Last summer, a report from Fidelity Asset Management discovered that 80% of the financial institutions surveyed had an interest in crypto, though only 36% were invested in the industry at the time, primarily in Bitcoin-related products. Many of these institutions valued the benefits of this new asset class and the opportunities presented by blockchain technology but remained sidelined due to regulatory uncertainty and the lack of necessary tools and infrastructure.
Fast forward a year, and participation across the broader decentralized finance market has scaled up dramatically. DeFi Pulse reported a total locked value (TLV) across DeFi platforms exceeding $85 billion at one point, demonstrative of increasing adoption beyond hobbyists and into the institutional space.
By leveraging smart contracts, DeFi is increasingly replicating a range of traditional financial services, delivering the high throughput transaction volume that institutions require, at low cost, and without the inefficiency of existing intermediaries. While it’s still early, the disintermediation of the legacy system through the development of new decentralized infrastructure rails is underway.
Let’s dive deeper and explore some of the projects leading the institutional landscape for crypto solutions and what they are building.
Blockchain-as-a-Service platform Stratis was designed to make decentralized adoption easier for businesses by offering several products and services for enterprises that work seamlessly with their legacy operations. Boosted by a recent investment from digital asset fund Alphabit, these include private sidechains, running full nodes, developing and deploying smart contracts, token launches, and a proof-of-identity application at scale.
The Stratis ecosystem enables global firms to adapt their existing IT infrastructure by integrating blockchain features in a familiar programming language for everyday developers. The Stratis Identity solution delivers a decentralized method of KYC and AML verification for businesses to comply with regulations, its STO platform provides a compliant digital launchpad for business security token offerings, and its auditable smart contracts are especially suitable for the development of enterprise blockchains that are compatible with the DeFi space.
Onomy Protocol is based on the fundamental assumption that the world’s financial framework is destined to migrate on-chain within the foreseeable future. It therefore proposes a reserve-based migration of traditional financial markets to the DeFi realm by delivering an interoperable, composable, and scalable blockchain infrastructure. Through a multi-layered approach, Onomy allows the minting, trading, and lending of tokenized fiat currencies. These stablecoins may be traded cross-chain, but also exchanged within the Onomy DEX, emulating the $6.6T per day Forex market.
Powered by the ONET, a Cosmos-based blockchain network with 100x the scalability of Ethereum, Onomy reduces the costs and delays in transacting globally and provides both institutions and retail users with a frictionless and intuitive gateway to the DeFi realm.
The self-sustaining and decentralized blockchain network Algorand allows centralized systems to create and deploy tokens, NFTs, stablecoins, securities, and currencies with a low-cost payment infrastructure that delivers throughput capable of 46,000 transactions per second.
Having already partnered with HSBC, Diem (Facebook), and SWIFT regarding the future of frictionless payment solutions, institutions are increasingly building on Algorand and connecting with fintechs, startups and DeFi platforms on the network. For example, SIAE, one of the largest rights management companies, has launched 4 million NFTs on Algorand. More recently, a partnership with security platform Curv allows institutions to build secure wallet functionalities into applications.
CasperLabs is delivering a blockchain developed explicitly for enterprise usage, lowering the barriers of entry to institutional adoption. Its unique protocol enables flexible finality and adjustable block times, allowing for faster transaction settlement to suit enterprise needs. Secure custody is also available via its BitGo partnership.
Casper allows enterprises to choose between public, permissioned, or private network iterations without sacrificing security or performance, with upgradeable contracts to improve applications over time, predictable gas fees regardless of network activity, on-chain governance, and WebAssembly support to ensure quick onboarding.
Concordium offers a privacy-centric, public, and permissionless blockchain built for business. Its built-in user identity at the protocol level provides regulatory compliance by design, allowing institutions with previous privacy concerns to harness the power of blockchain technology for the first time.
With high throughput transactions for a global scale, Concordium also provides provable and fast finality, white-label architecture, and easy-to-deploy smart contracts on a future-proof network that is interoperable with the broader ecosystem.
Not to be outdone by the range of crypto-native solutions building out the infrastructure needed to boost institutional adoption, legacy firms are getting in on the act too, with companies like JP Morgan making its version of the Ethereum blockchain Onyx available to traditional clients.
Goldman Sachs recently became the latest addition to its blockchain-based network for repurchase agreements using smart contracts.
Challenges remain, with scalability, interoperability, and regulatory clarity being mandatory if the shift toward institutional adoption of decentralized finance is to be maintained. Regardless of how the institutional crypto space develops, it’s clear that the benefits of DeFi will continue to disrupt the financial systems of the past, disintermediating legacy infrastructure that fails to adapt.