JPMorgan Reports Sluggish Progress in DeFi and Asset Tokenization Sectors

Despite early optimism, the growth of decentralized finance (DeFi) and asset tokenization remains underwhelming, according to JPMorgan. In a new research report, analyst Nikolaos Panigirtzoglou said both sectors have struggled to rebound meaningfully since the 2022 market downturn, with adoption still limited largely to retail and crypto-native users.

“DeFi’s total value locked (TVL) remains well below its 2021 peak,” the report noted. While the ecosystem has stabilized, it has yet to regain momentum or attract sustained institutional involvement.

Institutions Remain on the Sidelines

Even as compliance-focused infrastructure has improved—through the introduction of permissioned lending pools and KYC-enabled vaults—traditional institutions have been slow to engage. JPMorgan pointed to persistent barriers including regulatory fragmentation, legal uncertainty around digital assets, and ongoing concerns over smart contract security.

Due to these challenges, institutional exposure to crypto remains primarily concentrated in bitcoin.

Tokenization Struggles to Scale

The report also flagged disappointing progress in the tokenization of traditional financial assets. Although tokenized markets have grown to $25 billion—including $8 billion in tokenized bonds—many initiatives remain small, experimental, and illiquid.

Projects like BlackRock’s BUIDL fund and Broadridge’s Distributed Ledger Repo (DLR) system have demonstrated some efficiency gains but haven’t yet achieved scale or broad adoption.

“In private markets, tokenization remains dominated by a small number of players and suffers from a lack of secondary market activity,” Panigirtzoglou wrote.

Blockchain Transparency Seen as a Drawback

One major obstacle to broader institutional adoption is the transparent nature of blockchain itself. Many traditional investors favor private, opaque trading environments—like dark pools—and remain hesitant to shift to fully transparent platforms.

Even with regulatory initiatives such as the SEC’s “Project Crypto,” which aims to modernize market rules to accommodate blockchain-based systems, JPMorgan remains skeptical.

“The core issue isn’t regulation—it’s relevance,” the report concluded. “Fintech innovations have already enhanced speed and efficiency within the current system. For most of traditional finance, blockchain still doesn’t offer a compelling reason to switch.”