TradFi Is Moving Toward On-Chain Finance, As U.S. Crypto Policy Shapes Crypto Adoptions

Traditional Finance (TradFi) is increasingly engaging with on-chain finance, but its readiness is a mixed bag, shaped by opportunities, hurdles, and ongoing developments. On-chain finance, powered by blockchain, offers compelling advantages over traditional systems.

Near-instant settlement (e.g., T+0 vs. T+2) reduces capital tied up in limbo, potentially unlocking billions. For instance, the DTCC’s Project Ion processes over 100,000 daily equity transactions using distributed ledger technology (DLT), slashing reconciliation costs. Immutable ledgers ensure auditable, tamper-proof records, fostering trust.

fund on-chain via DLT Shares, using blockchain for real-time settlement and 24/7 access. This builds on their BUIDL fund, which hit $1.7 billion in assets on Ethereum and expanded to multiple chains like Solana.

JPMorgan’s JPM Coin processes $1 billion daily in settlements, while BNY Mellon, Citi, and Goldman Sachs are running pilots for tokenized bonds and custody solutions. Stablecoin transaction volumes hit $700 billion monthly in early 2025, with regulatory frameworks like the EU’s MiCA boosting confidence for banks to issue compliant stablecoins.

Firms like Morgan Stanley and UBS are exploring tokenization of real-world assets (RWAs), with projections estimating a $30 trillion RWA market by 2034. Improving regulations, such as the EU’s MiCA and the U.S. Stablecoin Bill, are providing frameworks for compliance, reducing risks for institutions. Posts on X also highlight a U.S. shift toward crypto-friendly policies, including potential “innovation exemptions” for startups.

Platforms like Chainlink, Securitize, and R3 Corda are building institutional-grade solutions, integrating compliance (e.g., KYC/AML) with blockchain’s benefits. Chainlink, for instance, is noted for meeting 70-90% of institutional requirements for on-chain transactions. Legal frameworks for DeFi and tokenized assets are still evolving. KYC/AML compliance is a major concern, as anonymous DeFi protocols don’t align with TradFi’s strict mandates.

Jurisdictional differences create fragmentation, slowing adoption. A Binance spokesperson noted that inconsistent policies across regions pose risks for institutions. Public DeFi protocols aren’t designed for plug-and-play with legacy banking infrastructure, requiring significant investment in new systems and smart contract expertise.

Traditional financial networks handle 65,000+ transactions per second (TPS), while most blockchains (even Layer 2 solutions like Polygon) struggle to match this throughput. Emerging Layer 1 solutions like DevvE are addressing this, but they’re not yet at scale. Vulnerabilities and user errors remain concerns, as TradFi expects robust protective infrastructure that’s still developing.

DeFi’s permissionless, experimental ethos clashes with TradFi’s risk-averse, hierarchical culture. Many executives lack a deep understanding of decentralization, leading to reputational and control concerns. Complex user interfaces, unpredictable gas fees, and concepts like impermanent loss are foreign to traditional portfolio managers, necessitating hybrid solutions like permissioned DeFi.

Blockchain’s promise hinges on robust security, but high-profile failures (e.g., the $165 million ASX blockchain upgrade flop in 2022) highlight risks. Smart contract flaws or private key breaches could freeze millions in assets. TradFi is adopting a “walk-before-run” strategy, maintaining legacy systems alongside pilots to mitigate risks.

Protocols like Aave and Compound offer overcollateralized lending and KYC-gated pools (e.g., Aave Arc), providing predictable yields. Singapore’s MAS Project Guardian used Aave Arc for institutional bond trades, signaling viability. Lower liquidity and network speed requirements make this appealing, with credit endorsements reducing counterparty risk. Less mature sectors like decentralized derivatives face higher regulatory scrutiny and leverage risks, delaying adoption.

