blockchain platforms is technically complex and costly – many banks are still running on decades-old core software. These challenges mean that the TradFi–DeFi gap may persist in certain areas until technology improves further or integration costs come down.
Despite these counterpoints, the general trend leans toward convergence over time. Even skeptics acknowledge there are opportunities for collaboration between TradFi and DeFi once key issues (regulatory clarity, security, compliance) are addressedcointelegraph.comcointelegraph.com. As one analysis put it, both sides stand to benefit from cooperating: DeFi can gain credibility, liquidity, and a broader user base, while TradFi can gain efficiency and new revenue streams by embracing innovationcointelegraph.com. The question is not so much if the gap will close, but how and when.
Conclusion: A Closing Gap, Not Yet a Closed Gap
In summary, Nelli Zaltsman’s optimism about TradFi and DeFi merging is grounded in real developments. The gap between traditional finance and decentralized finance is narrowing: large financial institutions are dipping ever deeper into blockchain-based markets, and the technology has advanced to a point where such integration is both feasible and beneficial. Market adaptation is evident in the billions of dollars flowing into tokenized assets and DeFi platforms, fueled by institutional interest and improving regulatory conditionsnews.tokocrypto.comcointelegraph.com. Technologically, the rails needed to connect old and new finance are being built – from cross-chain protocols to bank-issued digital tokens – making Zaltsman’s vision increasingly plausiblecointelegraph.comtradingview.com.
However, saying the gap “will disappear within a few years” may be somewhat ambitious. There are still hurdles to overcome in terms of regulation, risk management, and public trust. Many stakeholders, including cautious regulators and certain crypto die-hards, are not fully ready to embrace a total convergence. Instead, what we are likely to witness is a gradual blending: incremental steps where parts of TradFi adopt DeFi innovations (for efficiency and access) while parts of DeFi adopt TradFi principles (for stability and trust). Early signs of this mutual adaptation are already here – from banks tokenizing assets to DeFi protocols implementing compliance toolscointelegraph.comcointelegraph.com.
Ultimately, the divide is closing and the two ecosystems are learning from each other. In the near future, we can expect hybrid models of finance that draw on the strengths of both worlds: the trust, scale, and regulatory frameworks of TradFi combined with the openness, speed, and programmability of DeFi. Society is slowly warming up to these changes, especially as successful use-cases (like cheaper cross-border payments or new investment opportunities) demonstrate real valuenews.tokocrypto.comcointelegraph.com. In conclusion, Nelli Zaltsman’s assertion appears largely valid – technology is accelerating the convergence of traditional and decentralized finance. The gap is on track to close, but achieving a fully unified financial system will involve continuing efforts in building infrastructure, fostering market confidence, and ensuring people are prepared to trust and use these new tools. The coming years will reveal just how fast this convergence can happen, but all signs point to a financial future where the line between TradFi and DeFi is increasingly blurred and eventually, effectively erased.
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