TradFi is not yet fully ready for on-chain finance due to regulatory, technical, and cultural hurdles, but the shift is inevitable. The efficiency, transparency, and liquidity of blockchain are too compelling to ignore, with institutions like BlackRock, JPMorgan, and Goldman Sachs already laying the groundwork. Over the next 12-18 months, expect a quiet but monumental shift as tokenized RWAs, stablecoins, and compliant infrastructure bridge the gap.

Recent U.S. Crypto Policy Frameworks Has Help Shaped Crypto Adoptions Amongst Institutional Investors

Recent U.S. policy shifts have significantly paved the way for institutional cryptocurrency adoption, marking a departure from previous regulatory uncertainty.

On January 23, 2025, President Trump issued an executive order titled “Strengthening American Leadership in Digital Financial Technology,” which revoked prior restrictive policies and emphasized regulatory clarity, financial inclusivity, and protection of blockchain activities like self-custody and mining.

This order also proposed evaluating a national digital asset stockpile using seized cryptocurrencies and banned a U.S. central bank digital currency (CBDC) while supporting USD-backed stablecoins. GENIUS Act: Signed into law on July 18, 2025, the Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act established a regulatory framework for stablecoins, treating issuers as financial institutions under the Bank Secrecy Act with requirements for KYC, AML, and sanctions compliance.

This has legitimized stablecoins, attracting institutional players like BlackRock and boosting market stability. In April 2025, the Federal Reserve, OCC, and FDIC relaxed restrictions, allowing banks to engage in crypto custody, stablecoin issuance, and blockchain infrastructure development with robust risk management. This shift from defensive to integrative regulation reflects market maturity and geopolitical considerations, enabling banks to offer crypto services.

The SEC scaled back its crypto enforcement unit and launched “Project Crypto” under Commissioner Paul Atkins to modernize securities rules for on-chain assets. A Crypto Task Force, led by Hester Peirce, is working on clearer regulations, addressing issues like asset classification and registration processes.

Trump’s March 7, 2025, executive order established a U.S. Bitcoin reserve and digital asset stockpile, using forfeited assets. This move legitimizes Bitcoin as a strategic asset, encouraging institutional investment and potentially influencing global financial policies. These changes have driven significant institutional engagement.

For instance, Binance secured a $2 billion investment from MGX in March 2025, and institutions now hold nearly 15% of Bitcoin’s supply, with $108 billion in Bitcoin ETFs. The crypto market cap reached $3.71 trillion by December 2024, reflecting a 98% year-over-year increase. However, risks like cybersecurity, AML compliance, and liquidity challenges remain, requiring robust oversight.

While these policies enhance liquidity and market maturity, some argue they favor institutional control, potentially undermining crypto’s decentralized ethos. Smaller Web3 startups may struggle to compete, and regulatory compliance could stifle innovation if overly stringent. Nonetheless, the U.S. is positioning itself as a leader in digital finance, with global implications as other nations consider similar reserves.

While the GENIUS Act aligns the U.S. with jurisdictions like the EU and Hong Kong, which have stablecoin regulations, critics argue it lacks global coordination. Foreign jurisdictions, including China and the EU, express concerns about dollar-denominated stablecoins increasing dollarization and threatening monetary sovereignty.

The absence of global standards could lead to fragmented regulations, complicating compliance for international crypto firms. Critics, including Rep. Maxine Waters and Rep. Rashida Tlaib, argue that the legislation may favor President Trump’s personal crypto ventures (e.g., $TRUMP token, World Liberty Financial), raising conflict-of-interest concerns.

The Anti-CBDC Act, which bans a U.S. central bank digital currency, may hinder innovation in cross-border payments and position the U.S. as an outlier, as countries like China and the EU advance CBDC pilots. This could cede global financial leadership to rivals.

While established crypto firms already comply with AML/KYC requirements, new entrants face significant costs to meet the GENIUS Act’s standards, including reserve backing, audits, and registration. This could favor larger players and stifle smaller startups.